<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION NO. 333-56503
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
OPEN SOLUTIONS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 22-317350
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
300 WINDING BROOK DRIVE
GLASTONBURY, CONNECTICUT 06033
(860) 652-3155
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DOUGLAS K. ANDERSON
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
OPEN SOLUTIONS INC.
300 WINDING BROOK DRIVE
GLASTONBURY, CONNECTICUT 06033
(860) 652-3155
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK G. BORDEN, ESQ. JOHN J. EGAN III, ESQ.
PHILIP P. ROSSETTI, ESQ. JEFFREY C. HADDEN, ESQ.
HALE AND DORR LLP GOODWIN, PROCTER & HOAR LLP
60 STATE STREET EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02109
TELEPHONE: (617) 526-6000 TELEPHONE: (617) 570-1000
TELECOPY: (617) 526-5000 TELECOPY: (617) 523-1231
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share........ 3,220,000 $12.00 $38,640,000 $11,399
- ----------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 420,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
(3) A registration fee of $11,800 was previously paid by the Registrant upon its
initial filing of this Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
JULY 17, 1998
2,800,000 SHARES
[OPEN SOLUTIONS LOGO]
COMMON STOCK
------------------------
Of the 2,800,000 shares of Common Stock ("Common Stock") offered hereby,
2,617,000 are being sold by Open Solutions Inc. ("OSI" or the "Company") and
183,000 are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for the factors
to be considered in determining the initial public offering price. Application
has been made for the listing of the Common Stock on the Nasdaq National Market
under the symbol "OSIF."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share ................. $ $ $ $
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Total(3) .................. $ $ $ $
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</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting estimated expenses of $900,000, all of which will be
payable by the Company.
(3) The Company and certain stockholders of the Company have granted to the
Underwriters a 30-day option to purchase up to 420,000 additional shares of
Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1998.
BT ALEX. BROWN
CREDIT SUISSE FIRST BOSTON
WARBURG DILLON READ LLC
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
[OPEN SOLUTIONS LOGO]
THE POWER OF CLIENT/SERVER
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK IN
CONNECTION WITH THE OFFERING, INCLUDING OVER-ALLOTMENT, STABILIZING AND
SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Open Solutions Inc. is a registered trademark, and The Complete Banking
Solution and The Complete Credit Union Solution are trademarks, of Open
Solutions Inc. All other trademarks or trade names referred to in this
Prospectus are the property of their respective owners.
2
<PAGE> 4
[DESCRIPTION OF LEFT HALF OF INSIDE FRONT COVER FOLDOUT GRAPHICS]
Product Preview
Four images of screens from the OSI system "The Complete Banking Solution" are
displayed along the left side of the page with text describing each screen
immediately to the right.
(Screen 1) The screen is the home screen of the Customer Service
Representative module. The screen contains a command line at the top of a large
yellow tickler field in the middle of the screen.
ENHANCED CUSTOMER SERVICE: Information concerning customers and prospects is
easily captured, updated and accessed. The entire customer relationship can be
viewed from any desktop, and the system prompts the user with timely
suggestions, reminders and cross-selling opportunities. The result is customer
service that is comprehensive, effective and personal.
(Screen 2) The screen is the "Edit Person" screen from the Customer
Service Representative Module. The screen contains a number of data elements on
the left side of the screen and images of the customer's face and signature on
the right.
COMPLETE CUSTOMER PROFILE: One screen displays the customer's photograph,
signature, and other identifiers, eliminating the need for a driver's license
or other identification.
(Screen 3) The screen is the "Payoff Inquiry" screen from the lending
module. The screen contains a number of data elements at the top and detailed
payoff information at the bottom that is adjustable with a scroll bar.
CONSOLIDATED PAYOFF INQUIRY/TRANSACTION: A loan payoff need not involve
numerous computer transactions. Loan balance, interim interest charges, escrow
balance, mortgage insurance premiums due, late charges and other relevant data
can be viewed on one screen. The "Payoff" button activates the transaction and
completes the payoff, indicating the loan balance due to the bank or to the
borrower.
(Screen 4) The screen is the "Edit Additional Property" screen from
the Lending module. The screen contains a number of data elements on the left
side of the screen and an image of a residential property on the right.
UP-TO-DATE COLLATERAL INFORMATION: A complete description of the latest
appraisal and all specifics regarding loan collateral, whether a home, car or
other property, can be obtained real-time. Appraisal information is easily
updated.
[DESCRIPTION OF RIGHT HALF OF INSIDE FRONT COVER FOLDOUT GRAPHICS]
OSI PRODUCTS
THE COMPLETE BANKING SOLUTION
THE COMPLETE CREDIT UNION SOLUTION
A three-dimensional circle at the center with the label "OSI System."
Surrounding the inner circle is a three-dimensional ring with connecting pipes
to the inner circle with the following text within the ring: " Internet/Home
Banking -- Lending -- Depository -- Teller/Platform -- ATM -- Operations." A
second ring surrounds the first ring with the following text within the ring:
"Third-Party Products -- Item Processing -- Imaging -- Electronic Forms --
Interactive Voice Response -- Cash Management -- General Ledger." A third ring
surrounds the entire graphic with the following text within the ring:
"Commercial Banks -- Thrifts -- Credit Unions."
The following text appears below the graphic described above.
"The Complete Banking Solution" and "The Complete Credit Union Solution"
(collectively, the "OSI System") from Open Solutions Inc. ("OSI") are fully-
integrated suites of financial applications that operate in a Microsoft Windows
NT environment with an Oracle relational database. The OSI System interfaces to
third-party applications that are commonly used in banks and credit unions and
is designed to enable OSI's customers to reduce their core data processing and
operational costs and to leverage their customer information.
[Open Solutions logo]
The Power of Client/Server
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information
contained in this Prospectus (i) reflects the conversion of all outstanding
shares of the Company's Series A-1, Series A-2, Series B, Series C and Series D
Preferred Stock (the "Convertible Preferred Stock") into an aggregate of
5,308,472 shares of Common Stock at the closing of this offering and (ii)
assumes no exercise of the Underwriters' over-allotment option. This Prospectus
contains forward-looking statements which involve risks and uncertainties. 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" and elsewhere in this Prospectus.
THE COMPANY
Open Solutions Inc. (the "Company") is a leading provider of client/server
core processing software and related services to small to mid-size banks and
credit unions. The Company has developed The Complete Banking Solution and The
Complete Credit Union Solution (the "OSI System"), which are fully-integrated
suites of banking and credit union applications that operate in a Microsoft
Windows NT environment with an Oracle relational database. The Company's
software supports all of an institution's core processing requirements,
including deposits and loans, teller functions, home/Internet banking and
platform automation. The OSI System enables banks and credit unions to enhance
customer satisfaction and compete more effectively in the financial services
industry.
Currently, there are over 20,000 banking and depository institutions in the
United States with assets of up to $3 billion, including small to mid-size
commercial banks, thrifts and credit unions. The Company believes that these
institutions, which have traditionally competed on personalized service, are
facing increasing competitive pressures and are seeking to implement information
technology systems that provide a competitive advantage. Banks and credit unions
also require core processing systems that are able to accommodate new and
emerging technologies, such as automated teller machines ("ATMs"), telephone
banking and home banking via personal computers and the Internet. These
institutions have traditionally fulfilled their information technology needs
through legacy computer systems, operated either by the institution or a service
bureau on an outsourced basis. These legacy systems are not easily integrated
with other applications used in the enterprise, typically do not provide
real-time transaction processing and are not easily adapted to evolving business
needs and regulatory requirements.
The need to improve customer service levels, enhance operating efficiencies
and lower costs has contributed to the growing acceptance of the client/server
model of computing based on open, industry-standard operating environments and
relational databases. Client/server systems can improve information sharing by
providing access at each desktop to critical customer and transaction data.
Until recently, the adoption of client/server systems in many banks and credit
unions has lagged other industries due to the limited number of suppliers of
open client/server systems designed specifically to address the core processing
requirements of such institutions. The Company believes that fewer than 200
small to mid-size banks and credit unions in the United States have implemented
open client/server core processing systems.
The OSI System is a client/server software solution that is designed to
enable the Company's customers to reduce their core processing and operational
costs and to leverage their customer information to improve retention and
identify potential cross-selling opportunities. In addition to providing
comprehensive core processing functionality, the OSI System interfaces to
third-party applications that are commonly used in banks and credit unions,
including check processing, ATMs and general ledger applications. The OSI System
can reduce the overall cost of ownership of a financial institution's core
system. By integrating core banking functions, which have historically run
3
<PAGE> 6
on separate systems, the OSI System enables its customers to achieve operational
efficiencies. The OSI System can also reduce the costs that would otherwise be
associated with the ongoing maintenance of legacy systems.
The Company's objective is to be the leading supplier of enterprise-wide
client/server software for small to mid-size banks and credit unions. The
Company's strategy for achieving this objective includes the following: (i)
continue to focus on small to mid-size banks and credit unions, (ii) expand
distribution through outsourcing solutions, (iii) leverage customer base and
(iv) maintain product leadership.
The Company markets its software and services primarily through its direct
sales force. To expand its distribution capabilities, the Company has also
established strategic relationships with The BISYS Group, Inc., a major national
outsourcing provider, and Connecticut On-Line Computer Center, Inc., a major
regional outsourcing provider, under which these third parties provide
outsourced processing services to the financial services industry using the OSI
System.
The Company was organized as a Delaware corporation in 1992. The Company's
principal office is located at 300 Winding Brook Drive, Glastonbury, Connecticut
06033 and its telephone number is (860) 652-3155.
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................... 2,617,000 shares
Common Stock offered by the Selling Stockholders...... 183,000 shares
Common Stock to be outstanding after the offering..... 10,161,485 shares(1)
Use of proceeds....................................... Working capital and other general
corporate purposes
Nasdaq National Market symbol......................... OSIF
</TABLE>
- ---------------
(1) Based on the number of shares of Common Stock outstanding on June 30, 1998.
Excludes an aggregate of 1,689,500 shares subject to options outstanding as
of June 30, 1998 at a weighted average exercise price of $0.77 per share, of
which options to purchase 1,036,155 shares of Common Stock are exercisable.
Also excludes an aggregate of 636,111 shares of Common Stock issuable upon
the exercise of outstanding warrants as of June 30, 1998 at a weighted
average exercise price of $5.66 per share, all of which are exercisable. See
"Risk Factors -- Shares Eligible for Future Sale; Registration Rights,"
"Management -- Stock Plans," "Description of Capital Stock -- Warrants" and
Notes 7 and 9 of Notes to the Company's Financial Statements.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license............. $ -- $ -- $ 213 $ 801 $ 4,099 $ 1,212 $ 2,759
Service and maintenance...... 95 -- 55 218 2,550 757 3,010
------ ------- ------- ------- ---------- ------- ----------
Total revenues................. 95 -- 268 1,019 6,649 1,969 5,769
Loss from operations........... (476) (1,205) (1,890) (3,774) (3,264) (2,480) (2,397)
Net loss....................... $ (513) $(1,191) $(1,895) $(3,638) $ (3,055) $(2,405) $ (2,216)
Net loss per common share
(basic and diluted).......... $(0.25) $ (0.61) $ (0.98) $ (1.73) $ (1.42) $ (1.12) $ (1.01)
Weighted average common shares
used to compute net loss per
share........................ 2,079 1,955 1,936 2,103 2,155 2,146 2,192
Unaudited pro forma net loss
per common share
(basic and diluted).......... $ (0.41) $ (0.30)
Unaudited pro forma weighted
average common shares
outstanding.................. 7,464 7,500
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(1)(2)
-------- ----------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,333 $ 6,333 $ 32,205
Working capital............................................. 5,818 5,818 31,690
Total assets................................................ 12,413 12,413 38,285
Mandatorily redeemable convertible preferred stock.......... 16,140 -- --
Stockholders' equity (deficit).............................. (8,412) 7,728 33,600
</TABLE>
- ---------------
(1) Reflects conversion of all outstanding shares of Convertible Preferred Stock
into an aggregate of 5,308,472 shares of Common Stock upon the closing of
this offering. See Note 2 of Notes to the Company's Financial Statements.
(2) Adjusted to give effect to the sale by the Company of 2,617,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$11.00 per share and after deducting the estimated underwriting discounts
and commissions and offering expenses payable by the Company. See "Use of
Proceeds."
5
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.
Limited Operating History; History of Losses. The Company was incorporated
in May 1992 and did not sell its first product until the second quarter of 1995.
Accordingly, the Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies with limited
operating histories. Although the Company has experienced revenue growth in
recent periods, historical growth rates may not be sustained and are not
necessarily indicative of future operating results. The Company incurred
operating losses of $2.5 million, $3.3 million, $3.8 million and $1.9 million
for the six months ended June 30, 1998 and the years ended December 31, 1997,
1996 and 1995, respectively. There can be no assurance that operating losses
will not increase in the future or that the Company will ever achieve or sustain
profitability on a quarterly or annual basis. To the extent that revenues do not
grow at anticipated rates, increases in operating expenses precede or are not
subsequently followed by commensurate increases in revenues or the Company is
unable to adjust operating expense levels accordingly, the Company's business,
financial condition and results of operations will be materially adversely
affected. As of June 30, 1998, the Company had an accumulated deficit of $12.8
million.
Potential Fluctuations in Quarterly Performance. The Company's revenues
and operating results have varied substantially from quarter to quarter. The
Company's quarterly operating results may continue to fluctuate due to a number
of factors, including the timing, size and nature of the Company's licensing
transactions, lengthy and unpredictable sales cycles, the timing of introduction
and market acceptance of new products or product enhancements by the Company or
its competitors, product and price competition, the relative proportions of
revenues derived from license fees and services, changes in the Company's
operating expenses, software bugs or other product quality problems, personnel
changes and fluctuations in economic and financial market conditions.
The Company recognizes software license revenues upon delivery and, if
required by the contract, upon customer acceptance, if such criteria is other
than perfunctory, which typically does not occur in the same quarter in which
the software license agreement for the system is signed. As a result, the
Company is constrained in its ability to increase its software license revenue
in any quarter if there are unexpected delays in delivery or required acceptance
of systems for which software licenses were signed in previous quarters.
Implementation of the OSI System typically occurs over a 14 to 24 week period,
and the Company currently has limited implementation resources. As a result of
the Company's limited operating history and experience in the implementation of
the OSI System, the Company may from time to time experience delays and
difficulties in implementation of the OSI System. Delays in the delivery,
implementation or any required acceptance of the Company's products, including
delays resulting from constraints upon the Company's limited installation
resources, could materially adversely affect the Company's quarterly results of
operations. In addition, increased sales and marketing expenses for any given
quarter will negatively impact operating results of such quarter due to a lack
of recognition of associated revenues until the subsequent delivery of the
product.
The Company's expense levels are based, in significant part, on its
expectations as to future revenues and are largely fixed in the short term. As a
result, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenues. Accordingly, any
significant shortfall of revenues in relation to the Company's expectations
would have an immediate and materially adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company plans to
increase operating expenses to expand its installation, product development,
sales and marketing and administrative organizations. The timing of such
expansion and the rate at which new personnel become productive could cause
material fluctuations in quarterly results of operations.
6
<PAGE> 9
The Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful. There can be no assurance that future
revenues and results of operations will not vary substantially. It is also
possible that in some future quarter the Company's results of operations will be
below the expectations of public market analysts and investors. In either case,
the price of the Company's Common Stock could be materially adversely affected.
Acceptance of OSI System. The Company's revenues are derived primarily
from two sources: (i) license fees for software products and (ii) fees for a
full range of services complementing its products, including implementation,
training, and support and maintenance services. Substantially all of these fees
are attributable to licenses of the OSI System. Although the use of
client/server technology has grown in the banking and credit union industry in
recent years, the client/server market is still an emerging market. Moreover,
banks and credit unions historically have been slow to adapt to and accept new
technologies, including client/server systems. The Company's success in
penetrating the banking industry, in particular large banks, may be adversely
affected by the unwillingness of such banks to incur the cost and effort to
convert from their current system to a client/server system and by the fact that
client/server core processing systems have not yet achieved widespread
acceptance. The Company's future financial performance will depend in large part
on continued growth in the number of banks and credit unions utilizing
client/server technology. Accordingly, if the client/server market fails to grow
or grows more slowly than the Company currently anticipates, the Company's
business, financial condition and results of operations could be materially
adversely affected. In addition, a significant portion of all banks and credit
unions have traditionally satisfied their information technology needs through a
service bureau or outsourcing solution. Upon purchasing the OSI System, these
customers will be required to employ information technology personnel in order
to successfully operate and maintain the OSI System. There can be no assurance
that the Company's customers will be able to hire and retain such personnel or
that any inability to do so will not affect their ability to successfully
operate and maintain the OSI System which could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, the Company's future financial performance will depend in part on the
successful development, introduction and customer acceptance of new and enhanced
versions of the OSI System and other products. A decline in demand for, or
failure to achieve broad market acceptance of, the OSI System or any enhanced
version as a result of competition, technological change or otherwise, will have
a material adverse effect on the Company's business, financial condition and
results of operations.
Dependence on New Products and Rapid Technological Change; Product
Development Risk. The client/server application software market is characterized
by rapid technological change, frequent new product introductions and evolving
industry standards. The introduction of products embodying new technologies and
the emergence of new industry standards can render existing products obsolete
and unmarketable in short periods of time. The Company expects new products and
services, and enhancements to existing products and services, to be developed
and introduced by others, which will compete with the products and services
offered by the Company. The life cycles of the Company's products are difficult
to estimate. The Company's future success will depend upon the widespread
adoption of client/server application software in the banking and credit union
industry, as well as the Company's ability to enhance its current products and
to develop and introduce new products that keep pace with technological
developments and emerging industry standards and to address the increasingly
sophisticated needs of its customers. There can be no assurance that the Company
will be successful in developing and marketing new products or product
enhancements that meet these changing demands, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products or that its new products and
product enhancements will adequately meet the demands of the marketplace and
achieve market acceptance.
Delays in the release of new and upgraded versions of the Company's
software products, particularly the Oracle relational database management
system, could have a material adverse effect
7
<PAGE> 10
on the Company's revenues and results of operations. Because of the complexities
inherent in developing software products as sophisticated as those sold by the
Company and the lengthy testing periods associated with such products, no
assurance can be given that future product introductions by the Company will not
be delayed. In addition, complex software programs may contain undetected errors
or bugs when they are first introduced or as new versions are released. There
can be no assurance that errors will not be found in the Company's existing or
future products or third-party products upon which the Company's products are
dependent, such as the Oracle relational database and Microsoft Windows NT, with
the possible result of delays in or loss of market acceptance of the Company's
products, diversion of the Company's resources, injury to the Company's
reputation and increased service, warranty expenses and/or payment of damages.
Intense Competition. The market for the Company's products and services is
intensely competitive and subject to rapid technological change. Competitors
vary in size and in the scope and breadth of the products and services they
offer. The Company encounters competition from a number of sources, all of which
offer core software systems to the banking and credit union industry. The
Company expects additional competition from other established and emerging
companies as the client/server application software market continues to develop
and expand. The Company also expects that competition will increase as a result
of software industry consolidation, including particularly the acquisition of
any of its competitors or any of the client/server based retail banking system
providers by one of the larger service providers to the banking industry. The
Company encounters competition in the U.S. from a number of sources, including
Fiserv, Inc., NCR Corporation, Electronic Data Systems Corporation, Marshall &
Ilsley Corporation, M&I EastPoint, Phoenix International Ltd., Inc., Jack Henry
& Associates, Inc., ALLTEL Corporation, Prologic Corporation and Kirchman
Corporation, all of which offer core processing systems or outsourcing
alternatives to banks and credit unions. The Company also competes against a
number of smaller, regional competitors. In addition to these competitors, the
Company competes internationally with, Misys plc Banking Division (including
Midas-Kapiti International, Inc., Kindle Banking Systems and ACT Financial
Systems), Sanchez Computer Associates, Inc. and Financial Network Services,
among others. Some of the Company's current, and many of the Company's
potential, competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
engineering, technical, marketing and other resources than the Company. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer demands or to devote greater resources to the
development, promotion and sale of their products than the Company. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. The Company expects
that the banking and credit union software market will continue to attract new
competitors and new technologies, possibly involving alternative technologies
that are more sophisticated and cost effective than the Company's technology.
There can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, financial condition
and results of operations.
Management of Growth. The Company is currently experiencing a period of
rapid growth which has placed, and could continue to place, a strain on its
management and other resources. The Company's business has grown in size and
complexity over the past three years. Total revenues increased from $268,141 for
the year ended December 31, 1995 to $6.6 million for the year ended December 31,
1997 and to $5.8 million for the six months ended June 30, 1998. In addition,
the number of employees increased from 26 as of December 31, 1995 to 130 as of
June 30, 1998, and the Company expects to hire additional personnel during 1998
and 1999. The Company's need to manage its growth effectively will require it to
continue to implement and improve its operational, financial and other internal
systems on a timely basis, and to attract, train, motivate, manage and retain
its employees. If the Company's management is unable to manage growth
effectively or new
8
<PAGE> 11
employees are unable to achieve anticipated performance levels, the Company's
business, financial condition and results of operations could be materially
adversely affected. In addition, the Company from time to time may seek
acquisitions of businesses, products and technologies that are complementary to
those of the Company or that allow the Company to enter new markets. Any such
acquisition would place additional strains upon the Company's management and
other resources. Potential investors should consider the risks, expenses and
difficulties frequently encountered in connection with the operation and
development of an expanding business.
Reliance on New Customers. The Company historically has relied upon and
expects to continue to rely upon software license fees from new customers for a
substantial portion of its revenues. Most such licenses involve large dollar
amounts (typically ranging from $250,000 to $750,000), and the sales cycles for
these transactions are often lengthy and unpredictable. Any inability of the
Company to license and deliver the OSI System to a significant number of new
customers would have a material adverse effect on the Company's business,
financial condition and results of operations.
Expansion of Credit Union Customer Base. The Company's software for credit
unions, The Complete Credit Union Solution, has been installed to date at only
one credit union. There can be no assurance that The Complete Credit Union
Solution will be installed at additional credit unions or that it will achieve
wide customer acceptance. Any failure of the Company to successfully penetrate
the credit union industry could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on the Banking and Credit Union Industry; Risk of
Consolidation. Substantially all of the Company's revenues are derived from
customers in the banking and credit union industry, primarily small to mid-size
banks, and the Company expects it will continue to derive substantially all of
its revenues from such customers for the foreseeable future. Unfavorable
economic conditions adversely impacting the banking and credit union industry
could have a material adverse effect on the Company's business, financial
condition and results of operations. For example, the banking and credit union
industry has experienced and may continue to experience cyclical fluctuations in
profitability, which may affect the willingness or ability of participants in
this industry to fund projects such as those for which the Company may be
engaged.
Merger and acquisition activity among financial institutions, particularly
large banks, has been widespread in recent years and is expected to continue in
future years. As a result, industry consolidation could have the effect of
reducing the number of current and potential customers of the Company. Any
significant increase in the level of such consolidation among small to mid-size
banks and credit unions could adversely affect the Company's business, financial
condition and results of operations.
Lengthy Sales Cycle. The Company's software is used for business-critical
purposes, and its implementation involves significant capital commitments by
customers. Potential customers generally commit significant resources to an
evaluation of available software and require the Company to expend substantial
time, effort and money educating them as to the value of the Company's software.
Sales of the Company's software products require an extensive education and
marketing effort throughout a customer's organization because decisions to
license such software generally involve the evaluation of the software by a
significant number of customer personnel in various functional areas, each
having specific and often conflicting requirements. A variety of factors,
including factors over which the Company has little or no control, may cause
potential customers to favor a competing vendor or to delay or forego a
purchase. In addition, the sales cycles associated with these transactions are
subject to a number of uncertainties, including customers' budgetary
constraints, the timing of the expiration of customers' current system license
agreements or outsourced core processing agreements, the timing of customers'
budget cycles and approval processes and customers' willingness to implement a
client/server operating environment. As a result of these or other factors, the
sales cycle for the Company's products is long, typically ranging between six to
nine
9
<PAGE> 12
months. Due to the length of the sales cycle for its software products, the
Company's ability to forecast the timing and amount of specific sales is
limited, and the delay or failure to complete one or more large license
transactions could have a material adverse effect on the Company's business,
financial condition and results of operations.
Reliance on and Expansion of Sales Force and Third-Party Outsourcing
Agreements. The Company relies primarily on its direct sales force for sales of
the OSI System. The Company will be required to hire additional sales, customer
service and implementation personnel in 1998 and beyond if the Company is to
achieve revenue growth in the future. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to retain its
existing sales, customer service and implementation personnel or will be able to
attract, assimilate or retain such additional highly qualified personnel in the
future. If the Company is unable to hire such personnel on a timely basis, its
business, financial condition and results of operations could be materially
adversely affected.
The Company has entered into exclusive license and marketing arrangements
with two providers of outsourcing services to financial institutions, The BISYS
Group, Inc. ("BISYS") and Connecticut On-Line Computer Center, Inc. ("COCC").
Accordingly, the Company's success depends in part on the ultimate success of
these license and marketing arrangements, including the effort and resources
expended by such providers to market outsourcing services using the OSI System.
Dependence on Key Personnel. The Company's future success depends to a
significant extent on the Company's executive officers and key employees,
including the Company's sales force and software professionals, particularly
project managers, software engineers and other senior technical personnel. The
loss of the services of any of these individuals or group of individuals could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company does not maintain any key person life
insurance for any of its executive officers or key employees. Competition for
qualified personnel in the software industry is intense and the Company competes
for such personnel with other software companies that have greater financial and
other resources. The future success of the Company will depend in large part on
its ability to attract, retain and motivate highly qualified personnel, and
there can be no assurance that the Company will be able to do so. The Company
has from time to time experienced, and may in the future experience, difficulty
in locating and retaining candidates with appropriate qualifications,
particularly project managers, software engineers and other senior technical
personnel. Any difficulty in hiring needed personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Dependence on Third-Party Technology. The Company's proprietary software
is currently designed, and may in the future be designed, to work on or in
conjunction with certain third-party hardware and/or software products,
including the Microsoft Windows NT operating system with an Oracle relational
database. Although the Company believes that there are alternatives for these
products, any significant interruption in the supply of such third-party
hardware and/or software could have a material adverse effect on the Company's
sales unless and until the Company can replace the functionality provided by
these products. In addition, the Company is to a certain extent dependent upon
such third-parties' abilities to enhance their current products, to develop new
products on a timely and cost-effective basis and to respond to emerging
industry standards and other technological changes. There can be no assurance
that the Company would be able to replace the functionality provided by the
third-party hardware and/or software currently offered in conjunction with the
Company's products in the event that such hardware and/or software becomes
obsolete or incompatible with future versions of the Company's products or is
otherwise not adequately maintained or updated. The absence of or any
significant delay in the replacement of that functionality could have a material
adverse effect on the Company's business, financial condition and results of
operations.
10
<PAGE> 13
Concentration of Customers. Historically, a limited number of customers
have accounted for a significant percentage of the Company's revenues in each
year. For the year ended December 31, 1997, two bank customers accounted for 17%
and 15% of the Company's total revenues. For the year ended December 31, 1996,
four bank customers accounted for 38%, 22%, 20% and 14% of the Company's total
revenues. Although the Company expects that its reliance on any particular
customer will decline as its customer base expands, the failure of the Company
to enter into a sufficient number of licensing agreements during a particular
period could have a material adverse effect on the Company's business, financial
condition and results of operations.
Year 2000 Issues. A portion of the growth in the Company's revenues in
1997 and the first half of 1998 resulted from the Company's ability to provide
banking applications that resolve the Year 2000 problem. As the overall demand
for Year 2000 solutions declines, there can be no assurance that the demand for
the Company's products and services will not be materially adversely affected.
Although the Company believes the OSI System complies with Year 2000
requirements, there can be no assurance that customers will not encounter
difficulties with the OSI System arising from Year 2000 issues. In addition,
there can be no assurance that Year 2000 issues will not adversely affect
third-party network or application software that is integrated with the OSI
System.
Potential for Contract Liability. Failures in a customer's system could
result in an increase in service and warranty costs or a claim for substantial
damages against the Company. There can be no assurance that the limitations of
liability set forth in the Company's contracts would be enforceable or would
otherwise protect the Company from liability for damages. The Company maintains
general liability insurance coverage, including coverage for errors and
omissions in excess of the applicable deductible amount. There can be no
assurance that such coverage will continue to be available on acceptable terms
or will be available in sufficient amounts to cover one or more large claims, or
that the insurer will not deny coverage as to any future claim. The successful
assertion of one or more large claims against the Company that exceeds available
insurance coverage, or the occurrence of changes in the Company's insurance
policies, including premium increases or the imposition of large deductible or
co-insurance requirements, could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore,
litigation, regardless of its outcome, could result in substantial cost to the
Company and divert management's attention from the Company's operations. Any
contract liability claim or litigation against the Company could, therefore,
have a material adverse effect on its business, financial condition and results
of operations. Because many of the Company's projects are business-critical
projects for financial institutions, a failure or inability to meet a customer's
expectations could seriously damage the Company's reputation and affect its
ability to attract new business.
Government Regulation. While the Company's operations are not directly
regulated by banking authorities, the Company's existing and potential customers
are subject to extensive federal, state and foreign governmental regulations.
Such regulations may adversely affect the banking and credit union industry,
limit the number of potential customers for the Company's products and services
or otherwise have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, governmental regulation in the
financial services industry is evolving, particularly with respect to banking
technology. There can be no assurance that future changes in such regulations or
in their interpretation will not adversely affect the business of the Company.
Dependence on Intellectual Property Rights; Risk of Infringement. The
Company relies on a combination of copyright, trademark and trade secret laws,
nondisclosure agreements and other contractual provisions and technical measures
to protect its intellectual property rights. There can be no assurance that
these protections will be adequate to prevent the Company's competitors from
copying or reverse-engineering the Company's products, or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. The Company does not include
in its products any mechanism to prevent unauthorized copying and any such
unauthorized copying could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has no
patents, and existing
11
<PAGE> 14
copyright laws afford only limited protection for the Company's intellectual
property rights and will not protect such rights in the event competitors
independently develop products similar to those of the Company. In addition, the
laws of certain countries in which the Company's products are or may be licensed
do not protect the Company's products and intellectual property rights to the
same extent as the laws of the United States.
Although the Company has never been the subject of a material intellectual
property dispute, there can be no assurance that a third party will not assert
that the Company's technology violates its intellectual property rights in the
future. As the number of software products in the Company's target market
increases and the functionality of these products further overlap, the Company
believes that software developers may become increasingly subject to
infringement claims. Any such claims, whether with or without merit, can be time
consuming and expensive to defend. There can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to its current or future products or that any such assertion will not
require the Company to enter into royalty arrangements (if available) or
litigation that could be costly to the Company.
Significant Influence by Directors, Officers and Principal Stockholders.
Upon completion of this offering, the Company's directors, officers and certain
principal stockholders of the Company will beneficially own approximately 64% of
the Company's outstanding Common Stock. These stockholders, if acting together,
would have the ability to elect the Company's directors and may have the ability
to determine the outcome of corporate actions requiring stockholder approval,
irrespective of how other stockholders of the Company may vote. This
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company.
Benefits of this Offering to Current Stockholders. The completion of this
offering will provide significant benefits to the current stockholders of the
Company, including certain of its directors and executive officers. The Company
will not receive any of the net proceeds from the sale of shares by the Selling
Stockholders, which will total approximately $1.9 million, assuming a public
offering price of $11.00 per share. The completion of this offering will create
a public market for the Common Stock and thereby may increase the market value
of the investment by the current stockholders in the Company. Upon the closing
of this offering, the difference between the aggregate purchase price paid by
the Company's current stockholders for their shares and the aggregate market
value of such shares will be approximately $63.9 million, assuming a public
offering price of $11.00 per share. See "Dilution," "Principal and Selling
Stockholders" and "Shares Eligible for Future Sale."
Broad Discretion as to Use of Proceeds. The net proceeds from this
offering will be used, as determined by management in its sole discretion, for
working capital and general corporate purposes, as well as for the possible
acquisition of additional businesses and technologies that are complementary to
the current or future business of the Company. However, the Company has not
determined the specific allocation of the net proceeds among the various uses
described above. The Company's management will have broad discretion over the
use and investment of such net proceeds, and, accordingly, investors in this
offering will rely upon the judgment of the Company's management with respect to
the use of proceeds, with only limited information concerning management's
specific intentions.
No Prior Public Market for Common Stock; Possibility of Volatility of Stock
Price. Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after 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 between the Company and the
Representatives of the Underwriters and is not necessarily indicative of the
market price at which the Common Stock of the Company will trade after this
offering. The market prices for securities of technology companies have been
highly volatile and the market has experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Announcements of
12
<PAGE> 15
technological innovations or new products or service offerings by the Company or
its competitors, developments concerning proprietary rights, including patents
and litigation matters, domestic or international regulatory developments
affecting the banking and credit union industry, general market conditions, any
shortfall in revenues or earnings from expected levels or other failures by the
Company to meet expectations of securities analysts and other factors, may have
a significant impact on the market price of the Common Stock.
Dividends. No cash dividends have been declared or paid on its capital
stock to date and the Company does not anticipate paying cash dividends in the
foreseeable future. In addition, under the terms of the Company's credit
agreement there are certain restrictions on the Company's ability to declare and
pay dividends.
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.
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of shares of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Upon completion of
this offering, the Company will have outstanding 10,161,485 shares of Common
Stock. On the date of this Prospectus, in addition to the 2,800,000 shares
offered hereby, approximately 10,000 shares of Common Stock, which are not
subject to 180-day lock-up agreements (the "Lock-up Agreements") with the
Representatives of the Underwriters, will be eligible for immediate sale in the
public market pursuant to Rule 144(k) under the Securities Act of 1933, as
amended (the "Securities Act"). Approximately 146 additional shares of Common
Stock, which are not subject to the Lock-up Agreements, will be eligible for
sale in the public market in accordance with Rule 144 or Rule 701 under the
Securities Act beginning 90 days after the date of this Prospectus. Upon
expiration of the Lock-up Agreements 180 days after the date of this Prospectus,
approximately 7,351,339 additional shares of Common Stock will be available for
sale in the public market, subject to the provisions of Rule 144 under the
Securities Act. Promptly following the consummation of this offering, the
Company intends to register an aggregate of 5,000,000 shares of Common Stock
issuable under its 1994 Stock Option Plan, 1998 Employee Stock Purchase Plan and
1998 Stock Incentive Plan. Holders of approximately 9,665,450 shares of Common
Stock (including 2,314,111 shares of Common Stock that may be acquired pursuant
to the exercise of options and warrants held by them) have agreed, pursuant to
the Lock-up Agreements, not to directly or indirectly offer, sell, pledge,
contract to sell, grant any option to purchase or otherwise dispose of such
shares for 180 days after the date of the final Prospectus. The Company is
unable to predict the effect that sales made under Rule 144, or otherwise, may
have on the then prevailing market price of the Common Stock. The holders of
approximately 5,944,583 shares of Common Stock, including the shares issuable
upon exercise of outstanding warrants, are entitled to certain incidental and
demand registration rights with respect to such shares. By exercising their
registration rights, such holders could cause a large number of shares to be
registered and sold in the public market. Sales pursuant to Rule 144 or other
exemptions from registration, or pursuant to registration rights, may have an
adverse effect on the market price for the Common Stock and could impair the
Company's ability to raise capital through offerings of its equity securities.
Antitakeover Provisions. The Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") requires that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing, and requires advance notice by, and
certain information from, a stockholder of a proposal or director nomination
which such stockholder desires to present at any annual or special meeting of
stockholders. Special meetings of stockholders may be called only by the
Chairman of the Board or the President of the Company or by the Board of
Directors. The Restated 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 75% of the votes
which all the stockholders would be entitled to cast in any
13
<PAGE> 16
annual election of directors or class of directors. In addition, shares of the
Company's Preferred Stock may be issued in the future without further
stockholder 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 Restated Certificate of
Incorporation, the Company's By-laws and certain provisions of the Delaware
corporation law, may have the effect of deterring hostile takeovers or delaying
or preventing acquisition proposals or changes in control or management of the
Company, including transactions in which stockholders might otherwise receive a
premium for their shares over then current market prices. In addition, these
provisions may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests.
14
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,617,000 shares of
Common Stock offered by the Company hereby are estimated to be $25,871,910 after
deducting the estimated underwriting discounts and commissions and offering
expenses payable by the Company and assuming an initial public offering price of
$11.00 per share. The Company will not receive any of the net proceeds from the
sale of shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
The principal purposes of this offering are to increase the Company's
equity capital, to create a public market for the Company's Common Stock, to
facilitate future access by the Company to public equity markets, to provide
liquidity to existing stockholders, to provide increased visibility and
credibility in a marketplace where several of its current and potential
competitors are or will be publicly held companies, and to enhance the ability
of the Company to use its Common Stock as consideration for acquisitions and as
a means of attracting and retaining key employees.
The Company expects to use the net proceeds from this offering for working
capital and other general corporate purposes, including expansion of its
facilities and expansion of its installation, product development, sales and
marketing and administrative organizations. The Company has not as yet
identified specific uses for or allocated to such general corporate purposes any
specific portion of such proceeds, and management will have discretion over
their use, allocation and investment. Pending use of the net proceeds, the
Company intends to invest the net proceeds from this offering in short-term,
investment grade, interest-bearing instruments. See "Risk Factors -- Broad
Discretion as to Use of Proceeds."
The Company may seek acquisitions of businesses, products and technologies
that are complementary to those of the Company, and a portion of the net
proceeds may also be used for such acquisitions. 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, and there can be no assurances that any
acquisitions will be made.
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. Under the terms of the Company's
credit agreement there are certain restrictions on the Company's ability to
declare and pay dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 6 of Notes to the Company's Financial Statements.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 (i) on an actual basis, (ii) on a pro forma basis giving effect, upon
the closing of this offering, to the conversion of all outstanding shares of the
Company's Convertible Preferred Stock into an aggregate of 5,308,472 shares of
Common Stock and the filing of the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock,
eliminate the terms of the Company's existing series of Convertible Preferred
Stock and create a class of authorized but undesignated Preferred Stock and
(iii) on a pro forma basis, as adjusted to reflect the issuance and sale of the
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $11.00 per share, after deducting the estimated
underwriting discounts and commissions and offering expenses. The capitalization
information set forth in the table below is qualified by the Company's Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Mandatorily redeemable convertible preferred stock:
Series A-2 Preferred Stock, $0.01 par value; 166,667
shares authorized, 166,667 issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted)................... $ 500,000 $ --
Series B Preferred Stock, $0.01 par value; 1,736,250
shares authorized, 1,627,917 issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted)................... 4,930,333 --
Series C Preferred Stock, $0.01 par value; 1,375,000
shares authorized, 1,263,889 issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted)................... 5,731,482 --
Series D Preferred Stock, $0.01 par value; 1,250,000
shares authorized, 833,333 issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted)................... 4,977,734 --
------------ ------------
16,139,549 --
------------ ------------
Stockholders' equity:
Series A-1 Preferred Stock, $0.01 per value; 1,000,000
shares authorized, 1,000,000 issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted)................... 10,000 --
Series A-2 Preferred Stock, $0.01 par value; 416,666
shares authorized, 416,666 issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and pro forma as adjusted)................... 4,167 --
Preferred Stock, $0.01 par value; no shares authorized,
issued or outstanding (actual); 5,000,000 shares
authorized, no shares issued and outstanding (pro forma
and pro forma as adjusted).............................. -- --
Common Stock, $0.01 par value; 19,055,417 shares
authorized, 2,236,013 issued and outstanding (actual);
50,000,000 shares authorized, 7,544,485 (pro forma) and
10,161,485 (pro forma as adjusted) shares issued and
outstanding(1).......................................... 22,360 75,445 $ 101,615
Additional paid-in capital................................ 4,311,842 20,412,473 46,258,213
Accumulated deficit....................................... (12,760,110) (12,760,110) (12,760,110)
------------ ------------ ------------
Total stockholders' equity (deficit).................... (8,411,741) 7,727,808 33,599,718
------------ ------------ ------------
Total capitalization................................ $ 7,727,808 $ 7,727,808 $ 33,599,718
============ ============ ============
</TABLE>
- ---------------
(1) Excludes an aggregate of 1,689,500 shares of Common Stock subject to options
outstanding as of June 30, 1998 at a weighted average exercise price of
$0.77 per share, of which options to purchase 1,036,155 shares of Common
Stock are exercisable. Also excludes an aggregate of 636,111 shares of
Common Stock issuable upon the exercise of outstanding warrants as of June
30, 1998 at a weighted average exercise price of $5.66 per share, all of
which are exercisable. See "Risk Factors -- Shares Eligible for Future Sale;
Registration Rights," "Management -- Stock Plans," "Description of Capital
Stock -- Warrants" and Notes 7 and 9 of Notes to the Company's Financial
Statements.
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<PAGE> 19
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1998
was $7,081,500 or $0.94 per share of Common Stock. Pro forma net tangible book
value per share is determined by dividing the Company's tangible net worth
(tangible assets less liabilities) by the number of shares of Common Stock
outstanding, after giving effect to the mandatory conversion of the Company's
Convertible Preferred Stock upon the completion of this offering. After giving
effect to the sale of the shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and offering
expenses, the pro forma net tangible book value of the Company as of June 30,
1998 would have been $3.24 per share. This represents an immediate increase in
such pro forma net tangible book value of $2.30 per share to existing
stockholders and an immediate dilution of $7.76 per share to new investors
purchasing shares in this offering. If the initial public offering price is
higher or lower, the dilution to the new investors will be greater or less,
respectively. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of June 30,
1998................................................... $ 0.94
Increase per share attributable to this offering.......... 2.30
------
Pro forma net tangible book value per share after this
offering.................................................. 3.24
------
Dilution per share to new investors......................... $ 7.76
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1998,
the total number of shares of Common Stock purchased from the Company, the total
consideration paid and the average consideration paid per share by the existing
stockholders and by the new investors based (for new investors) upon an assumed
initial public offering price of $11.00 per share (before deducting the
estimated underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..... 7,544,485 74.2% $19,052,191 39.8% $ 2.53
New investors................ 2,617,000 25.8 28,787,000 60.2 $11.00
---------- ----- ----------- ----- ------
Total................... 10,161,485 100.0% $47,839,191 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 7,361,485, or approximately 72% of
the total number of shares of Common Stock outstanding after this offering
(or 7,291,485 shares and approximately 69% if the Underwriters'
over-allotment option is exercised in full), and will increase the number of
shares held by new investors to 2,800,000, or approximately 28% of the total
number of shares of Common Stock outstanding after this offering (or
3,220,000 shares and approximately 31% if the Underwriters' over-allotment
option is exercised in full).
17
<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1997 and
1996, and for the three years ended December 31, 1997 are derived from the
Company's financial statements, which appear elsewhere in this Prospectus and
which have been audited by PricewaterhouseCoopers LLP, independent accountants.
The selected financial data set forth below as of December 31, 1995 and 1994,
and for the year ended December 31, 1994 are derived from the Company's audited
financial statements which are not included in this Prospectus. The selected
financial data set forth below as of and for the year ended December 31, 1993
are derived from the Company's unaudited financial statements which are not
included in this Prospectus. The selected financial data set forth below as of
June 30, 1998, and for the six months ended June 30, 1998 and 1997 are derived
from the Company's unaudited financial statements, which appear elsewhere in
this Prospectus. In the opinion of management, the unaudited financial
statements have been prepared on a basis consistent with the financial
statements which appear elsewhere in this Prospectus and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and results of operations for these
unaudited periods. The operating results for the six months ended June 30, 1998
are not necessarily indicative of the results to be expected for the full year
ending December 31, 1998. The data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements, including the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license.................. $ -- $ -- $ 213 $ 801 $ 4,099 $ 1,212 $ 2,759
Service and maintenance........... 95 -- 55 218 2,550 757 3,010
--------- --------- --------- --------- --------- --------- ---------
Total revenues.................. 95 -- 268 1,019 6,649 1,969 5,769
Cost of revenues:
Software license.................. -- -- 223 507 1,160 368 619
Service and maintenance........... 25 -- 477 1,530 3,150 1,391 2,455
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenues.......... 25 -- 700 2,037 4,310 1,759 3,074
Operating expenses:
Sales and marketing............... 60 136 398 1,051 2,132 955 1,562
Product development............... 436 985 661 1,060 1,902 995 919
General and administrative........ 50 84 399 645 1,569 740 1,346
Contract termination.............. -- -- -- -- -- -- 1,265
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses........ 546 1,205 1,458 2,756 5,603 2,690 5,092
--------- --------- --------- --------- --------- --------- ---------
Loss from operations................ (476) (1,205) (1,890) (3,774) (3,264) (2,480) (2,397)
Interest income (expense), net...... (37) 14 (5) 136 209 75 181
--------- --------- --------- --------- --------- --------- ---------
Net loss............................ $ (513) $ (1,191) $ (1,895) $ (3,638) $ (3,055) $ (2,405) $ (2,216)
========= ========= ========= ========= ========= ========= =========
Net loss per common share (basic and
diluted).......................... $ (0.25) $ (0.61) $ (0.98) $ (1.73) $ (1.42) $ (1.12) $ (1.01)
Weighted average common shares used
to compute net loss per share..... 2,079 1,955 1,936 2,103 2,155 2,146 2,192
Unaudited pro forma net loss per
common share (basic and
diluted).......................... $ (0.41) $ (0.30)
Unaudited pro forma weighted average
common shares outstanding......... 7,464 7,500
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
----- ----- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2 $ 652 $ 3,914 $ 4,438 $ 7,596 $ 6,333
Working capital (deficit)................................. (100) 660 3,570 4,901 6,198 5,818
Total assets.............................................. 67 771 4,354 7,546 11,302 12,413
Long-term debt, less current portion...................... 730 250 -- -- 58 --
Mandatorily redeemable convertible preferred stock........ -- -- 5,092 10,573 15,551 16,140
Stockholders' equity (deficit)............................ (764) 521 (1,253) (4,779) (7,826) (8,412)
</TABLE>
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading provider of client/server core processing software
and related services to small to mid-size banks and credit unions. The Company
established operations in May 1992, and released its first major product, The
Complete Banking Solution, in the second quarter of 1995. The Company released a
second major product, The Complete Credit Union Solution, in the first quarter
of 1998. These two products (the "OSI System") are fully-integrated suites of
banking and credit union applications that operate in a Windows NT environment
using an Oracle relational database. The OSI System supports an institution's
entire core processing requirements, including deposits and loans, teller
functions, home/Internet banking and platform automation.
As of June 30, 1998, 31 banks and one credit union utilized the OSI System.
An additional 38 banks were in various stages of implementation, including 13
banks owned by three bank holding companies and nine banks utilizing outsourcing
services provided by the Company's outsourcing partners.
The Company currently markets its products in the United States directly
and, through an alliance with Unisys PAAG ("Unisys"), in Asia (except Japan),
South Africa and certain other countries. The Company has established software
license and marketing agreements with BISYS and COCC under which these third
parties use the OSI System to provide core processing services to banks and
credit unions on an outsourced basis. Under the agreement with BISYS, software
license fees are paid to the Company over a three-year period following BISYS'
implementation of each OSI System. The Company recognized $115,658 under the
BISYS agreement through June 30, 1998, comprising primarily of consulting
related revenue. Under the agreement with COCC, software license fees are paid,
and revenues are recognized, upon implementation of each OSI System. Under this
agreement, once cumulative software license fees total a stipulated amount, COCC
is released from any further obligation to pay license fees. This release is
subject to a one-time payment in December 2002 if the asset base of COCC's
customers has exceeded a specified amount. Under both the BISYS and COCC
agreements, the Company is also entitled to annual support and maintenance
payments on each installed OSI System. The Company recognized revenue of
$308,278 under the COCC agreement in the six months ended June 30, 1998. Of this
amount the Company recognized $250,000 for the delivery of the OSI System source
code to COCC. The Company will earn an additional $250,000 for implementation
assistance on the first three COCC customers. Apart from these fees, the Company
does not expect to recognize significant revenues from its agreements with
Unisys and COCC until at least 1999.
The Company's revenues are primarily derived from two sources: (i) software
license revenues and (ii) service and maintenance fees. Software license
revenues primarily include revenues from software licenses for the OSI System.
The Company also derives software license revenues from the sale of third-party
software sublicensed by the Company. Software license fees are generally based
on the bank's asset size and the number of accounts and typically are payable
upon delivery of the software. The Company derives service and maintenance
revenues from (i) implementation and training fees, which are based on customer
size and the magnitude and complexity of the project and (ii) customer support
and maintenance fees for providing on-going support and product updates.
Customer support and maintenance fees are established as a percentage of the
list price for the software license and are paid annually. Support and
maintenance agreements generally have a term of 12 months and are renewable
annually. As of June 30, 1998, all users of the OSI System were covered by
support and maintenance agreements.
Effective January 1, 1997 the Company adopted AICPA Statement of Position
97-2, "Software Revenue Recognition" ("SOP 97-2"). Under SOP 97-2, the Company
recognizes software license revenue when a noncancelable license agreement has
been executed, fees are fixed and determina-
19
<PAGE> 22
ble, the software has been delivered, and accepted by the customer if acceptance
is required by the contract and other than perfunctory, and collection is
considered probable. Prior to 1997, the Company recognized software license
revenue in accordance with AICPA Statement of Position 91-1, "Software Revenue
Recognition" ("SOP 91-1"). Under SOP 91-1, the Company recognized software
license revenue when the software was delivered, collectibility was probable and
no other significant post-delivery obligations remained.
In December 1997, the Company revised its standard end user license
agreement to eliminate certain customer acceptance provisions that required the
deferral of software license revenue recognition until after implementation was
completed, which generally lagged software delivery by three to four months. The
anticipated impact of the revised end user license agreement on future results
will be to eliminate the deferral of software license revenue pending completion
of implementation. The Company expects that its future licensing arrangements
will generally be governed by the revised license agreement, although licenses
sold under the previous agreement will continue to affect revenue recognition
through 1998 and certain new agreements may contain acceptance or other
provisions that have the effect of deferring software license revenue
recognition. Such differences in the timing of revenue recognition will impact
the comparability of the Company's historical revenues and operating results to
future results of operations.
The Company continues to evaluate and address business and operational
issues related to Year 2000 compliance, and believes that its internal
management systems and software products are in such compliance. The Company
expects that the total cost to the Company to address any potential Year 2000
issues will not be material to operations.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1995 1996 1997 1997 1998
------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenues:
Software license........................... 79.3% 78.6% 61.7% 61.6% 47.8%
Service and maintenance.................... 20.7 21.4 38.3 38.4 52.2
------ ------ ----- ------ -----
Total revenues.......................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software license........................... 83.2 49.8 17.4 18.7 10.7
Service and maintenance.................... 177.9 150.1 47.4 70.6 42.6
------ ------ ----- ------ -----
Total cost of revenues.................. 261.1 199.9 64.8 89.3 53.3
Operating expenses:
Sales and marketing........................ 148.6 103.0 32.1 48.5 27.1
Product development........................ 246.3 104.0 28.6 50.6 15.9
General and administrative................. 149.0 63.3 23.6 37.6 23.3
Contract termination....................... -- -- -- -- 21.9
------ ------ ----- ------ -----
Total operating expenses................ 543.9 270.3 84.3 136.7 88.2
Loss from operations......................... (705.0) (370.2) (49.1) (126.0) (41.5)
Interest income (expense), net............... (1.7) 13.3 3.2 3.8 3.1
------ ------ ----- ------ -----
Net loss..................................... (706.7)% (356.9)% (45.9)% (122.2)% (38.4)%
====== ====== ===== ====== =====
</TABLE>
20
<PAGE> 23
Six Months Ended June 30, 1998 and June 30, 1997
Revenues. Revenues increased 193.0% to $5.8 million for the six months
ended June 30, 1998 from $2.0 million for the six months ended June 30, 1997.
Software license revenues increased 127.6% to $2.8 million for the six months
ended June 30, 1998 from $1.2 million for the six months ended June 30, 1997.
This increase of software license revenues was primarily due to increased sales
of the OSI System. In addition, during the six months ended June 30, 1998, the
Company recognized revenues of $250,000 upon delivery of source code to COCC for
the OSI System pursuant to the agreement with COCC. For the six months ended
June 30, 1998 and 1997, software license revenues included $534,887 and
$269,500, respectively, related to third-party software products, primarily
Oracle's relational database management software, which were sold by the Company
with the OSI System under various sublicense agreements. Service and maintenance
revenues increased 297.7% to $3.0 million for the six months ended June 30, 1998
from $756,824 for the six months ended June 30, 1997. This increase in service
and maintenance revenues was primarily due to implementation fees on a larger
number of completed or in-process installations ($1.3 million) and, to a lesser
extent, an increase in the installed base of customers under support and
maintenance agreements ($473,482). The Company's installed customer base was 32
at June 30, 1998 compared with 15 at June 30, 1997.
The Company's backlog at June 30, 1998 was approximately $9.6 million,
which represented the unrecognized portion of contractually committed software
license and implementation fees.
Cost of revenues. Cost of software license revenues consists primarily of
sublicense fees paid on third-party software products that are sold with the OSI
System, including Oracle's relational database product, amortization of
capitalized software development costs and personnel and other costs to develop
and produce media and documentation. The Company amortizes capitalized software
development costs over a three-year period. Through March 1998, cost of revenues
also included royalties paid to Banking Spectrum Services, Inc., a shareholder
of the Company ("Spectrum"), and Banking Spectrum, Inc. (together with Spectrum,
"Banking Spectrum") to license certain software products and for consulting and
support services. In March 1998, the Company entered into an agreement with
Banking Spectrum that released it from paying future royalties to Banking
Spectrum. (See Note 13 of Notes to the Company's Financial Statements). Cost of
service and maintenance fees primarily consists of personnel and related
facility expenses associated with implementation, training and consulting
activities, and ongoing customer support and product maintenance activities.
Total cost of revenues increased 74.7% to $3.1 million for the six months
ended June 30, 1998 from $1.8 million for the six months ended June 30, 1997. As
a percent of total revenues, total cost of revenues decreased to 53.3% for the
six months ended June 30, 1998 from 89.3% for the six months ended June 30,
1997, reflecting higher total revenues and productivity gains in the
implementation, training and customer support functions.
Cost of software license revenues increased 67.9% to $618,795 for the six
months ended June 30, 1998 from $368,606 for the six months ended June 30, 1997.
This increase was primarily due to an increase in the number of Oracle
relational database licenses ($132,963) required to support a greater number of
new installations and increased amortization of capitalized software development
costs ($97,100). Cost of software license revenues as a percent of software
license revenues decreased to 22.4% for the six months ended June 30, 1998 from
30.4% for the six months ended June 30, 1997. This decline was primarily due to
a larger software license fee revenue base over which to spread costs.
Cost of service and maintenance revenues increased 76.5% to $2.5 million
for the six months ended June 30, 1998 from $1.4 million for the six months
ended June 30, 1997. This increase is primarily due to the hiring of additional
personnel in the implementation, training and customer support departments
($742,327). Cost of service and maintenance revenues as a percentage of service
and maintenance revenues decreased to 81.6% for the six months ended June 30,
1998 from
21
<PAGE> 24
183.7% for the six months ended June 30, 1997. This decrease was primarily due
to a larger service and maintenance revenue base and productivity gains achieved
in the implementation, training and support functions with a larger number of
installations and a larger installed base. The Company anticipates that the
dollar amount of service and maintenance costs will increase in future periods
as the Company expands its implementation staff to accommodate future growth.
Sales and marketing. Sales and marketing expenses primarily include
personnel costs associated with the Company's sales and marketing activities,
including sales commissions, travel and related overhead, and expenses incurred
in connection with trade shows, advertising, product literature and other
promotional activities. Sales and marketing expenses increased 63.7% to $1.6
million for the six months ended June 30, 1998 from $954,373 for the six months
ended June 30, 1997. This increase was primarily due to an increase in sales
department personnel ($299,391), increase in advertising and promotion
($80,153), increase in travel and entertainment expenses ($77,108) and increased
sales commissions paid on higher revenues ($73,713). Sales and marketing
expenses as a percentage of total revenues decreased to 27.1% for the six months
ended June 30, 1998 from 48.5% for the six months ended June 30, 1997. This
decrease was primarily due to a larger revenue base over which to spread costs.
The Company anticipates that the dollar amount of its sales and marketing
expenses will increase in future periods as the Company expands its sales force
and increases advertising and promotional expenditures.
Product development. Product development expenses consist of personnel and
related overhead expenses for programmers and outside consultants involved in
developing and maintaining new and existing software products. The Company
accounts for software development costs under Statement of Financial Accounting
Standards No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed" ("SFAS 86"). Product development expenses are
charged to expenses as incurred until technological feasibility is established.
Thereafter, costs are capitalized until the product is released to the market.
The Company defines technological feasibility as the point in time at which the
Company has a working model of the related product. Capitalized software costs
are amortized over three years. Product development expenses decreased 7.7% to
$918,356 for the six months ended June 30, 1998 from $995,216 for the six months
ended June 30, 1997. This decrease was primarily due to increases in capitalized
software that more than offset increases in expenses associated with additional
staffing. The Company capitalized software development costs of $235,442 and
$34,977 for the six months ended June 30, 1998 and 1997, respectively, in
accordance with SFAS 86. Product development expenses as a percentage of total
revenues decreased to 15.9% for the six months ended June 30, 1998 from 50.6%
for the six months ended June 30, 1997. This decrease was primarily due to a
larger revenue base over which to spread costs. The Company anticipates that
product development costs will increase in absolute terms in future periods as
the Company continues its development work on future releases of the OSI System.
General and administrative. General and administrative expenses primarily
include personnel costs associated with the executive, administrative and
finance staff, as well as outside professional fees and other administrative
costs. General and administrative costs increased 81.9% to $1.3 million for the
six months ended June 30, 1998 from $739,708 for the six months ended June 30,
1997. This increase was primarily due to the addition of personnel to support
the Company's growth ($374,876), increased professional services ($71,592) and
increased computer supplies ($33,298). The Company believes that the dollar
amount of its general and administrative costs will continue to increase in
future periods to accommodate anticipated growth and expenses associated with
its responsibilities as a public company. General and administrative expenses as
a percentage of total revenues decreased to 23.3% for the six months ended June
30, 1998 from 37.6% for the six months ended June 30, 1997. This decrease was
primarily due to a larger revenue base over which to spread costs.
Contract termination. In January 1994, the Company entered into an
agreement with Banking Spectrum to license certain software products and for
consulting and support services. Pursuant to the agreement the Company agreed to
pay Banking Spectrum a royalty based on the licensing of
22
<PAGE> 25
software products and related services, ranging from three percent to 17% of net
revenues, based on Banking Spectrum's involvement in the sale of such products
and services.
In March 1998, the Company and Banking Spectrum entered into an agreement
that terminated their previous agreement. The agreement released the Company
from any future royalty payments to Banking Spectrum in exchange for a cash
payment of $100,000 to Banking Spectrum and fully vested options to shareholders
of Spectrum to purchase 275,000 shares of Common Stock at an exercise price of
$0.45 per share. The stock options were estimated by management to have a fair
value of approximately $1.6 million. Net of amounts previously accrued, the
Company recorded a contract termination expense of approximately $1.3 million
for the six months ended June 30, 1998.
Interest income (expense), net. For the six months ended June 30, 1998,
the Company's cash balance was higher than in 1997 resulting in higher interest
income, which was partially offset by interest expense relating to an equipment
loan.
Years Ended December 31, 1997 and 1996
Revenues. Total revenues increased 552.3% to $6.6 million in 1997 from
$1.0 million in 1996. Software license revenues increased 411.5% to $4.1 million
in 1997 from $801,532 in 1996. This increase was primarily due to increased
sales of the OSI System. Service and maintenance revenues increased 1070.4% to
$2.5 million in 1997 from $217,861 in 1996. This increase in service and
maintenance revenues was primarily due to a larger number of completed or
in-process installations ($1,879,745) and, to a lesser extent, an increase in
the installed base of customers under support and maintenance agreements
($327,256).
Cost of revenues. Total cost of revenues increased 111.5% to $4.3 million
in 1997 from $2.0 million in 1996. This increase was primarily due to additional
staffing in the implementation, conversion, training and customer support
departments ($1,198,304), increased license fees for third-party software
($352,510) and royalties paid to Banking Spectrum ($301,805). Total cost of
revenues as a percent of total revenues decreased to 64.8% in 1997 from 199.9%
in 1996. This decrease was primarily due to higher total revenues and
productivity gains in the implementation, training and customer support
functions.
Cost of software license revenues increased 128.8% to $1.2 million in 1997
from $507,094 in 1996. This increase was primarily due to an increase in the
number of Oracle relational database software licenses ($282,627) required for
the increased number of new installations, and increased royalties paid to
Banking Spectrum ($273,395). Cost of software license revenues as a percent of
software license revenues decreased to 28.3% in 1997 from 63.3% in 1996. This
decrease was primarily due to a larger software license fee revenue base over
which to spread costs.
Cost of service and maintenance revenues increased 105.8% to $3.2 million
in 1997 from $1.5 million in 1996. This increase was primarily attributable to
increased staffing in the implementation, conversion, training and customer
support departments to support the Company's growth ($1,198,304). Cost of
service and maintenance revenues as a percentage of service and maintenance
revenues decreased to 123.6% in 1997 from 702.5% in 1996. This decrease was
primarily due to a larger service and maintenance revenue base and productivity
gains achieved in the implementation, training and support functions as a result
of a larger number of installations and a larger installed base.
Sales and marketing. Sales and marketing expenses increased 102.9% to $2.1
million in 1997 from $1.1 million in 1996. This increase was primarily due to an
increase in sales and marketing personnel ($411,572), increased sales
commissions paid on higher revenues ($221,758) and increased advertising and
promotion expenses ($145,906) and increased travel and entertainment expenses
($97,698). Sales and marketing expenses as a percentage of total revenues
decreased to 32.1% in 1997 from 103.1% in 1996. This decrease was primarily due
to a larger revenue base over which to spread costs.
23
<PAGE> 26
Product development. Product development expenses increased 79.4% to $1.9
million in 1997 from $1.1 million in 1996. This increase was primarily due to
increased staffing and consulting fees incurred in connection with continued
development of the Company's software products. During 1997 and 1996, the
Company capitalized software development costs of $455,078 and $153,209,
respectively, in accordance with SFAS 86. Amounts capitalized in 1997 included
$240,000 related to the acquisition of automated teller machine ("ATM")
management software from a third party. Product development expenses as a
percentage of total revenues decreased to 28.6% in 1997 from 104.0% in 1996.
This decrease was primarily due to a larger revenue base over which to spread
costs.
General and administrative. General and administrative expenses increased
143.2% to $1.6 million in 1997 from $645,334 in 1996. This increase was
primarily due to the hiring of additional accounting and executive personnel
required to support the Company's growth ($582,251). General and administrative
expenses as a percentage of total revenues decreased to 23.6% in 1997 from 63.3%
in 1996. This decrease was primarily due to a larger revenue base over which to
spread costs.
Interest income (expense), net. During 1997, the Company's average cash
balance was higher than in 1996, resulting in higher interest income, which was
partially offset by interest expense relating to an equipment loan.
Years Ended December 31, 1996 and 1995
Revenues. Total revenues increased 280.2% to $1.0 million in 1996 from
$268,141 in 1995. Software license revenues increased 276.9% to $801,532 in 1996
from $212,653 in 1995. This increase was primarily due to increased sales of the
OSI System. Service and maintenance revenues increased 292.6% to $217,861 in
1996 from $55,488 in 1995. This increase in service fees was primarily due to
the increase in the number of installations ($87,212) in 1996 and, to a lesser
extent, an increase in the installed base of customers under support and
maintenance agreements ($75,161).
Cost of revenues. Total cost of revenues increased 191.1% to $2.0 million
in 1996 from $700,006 in 1995. As a percent of total revenues, total cost of
revenues decreased to 199.9% in 1996 from 261.1% in 1995, reflecting higher
total revenues over which to spread costs. Cost of software license revenues
increased 127.4% to $507,094 in 1996 from $223,015 in 1995. This increase was
due to increased license fees paid to third-party software providers ($118,840),
primarily Oracle, increased royalties paid to Banking Spectrum ($42,140) and
increased system documentation personnel ($42,262). Cost of service and
maintenance revenues increased 220.9% to $1.5 million in 1996 from $476,991 in
1995. This increase was primarily attributable to increased staffing in the
implementation, training and customer support functions required to support the
growth in customer installations as noted above ($769,867).
Sales and marketing. Sales and marketing expenses increased 163.7% to $1.1
million in 1996 from $398,496 in 1995. This increase was primarily due to an
increase in the number of sales personnel ($391,455), increased travel and
entertainment expenses ($122,988) and increased advertising and promotions
($91,619). Sales and marketing expenses as a percentage of total revenues
decreased to 103.1% in 1996 from 148.6% in 1995. This decrease was primarily due
to a larger revenue base over which to spread costs.
Product development. Product development expenses increased 60.5% to $1.1
million in 1996 from $660,510 in 1995. Product development expense increased
primarily due to increased staffing and consulting fees ($460,023) required to
support continued development of the Company's software products. During 1996
and 1995, the Company capitalized software development costs of $153,209 and
$119,514, respectively, in accordance with SFAS 86. Product development expenses
as a percentage of total revenues decreased to 104.0% in 1996 from 246.3% in
1995. This decrease was primarily due to a larger revenue base over which to
spread costs.
24
<PAGE> 27
General and administrative. General and administrative expenses increased
61.5% to $645,334 in 1996 from $399,576 in 1995. The increase in expenses was
primarily due to an increase in the Company's telephone and communication
expenses ($79,872), increased computer and office supplies ($62,171) and
increased travel and entertainment expenses ($22,067). General and
administrative expenses as a percentage of total revenues decreased to 63.3% in
1996 from 149.0% in 1995. This decrease was primarily due to a larger revenue
case over which to spread costs.
Interest income (expense), net. During 1995, the Company was funding
operations with bridge loans from existing investors until a December 1995
preferred stock sale. The interest on the bridge loans exceeded the interest
income earned on the operating account balance during 1995.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly results of operations of
the Company for each of the quarters in the year ended December 31, 1997 and the
six months ended June 30, 1998. In management's opinion, this unaudited
information has been prepared on the same basis as the audited Financial
Statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented, when read in conjunction with the Company's Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
-------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license.............. $ 693 $ 519 $ 643 $2,245 $ 1,158 $1,601
Service and maintenance....... 289 467 698 1,095 1,176 1,834
------- ------- ------- ------ ------- ------
Total revenues............. 982 986 1,341 3,340 2,334 3,435
Costs of revenues:
Software license.............. 219 150 251 541 333 286
Service and maintenance....... 732 658 748 1,012 987 1,468
------- ------- ------- ------ ------- ------
Total cost of revenues..... 951 808 999 1,553 1,320 1,754
Operating expenses:
Sales and marketing........... 458 496 500 678 784 778
Product development........... 472 523 517 390 444 475
General and administrative.... 324 416 381 447 643 703
Contract termination.......... -- -- -- -- 1,265 --
------- ------- ------- ------ ------- ------
Total operating expenses... 1,254 1,436 1,398 1,515 3,136 1,956
Income (loss) from operations... (1,223) (1,257) (1,055) 272 (2,122) (275)
Interest income (expense), net.. 44 31 46 88 95 86
------- ------- ------- ------ ------- ------
Net income (loss)............... $(1,179) $(1,226) $(1,010) $ 360 $(2,027) $ (189)
======= ======= ======= ====== ======= ======
</TABLE>
25
<PAGE> 28
The following table sets forth unaudited quarterly results of operations as
a percentage of revenues for each of the quarters in the year ended December 31,
1997 and the six months ended June 30, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license.............. 70.6% 52.6% 47.9% 67.2% 49.6% 46.6%
Service and maintenance....... 29.4 47.4 52.1 32.8 50.4 53.4
------- ------- ------ ------ ------ -------
Total revenues............. 100.0 100.0 100.0 100.0 100.0 100.0
Costs of revenues:
Software license.............. 22.3 15.1 18.7 16.2 14.3 8.3
Service and maintenance....... 74.5 66.8 55.8 30.3 42.3 42.7
------- ------- ------ ------ ------ -------
Total cost of revenues..... 96.8 81.9 74.5 46.5 56.6 51.0
Operating expenses:
Sales and marketing........... 46.7 50.3 37.3 20.3 33.6 22.7
Product development........... 48.0 53.1 38.5 11.7 19.0 13.8
General and administrative.... 32.9 42.2 28.4 13.3 27.5 20.5
Contract termination.......... -- -- -- -- 54.2 --
------- ------- ------ ------ ------ -------
Total operating expenses... 127.6 145.6 104.2 45.3 134.3 57.0
Income (loss) from operations... (124.4) (127.4) (78.7) 8.2 (90.9) (8.0)
Interest income (expense),
net........................... 4.4 3.1 3.4 2.6 4.1 2.5
------- ------- ------ ------ ------ -------
Net income (loss)............... (120.0)% (124.3)% (75.3)% 10.8% (86.8)% (5.5)%
======= ======= ====== ====== ====== =======
</TABLE>
The Company's revenues and operating results have varied substantially from
quarter to quarter. The Company's quarterly operating results may continue to
fluctuate due to a number of factors, including the timing, size and nature of
the Company's licensing transactions, lengthy and unpredictable sales cycles,
the timing of introduction and market acceptance of new products or product
enhancements by the Company or its competitors, product and price competition,
the relative proportions of revenues derived from license fees and services,
changes in the Company's operating expenses, software bugs or other product
quality problems, personnel changes and fluctuations in economic and financial
market conditions. Accordingly, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and the
results of operations for any quarter are not necessarily indicative of future
results of operations.
Revenues of $3.3 million for the three months ended December 31, 1997
included software license and implementation revenues of $1.6 million associated
with two larger banks (assets greater than $1 billion) that were implemented in
that quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily from the sale of
preferred stock and from a credit line for equipment purchases. The Company had
net working capital of $5.8 million at June 30, 1998, including cash and cash
equivalents totaling $6.3 million.
Cash used in operating activities was $995,822, $1.0 million, $3.9 million
and $1.7 million for the six months ended June 30, 1998 and for the years ended
December 31, 1997, 1996 and 1995, respectively. Cash used in operations during
each of these periods was primarily due to net losses and an increase in
accounts receivable partially offset in each period by increases in short-term
liabilities, including deferred revenues. In 1996, the cash used in operating
activities was also attributable to expenditures for deferred project costs. In
1997, cash flow from operations was favorably impacted by a reduction in
deferred project costs.
Cash used in investing activities was $609,864, $812,334, $850,083 and
$212,037 for the six months ended June 30, 1998, and for the years ended
December 31, 1997, 1996 and 1995, respectively. Cash used during such periods
was to acquire property and equipment and for
26
<PAGE> 29
capitalized software development costs. The Company currently has no significant
capital spending or purchase commitments, except for furniture for additional
office space in the amount of approximately $200,000, but expects to continue to
engage in capital spending in the ordinary course of business.
Cash provided by financing activities was $342,119, $5.0 million, $5.3
million and $5.2 million for the six months ended June 30, 1998, and for the
years ended December 31, 1997, 1996 and 1995, respectively. During 1997, 1996
and 1995, the Company received $5.0 million, $5.5 million, and $5.1 million,
respectively, of net proceeds from the sale of preferred stock. In addition, the
Company received $60,000 and $120,000 in proceeds during 1996 and 1995,
respectively, from a subscription note receivable.
In 1995, the Company received and repaid $1.0 million in bridge loans from
existing investors. In September 1996, the Company entered into a $250,000
equipment line of credit with a bank. The equipment line allowed for draw downs
through September 1997 with the outstanding borrowings on the equipment line
converting to a $104,002, nine percent term loan payable in 36 months beginning
in October 1997. As of June 30, 1998, the Company had no outstanding balance
under this term loan. In June 1997, the Company entered into a $1.0 million
working capital line of credit with the same bank that provides the equipment
line of credit. The line is secured by all assets, exclusive of those financed
under the equipment line. The maximum amount available under this line of credit
is 75% of domestic accounts receivable, less amounts that have been outstanding
for more than 90 days. This line of credit expires July 20, 1998. At June 30,
1998, there was no balance outstanding on this line of credit.
The Company believes that the proceeds generated by the sale of Common
Stock by the Company in this offering, cash and cash equivalents on hand will,
in light of anticipated future cash flows, be sufficient to meet the Company's
working capital requirements for the next twelve months.
27
<PAGE> 30
BUSINESS
The Company is a leading provider of client/server core processing software
and related services to small to mid-size banks and credit unions. The Company
has developed The Complete Banking Solution and The Complete Credit Union
Solution (the "OSI System"), which are fully-integrated suites of banking and
credit union applications that operate in a Microsoft Windows NT environment
with an Oracle relational database. The Company's software supports all of an
institution's core processing requirements, including deposits and loans, teller
functions, home/ Internet banking and platform automation. The Company's open
and flexible client/server architecture is designed to enable its customers to
reduce their core processing and operational costs and leverage customer
information to improve retention and identify potential cross-selling
opportunities. The OSI System interfaces to third-party applications that are
commonly used in banks and credit unions, including check processing, ATMs and
general ledger applications. The OSI System enables banks and credit unions to
enhance customer satisfaction and compete more effectively in the financial
services industry.
INDUSTRY BACKGROUND
Currently, there are over 20,000 banking and depository institutions in the
United States with assets of up to $3 billion, including small to mid-size
commercial banks, thrifts and credit unions. The Company believes that these
institutions, which have traditionally competed on personalized service, are
facing increasing competitive pressures to improve their efficiencies in the
areas of customer service, operations and marketing. In addition, the evolving
requirements of the electronic marketplace demand that banks expand their
traditional services to include ATMs, telephone banking and home banking through
personal computers and the Internet. Banks and depository institutions of all
sizes are also experiencing increased competitive pressures from non-bank
competitors which, as a result of the deregulation of the financial services
industry, can offer products and services traditionally marketed by banks.
In responding to these trends, small to mid-size banks and credit unions
are increasingly seeking to implement information technology systems that will
enable them to increase the efficiency of their operations, offer a broader
array of services and provide enhanced levels of customer service. These
institutions have traditionally fulfilled their information technology needs
through legacy computer systems, operated either by the institution or a service
bureau on an outsourced basis. These systems, which operate in large mainframe
or minicomputer environments, are designed primarily to batch process a large
number of transactions and create centralized financial records. Nightly batch
sessions are typically required to update each customer's account with the
business day's transactions. As a result, banks utilizing legacy systems
typically do not offer their customers real-time processing of transactions, a
feature that is becoming an increasingly important operating requirement.
Moreover, legacy systems typically store data in non-relational, sequentially
indexed files. In this environment, retrieval of customer or other information
can be burdensome and time consuming and limits an institution's flexibility in
meeting changing customer service requirements. The centralized processing and
proprietary architecture of these systems is not designed to easily support
analysis for decision-making or integrate with other business applications used
throughout the enterprise. Financial institutions relying on legacy systems
often find it difficult to conform their business processes and reporting to the
architecture of the system and are not able to easily adapt the system to their
evolving needs.
The need to improve customer service levels, enhance operating efficiencies
and lower costs has contributed to the growing acceptance of the client/server
model of computing based on open, industry-standard operating environments and
relational databases. In a client/server environment, servers provide shared
access to data and applications, while client devices such as personal computers
and workstations provide the user interface and local processing functions.
Client/server systems can improve information sharing by providing access at
each desktop to critical customer and transaction data and business
applications, which had historically been restricted or difficult to
28
<PAGE> 31
access in legacy environments. Client/server applications enable organizations
to streamline core business practices and reporting and to make faster, more
informed decisions. The client/server model is also scalable as capacity can be
increased by upgrading the server or linking multiple servers. In addition, the
client/server model offers flexibility in that additional functionality can
easily be provided through third-party applications.
The Company believes that, until recently, the adoption of client/server
systems in many banks and credit unions has lagged other industries due to the
limited number of suppliers of open client/server systems designed specifically
to address the core processing requirements of such institutions. In part, this
has been attributable to the industry's long-standing reliance on legacy systems
and the high-volume processing requirements of larger banks. Among smaller
banking institutions, which the Company believes are best positioned to benefit
from the implementation of client/server systems, the adoption of such systems
has been hampered by the absence of cost effective client/server systems
designed specifically for use by such institutions. The Company believes that
fewer than 200 small to mid-size banks and credit unions in the United States
have implemented open client/server core processing systems.
The Company believes that banks and credit unions today are seeking
information technology solutions that combine the performance, reliability and
security associated with legacy-based systems with the flexibility, ease-of-use,
scalability and reduced cost of ownership associated with client/server systems.
Banks and credit unions require systems that can be easily integrated with other
applications used in the enterprise, provide real-time transaction processing
and comply with applicable regulatory requirements. Banks and credit unions also
require core processing systems that are able to accommodate new and emerging
technologies, such as ATMs, telephone banking and home banking via personal
computers and the Internet. In addition, these institutions require systems that
are Year 2000 compliant. Banks and credit unions are also seeking information
technology solutions that offer quick and effective access to customer and
account data in order to offer better, more customized services, monitor trends
and performance and cross-sell services and products. A client/server core
processing solution must be able to meet all of these requirements to enable
banks and credit unions to achieve a competitive advantage in their markets
through improved customer service, lower costs and enhanced access to customer
information.
THE OSI SOLUTION
The OSI System enables financial institutions to process transactions and
access critical customer and account data through a suite of open, distributed
application modules that operate in a Microsoft Windows NT environment with an
Oracle relational database. The Company's solutions are designed to provide its
customers with the following benefits:
X Fully-Integrated Solution. The OSI System supports all of an
institution's core processing requirements, including those of its branch
offices. The OSI System accommodates telephone banking and home banking
via personal computers and the Internet, and provides ATM management
capabilities. All components of the OSI System utilize a common
relational database and operating system. This architecture allows a bank
to provide its customers with real-time information concerning their
accounts and to create real-time management reports. The OSI System also
eliminates potential errors arising from the maintenance of multiple
databases and enables institutions to change their business processes
without requiring the modification of the underlying data model.
X Enhanced Customer Service Through Real-Time Processing. The OSI System
allows a bank's customers and employees to access and process information
on a real-time basis, which enables a bank's customers to receive up to
the minute account and transaction information from any branch,
telephone, home or Internet location. The OSI System also enables bank
employees to quickly identify customers and gather accurate and current
information about the entire customer relationship. Availability of this
information enables institutions to
29
<PAGE> 32
improve their level of customer service and provide them with incremental
opportunities for marketing additional products and services.
X Open Architecture. The OSI System operates in an open environment using
the Microsoft Windows NT operating system and the Oracle relational
database management system, which are installed on non-proprietary
hardware. The flexible, open architecture of the OSI System facilitates
the use of popular, off-the-shelf third-party software and the addition
of more processing capability as the institution's requirements increase.
X Reduced Cost of Ownership. The OSI System can reduce the overall cost of
ownership of a financial institution's core system. By integrating core
banking functions, which have historically run on separate systems, into
one seamless environment, the OSI System enables its customers to achieve
operational efficiencies. The OSI System can also reduce the costs that
would otherwise be associated with the ongoing maintenance of legacy
systems. In addition, the time and expense required to adapt the OSI
System to accommodate changing business processes and regulatory
requirements is less than that required with a typical legacy system. The
ability of the OSI System to operate across a broad range of popular
hardware provides customers with increased flexibility and the ability to
select the most cost-effective system.
STRATEGY
The Company's objective is to be the leading supplier of enterprise-wide
client/server software for small to mid-size banks and credit unions. The
Company's strategy for achieving this objective includes the following:
X Focus on Small to Mid-Size Banks and Credit Unions. The Company will
continue to focus on providing core processing solutions to small to
mid-size banks and credit unions, which the Company defines as
institutions with assets up to $3 billion. The Company believes that the
client/server model of computing is particularly well-suited for
institutions in this market. These institutions, unlike larger banks,
typically do not require extensive customization in connection with the
implementation of a banking system which makes it easier for them to
realize the benefits of client/server core processing systems in a
cost-effective manner. The Company believes that the demand for
client/server systems in this market is increasing as a result of these
factors.
X Expand Distribution Through Outsourcing Solutions. A number of small to
mid-size banks and credit unions outsource their core processing systems
to third-party service providers. These third-party service providers
typically choose one or more significant banking solutions on which they
base their outsourcing services. The Company has established strategic
relationships with BISYS, a major national outsourcing provider, and
COCC, a major regional outsourcing provider, under which these third
parties provide outsourced processing services to the financial services
industry using the OSI System. The Company plans to continue to jointly
market the OSI System with its outsourcing partners to expand its
installed customer base.
X Leverage Customer Base. The Company intends to continue to leverage its
installed customer base by expanding the range of complementary products
and services available to its customers. The Company generates recurring
revenues by entering into maintenance arrangements with its customers
that provide for annual service fees. As the asset size or number of
accounts of a financial institution increases, or as additional
application modules or services are provided, customers typically pay
incremental license and maintenance fees. The Company plans to continue
to expand its professional services offerings to its installed base of
customers as they implement additional application modules.
X Maintain Product Leadership. The Company believes that the open
client/server architecture of the OSI System provides it with competitive
advantages over other core processing
30
<PAGE> 33
systems. For example, the OSI System offers on-line, real-time
transaction processing capabilities that are not available in many
competitive systems, and the Company recently announced the introduction
of a home/Internet banking module supporting the Open Financial Exchange
("OFX") standard, which enables customers to access bank services using
personal computers and the Internet. The Company's open architecture
enables it to utilize leading, non-proprietary software and hardware to
provide comprehensive functionality. The Company intends to extend its
technological leadership by continuing to add new applications, integrate
new technologies and expand the functionality of its system.
TECHNOLOGY
The Company developed the OSI System to enable customers to realize the
advantages of client/server architectures. The OSI System is designed to offer
the following benefits: (i) flexible functionality, scalability, and high
performance, (ii) lower total cost of ownership, (iii) the ability to operate
either in real-time or batch processing mode and (iv) integration with
third-party applications and emerging technologies. The Company believes that
the OSI System achieves these objectives through an open architecture that is
based on leading technologies in the areas of operating systems, relational
databases, graphical user interfaces and report generation tools.
The foundation of the OSI System is an enterprise-wide relational database.
The OSI System uses relational database software from the industry's leading
supplier, Oracle Corporation. The OSI System's functionality is implemented
through application modules, each of which performs a specific core processing
function, that share the data in the relational database. This approach allows
for database normalization and business modeling. Through database
normalization, data is organized in tables that are easily accessible through a
variety of query tools as well as the application modules. The OSI System's data
model consists of over 600 tables, which the Company believes is substantially
greater than the number of tables in the data models of competing solutions. As
a result, a higher degree of independence between a customer's business
processes and underlying data is achieved and the OSI System is more scalable
and adaptable to changing business needs. New application modules may be
developed or existing modules may be altered as required without having to
change the underlying data model.
The OSI System is based on a single, enterprise-wide database as opposed to
a distributed database in which the database is spread among two or more
components, typically resident on different computers. The principal benefit of
an architecture using a single enterprise-wide database is that it permits
real-time processing so that, for example, transactions are immediately
reflected in a bank or credit union customer's account. This contrasts with a
batch processing approach in which all accounts are updated only at scheduled
intervals, typically at the end of the business day. The OSI System may be
configured to operate in either batch mode or a hybrid batch/real-time mode for
those banks or credit unions that do not require or desire real-time processing.
The OSI System is a 32-bit Microsoft Windows NT application that operates
in an open systems environment. The system does not require any proprietary
hardware components and is currently deployed on a wide range of client and
server platforms. The system features multi-level security that takes advantage
of the features of the underlying operating system and relational database as
well as offers some that are indigenous to the system. The OSI System also
interfaces to a broad range of third-party applications and peripherals that are
commonly used in banks and credit unions.
PRODUCTS
The OSI System is an enterprise-wide solution that addresses the core
processing requirements of small to mid-size banks and credit unions and other
financial institutions. The OSI System consists of software application modules
that operate on a fully-integrated basis and is designed to be Year
2000-compliant. The Company recently released its OSI/ATM Server, the OSI
home/Internet banking module and a 32-bit version of the OSI System. In
addition, the Company markets third-
31
<PAGE> 34
party applications that are commonly used in banks and credit unions. Current
prices for the base OSI System software license range from approximately
$140,000 to $1.5 million, depending on asset size and number of customer
accounts.
Application Modules
The following table describes certain application modules of the OSI
System:
<TABLE>
<CAPTION>
APPLICATION DESCRIPTION
- ----------- -----------
<S> <C>
Customer Service.......................... Provides a quick and comprehensive view of each cus-
tomer relationship; maintains customer's picture and
signature for recognition; supports opening and
maintenance of all types of accounts and provides a
measure of an individual customer's profitability;
enables tellers to complete an entire transaction
on-line in the presence of the customer.
Comprehensive Lending..................... Provides comprehensive management of all loans,
whether mortgage, consumer or commercial, including
establishment of escrow, insurance and tax accounts;
can provide loan-loss reserve calculations based on
risk ratings and loan classifications; includes "what
if" loan calculator and amortization schedule.
Depository System......................... Supports all forms of deposit instruments, including
passbook and statement savings, club accounts and
checking accounts, share drafts (credit unions),
certificates of deposit and time deposits and
repurchase agreements.
Teller Application........................ Provides a teller with real-time access to the bank's
database and a complete profile of the bank's clients
(including a customer's picture and signature); easily
navigated by the teller and does not require
transaction codes.
General Ledger Interface.................. Easy-to-use module designed to manage interfaces to
popular general ledger systems.
Bank and Branch Operations................ A comprehensive and secure administrative management
tool for determining user accessibility, security,
hours of operation, cash boxes and authorization
structures.
End of Day Production..................... Identifies and schedules all end of day processing,
including updating of interest, fees and other
charges, and produces daily production reports and
customer statements.
Executive Information..................... Enables management to monitor bank's performance
through on-line queries of any product or branch;
tools can generate new reports in graphical or tabular
form based upon ad hoc information requests.
External File Manager..................... Manages all data that must be entered into the
database from external sources, including check
clearings, ACH (automatic clearing house), loan
origination and ATM transaction files.
Payroll................................... Enables updating of all payroll accounts provided
through an ACH format or from outside payroll systems.
</TABLE>
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<PAGE> 35
<TABLE>
<CAPTION>
APPLICATION DESCRIPTION
- ----------- -----------
<S> <C>
Product Manager........................... Enables bank to design and promote new loan, checking
and deposit products and to monitor current product
offerings; uses fill-in-the-blank, easy-to-follow
screens with user defined fees and rate schedules that
allow for unlimited tiering.
IRS/Year-End Reporting.................... Supports year-end IRS reporting information for both
standard and specialized forms.
Forms Integration......................... Integrates generation of forms, includes new account
documents, disclosures, signature cards and passbooks;
eliminates need to inventory pre-printed forms.
</TABLE>
OSI/ATM Server
The OSI/ATM Server is an ATM management system that provides banks with the
capability to directly manage their own ATM network or interface with regional
ATM networks. The OSI/ATM Server enables customers to reduce costs associated
with ATM systems and provides features such as real-time, single balance update
capabilities, support for multiple ATM transactions and processing and
authorization options. In addition, the OSI/ATM Server enables banks to define
their own operating parameters without the need for program modifications. The
system, which operates on Stratus computers, is designed to provide
fault-tolerant reliability. The OSI/ATM Server is fully integrated with the OSI
System. Current list prices for the OSI/ATM Server module range from
approximately $45,000 to $90,000.
Home/Internet Banking Module
The Company's home/Internet banking module enables customers to remotely
access an online banking system through which a customer can transfer funds from
transaction accounts, make balance inquiries, generate instant statements and
monitor account activity. The Company's system supports the OFX standard, which
enables the system to interface to bank services that use a variety of devices
to originate customer transactions. Through the OFX standard, the OSI System can
also be integrated with commonly-used personal financial management products,
such as Microsoft's Money 98 and Intuit's Quicken. Current list prices for the
home/Internet banking module range from approximately $50,000 to $100,000.
Third-Party Applications
The open architecture of the OSI System facilitates the integration of
third-party applications, and the Company offers various third-party
applications for use with the OSI System. Such applications include:
asset/liability management, check and statement imaging, collection management,
disaster recovery planning, general ledger, voice response, loan origination and
on-line ATM interface.
SALES AND MARKETING
The Company markets its software and services primarily through its direct
sales force. As of June 30, 1998, the Company employed 22 sales and marketing
personnel.
The Company's marketing program includes direct mail, networking,
telemarketing, advertising in industry specific trade journals and periodicals,
seminars and trade shows. The Company maintains an Internet web site from which
prospective customers can retrieve and view product information. The Company has
established an alliance with Unisys PAAG under which Unisys has exclusive rights
to market the OSI System in Asia (except Japan), South Africa and certain other
countries. The Company has established strategic relationships with Oracle
Corporation, Compaq Computer Corporation and Stratus Computer, Inc. providing
for joint marketing efforts.
Historically, a significant portion of all banks and credit unions have
chosen to satisfy their information technology needs through service bureaus. To
address this market, the Company has
33
<PAGE> 36
entered into software license and marketing agreements with BISYS and COCC under
which these third parties provide outsourced core processing services to the
financial services industry using the OSI System.
Pursuant to a Software License and Marketing and Distribution Agreement
with BISYS, the Company has granted BISYS the exclusive right in the United
States, subject to certain exceptions (including the Company's right to use
regional providers of outsourcing services), to use the OSI System to provide
outsourcing of core processing services to banks and credit unions. The OSI
System may not be sublicensed by BISYS, and all proprietary rights to the OSI
System remain with the Company. This right becomes non-exclusive if BISYS fails
to obtain a specified number of customer contracts, or pay the minimum required
license and maintenance fees in each of these first three years. BISYS has
agreed that the Company shall be its exclusive provider of client/server core
processing systems for BISYS during the term of the Agreement. Royalty payments
under the Agreement are consistent with those paid by other outsourcing
providers of the OSI System. The Company has agreed to provide BISYS with
pricing and other terms at least as favorable as those granted by the Company to
other outsourcing providers. Pursuant to the agreement, the parties engage in
joint marketing of each other's products and services and refer potential
customers to each other. As of June 30, 1998, BISYS had entered into outsourcing
agreements with five institutions.
The Company has also entered into a License and Marketing Agreement with
COCC under which the Company has granted COCC certain exclusive rights to use
the OSI System to provide outsourced core processing services to banks and
credit unions in the New England states and New York. COCC must meet certain
customer milestones to maintain its exclusivity. The Company receives license
fees with respect to outsourced data processing agreements entered into by COCC,
subject to a cumulative maximum payment, as stipulated in the agreement. As of
June 30, 1998, COCC had entered into outsourcing agreements with four
institutions.
CUSTOMERS
The Company's customers are primarily small to mid-size banks and credit
unions, typically with fewer than ten branches, that serve the banking needs of
their local communities. These banks are often the primary local providers of
savings accounts and consumer, mortgage and commercial loans in the markets they
serve. The majority of the Company's customers are located in the Northeast
region, although the Company is expanding its presence in other regions. As of
June 30, 1998, 31 banks and one credit union utilized the OSI System. An
additional 38 banks were in various stages of implementation, including 13 banks
owned by three bank holding companies and nine banks utilizing outsourcing
services provided by the Company's outsourcing partners. The average asset size
of the Company's current customer base is approximately $245 million.
Sales to the Hawthorne Savings and Loan Association accounted for
approximately 11% of total revenues in the six months ended June 30, 1998. Sales
to The Savings Bank of Manchester and The Savings Bank of Utica accounted for
approximately 17% and 15% of total revenues, respectively, in the year ended
December 31, 1997. Sales to American Federal Bank, Gloversville Federal Savings
and Loan Association, Dean Cooperative Bank and Signet Bank accounted for
approximately 38%, 22%, 20% and 14% of total revenues, respectively, in the year
ended December 31, 1996. Sales to Seneca Falls Savings Bank and The Simsbury
Savings Bank accounted for approximately 56% and 43% of total revenues,
respectively, in the year ended December 31, 1995. The Company anticipates that
no customer will account for more than 10% of revenues in the year ending
December 31, 1998.
SERVICES
The Company provides comprehensive implementation and training services to
customers who purchase the OSI System. An implementation team works with the
customer through all phases of the project, including software installation,
data conversion, education and training. Full implemen-
34
<PAGE> 37
tation of the OSI System typically occurs over a 14 to 24 week period, depending
on the complexity of the conversion. The Company also provides
post-implementation customer support and maintenance. As of June 30, 1998, the
Company had 62 employees dedicated to implementation, training, support and
maintenance.
X Implementation. The Company assigns to each customer a project manager
who coordinates all activities related to the implementation of the OSI
System. The Company also assigns conversion programmers who convert a
bank's current account data to the relational database in the OSI System.
Data conversion activities include data mapping, program development,
testing, data auditing and a complete trial conversion prior to the final
implementation date.
X Training. The Company offers a comprehensive education and training
program to its customers. The Company offers training classes at its
headquarters in Connecticut and hands-on application training at the
customer site prior to installation of the OSI System. In addition,
on-site training for ancillary products is available upon request. The
Company also assists customers desiring to adapt the OSI System to
particular needs, including customer-specific software features, reports
or regulatory requirements.
X Support and Maintenance. Support and maintenance personnel provide
immediate telephone response service during normal working hours,
supplemented by on-call support 24 hours a day, seven days a week. The
Company also provides product support services through the Internet,
electronic mail and facsimile. In addition, the Company offers remote
product support services whereby the Company's support team directly
connects to a customer's server to troubleshoot or perform routine
maintenance. The Company enters into maintenance agreements with its
customers pursuant to which they pay an annual maintenance fee, based on
a percentage of the license fee, over the term of the software license.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."
PRODUCT DEVELOPMENT
The Company plans to continue to invest significant resources to maintain
and enhance its current product and service offerings. The Company's principal
product development focus is on: (i) enhanced functionality of the OSI System
through the development of new features and improvements to existing
applications modules, (ii) software updates as new versions of the Windows NT
operating system and Oracle relational database are released and (iii) tools to
automate the process of converting a customer's legacy data to the OSI System.
As of June 30, 1998, the Company employed a staff of 28 employees engaged
in product development. The Company's product development expenditures were
approximately $918,356, $1.9 million, $1.1 million and $660,510 for the six
months ended June 30, 1998 and the years ended December 31, 1997, 1996 and 1995,
respectively.
COMPETITION
The financial services software market is intensely competitive and subject
to rapid technological change. Competitors vary in size and in the scope and
breadth of products and services offered. The Company encounters competition in
the U.S. from a number of competitors which offer alternative client/server
systems to banks and credit unions, including M&I EastPoint, Phoenix
International Ltd., Inc. and Prologic Corporation, and a number of competitors,
including Fiserv, Inc., NCR Corporation, Electronic Data Systems Corporation,
Marshall & Ilsley Corporation, Jack Henry & Associates, Inc., ALLTEL Corporation
and Kirchman Corporation, all of which offer legacy core processing systems or
outsourcing alternatives to banks and credit unions. The Company also competes
against a number of smaller, regional competitors. In addition to these
competitors, the Company competes internationally with Misys plc Banking
Division (including Midas-Kapiti International, Inc., Kindle Banking Systems and
ACT Financial Systems), Sanchez Computer Associates, Inc. and Financial Network
Services, among others. The Company also competes with other core processing
alternatives, including in-house applications, which were either developed
internally or purchased from third-party vendors, and outsourcing, either as a
part of a total outsourcing solution
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<PAGE> 38
or through a service bureau arrangement. Furthermore, the Company expects
additional competition from other established and emerging companies as the
client/server application software market continues to expand. There can be no
assurance that the Company will be able to compete successfully against either
its existing or future competitors.
In general, the Company competes on the basis of product architecture and
functionality, service and support, including the range and quality of technical
support, training and implementation services, and product pricing in relation
to performance and support.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. The Company's license agreements contain
provisions which limit the number of users, state that title remains with the
Company and protect confidentiality. The Company presently has no patents or
patent applications pending.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, particularly overseas,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the extent of the laws of the United States.
Nevertheless, the Company believes that due to the rapid pace of technological
change in the information technology and software industries, factors such as
the technological and creative skills of its employees, new product
developments, frequent product enhancements and the timeliness and quality of
support services are more important to establishing and maintaining a
competitive advantage in the industry.
The Company does not believe that any of its products infringe upon the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to current
or future products. Any such claim could result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
EMPLOYEES
As of June 30, 1998, the Company had a total of 130 employees, of which 28
were engaged in product development and system documentation, 62 were engaged in
implementation, training, support and maintenance, 22 were engaged in sales and
marketing and 18 were engaged in finance and administration and other functions.
None of the Company's employees is represented by a labor union. The Company has
not experienced any work stoppages and considers relations with its employees to
be good.
FACILITIES
The Company currently leases approximately 22,000 square feet of space in
its headquarters facility in Glastonbury, Connecticut. The lease for 15,000
square feet expires in 2003 and for 7,000 square feet expires in 2001. The
Company plans to lease approximately 8,000 additional square feet at this
facility before the end of 1998.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings that would
have a material adverse effect on the Company's business, financial condition or
results of operations.
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and certain other key employees of the
Company, their respective ages as of June 30, 1998 and their positions with the
Company are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION
- -------------------------------- --- --------
<S> <C> <C>
Douglas K. Anderson....................... 48 Chairman of the Board and Chief Executive
Officer
John L. Person............................ 63 President and Chief Operating Officer
Graham H. Gurney.......................... 57 Senior Vice President of Sales and
Director
Clifford I. Waggoner...................... 57 Senior Vice President, Chief Technology
Officer and Director
Richard J. Willemin....................... 47 Senior Vice President and Chief Financial
Officer
Carlos P. Naudon (1)...................... 47 Vice Chairman of the Board
Douglas C. Carlisle (2)................... 41 Director
David M. Clarke (1)....................... 47 Director
Samuel F. McKay (1)(2).................... 58 Director
William W. Neville........................ 44 Director
Richard P. Yanak (2)...................... 63 Director
KEY EMPLOYEES
- ---------------
Charles J. Beer........................... 40 Vice President of Application Development
John J. DeMita............................ 53 Vice President of Professional Services
John L. Messier........................... 34 Vice President of Conversion Services
Michael D. Nicastro....................... 39 Vice President of Marketing
Debra M. Dabrowski........................ 30 Controller
</TABLE>
- ---------------
(1) Member of the Audit Committee effective as of the closing of this offering.
(2) Member of the Compensation Committee effective as of the closing of this
offering.
Mr. Anderson has served as Chairman of the Board and Chief Executive
Officer of the Company since December 1997 and as a director since July 1994.
Mr. Anderson served as President of the Company from October 1995 to December
1997. From December 1986 to October 1995, Mr. Anderson was employed by the
Savings Bank of Manchester and was responsible for all bank operations and
information technology, most recently as Executive Vice President. Prior to
joining the Savings Bank of Manchester, Mr. Anderson was employed for 14 years
by Unisys Corporation.
Mr. Person has served as President and Chief Operating Officer of the
Company since December 1997, and served as Executive Vice President and Chief
Operating Officer of the Company from May 1997 to December 1997. From August
1996 to May 1997, Mr. Person was Managing Director of Compression Engines, LLC,
a software company. From October 1994 to May 1997, Mr. Person served as
President of Enanti Corporation, a contact management software company. From
July 1992 to October 1994, Mr. Person served as President of HP Films, a film
production company. Mr. Person also served as President of Newtrend MISER Group,
a company specializing in banking software.
Mr. Gurney co-founded the Company in 1992, and has served as Senior Vice
President of Sales of the Company since June 1996 and as a director since 1992.
From September 1984 to October 1987, Mr. Gurney served as regional district
manager for the New York district of Sperry Corporation, a computer hardware and
software company. From October 1987 to June 1992, Mr. Gurney served as the
Eastern regional sales director for Sharebase Corporation, a relational database
company.
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<PAGE> 40
Mr. Gurney was employed in various positions for 15 years in the financial
services computing industry.
Mr. Waggoner co-founded the Company in 1992, has served as Senior Vice
President and Chief Technology Officer of the Company since October 1995 and as
a director since 1992. Mr. Waggoner served as President of the Company from May
1992 to October 1995. From June 1987 to May 1992, Mr. Waggoner was Vice
President and Principal of Linc Systems Corporation, a software services
company. Prior to joining Linc Systems Corporation, Mr. Waggoner was employed
for 17 years by Electronic Data Systems Corporation.
Mr. Willemin has served as Senior Vice President and Chief Financial
Officer of the Company since April 1998. From March 1997 to April 1998, Mr.
Willemin served as Chief Financial Officer of Summit Medical, Inc., a supplier
of clinical database software. From September 1996 to February 1997, Mr.
Willemin served as Chief Financial Officer of Datalogix International, Inc., a
supplier of manufacturing and logistics software. From June 1994 to August 1996,
Mr. Willemin served as Vice President and Chief Financial Officer of NEIC, a
transaction processing company in the health care industry. From March 1992 to
June 1994, Mr. Willemin served as interim Chief Financial Officer during periods
of transition for several companies, including, Saratoga Springs Water Company,
a beverage manufacturer and distributor, and Canyon Ranch Spa Cuisine, a mail
order health food company.
Mr. Naudon has served as Vice Chairman of the Board of the Company since
October 1995 and as a director since September 1994, and served as Managing
Director from March 1995 to October 1995. Since May 1992, Mr. Naudon, has served
as Chairman of the Board of BSI Administrative Services Inc., a benefits plan
administration company. In addition, since January 1984, Mr. Naudon has served
as President, Chief Executive Officer and director of Spectrum and Banking
Spectrum, Inc., each a banking consulting company.
Mr. Carlisle has served as a director of the Company since March 1994.
Since 1984, Mr. Carlisle has served as a general partner of Menlo Ventures VI,
L.P. ("Menlo Ventures"), a venture capital fund that invests in emerging growth
technology companies. Mr. Carlisle is a director of Carrier Access Corporation.
Mr. Clarke has served as a director of the Company since April 1998. Since
September 1993, Mr. Clarke has served as Vice President, Private Equity, of the
Aetna Investment Management Group of Aetna Life Insurance Company ("Aetna").
From September 1977 to September 1993, Mr. Clarke held various other positions
in the Private Bond Investment Group of Aetna.
Mr. McKay has served as a director of the Company since December 1995.
Since April 1994, Mr. McKay has served as a general partner of Axiom Venture
Partners, L.P. ("Axiom"), a venture capital firm. Previously, Mr. McKay was
general partner of Connecticut Seed Ventures, L.P. Mr. McKay is a director of
Anika Therapeutics, Inc., Sabre Communications Corporation, Costar Corporation
and Nightingale Corp.
Mr. Neville has served as a director of the Company since June 1998. Since
June 1997, Mr. Neville has served as President of BISYS, Inc., a subsidiary of
BISYS. From June 1995 to June 1997, Mr. Neville served as Senior Vice President
and Eastern regional General Manager of BISYS, Inc. From June 1992 to June 1995,
Mr. Neville served as Vice President and General Manager of the New England
region of BISYS, Inc.
Mr. Yanak has served as a director of the Company since May 1996. Since
October 1996, Mr. Yanak has served as Senior Advisor of NYCE Corporation, an
electronic banking services company. From December 1987 to October 1996, Mr.
Yanak served as President and Chief Executive Officer of NYCE Corporation.
Mr. Beer has served as Vice President of Application Development of the
Company since October 1996, and served as Director of Application Development of
the Company from June 1992
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<PAGE> 41
to October 1996. Previously, Mr. Beer served as Assistant Vice President of
Development of American Savings Bank.
Mr. DeMita has served as Vice President of Professional Services of the
Company since September 1996. From December 1995 to September 1996, Mr. DeMita
served as Vice President of Production of NYCE Corporation, an electronic
banking services company. From July 1992 to October 1995, Mr. DeMita served as
President of Hardcopy Media Inc., a printing company and owned and operated
Alpha Graphics, a printing franchise company. Previously, Mr. DeMita served as
President of American Business Information Services, a subsidiary of American
Savings Bank.
Mr. Messier has served as Vice President of Conversion Services of the
Company since December 1997, and served as Manager of Customer Support of the
Company from July 1995 to December 1997. From February 1990 to July 1995, Mr.
Messier served as a Product Support Specialist and Senior Project Manager at
Fiserv, Inc., a financial services technology company.
Mr. Nicastro has served as Vice President of Marketing of the Company since
October 1996, and served as Director of Marketing and Customer Services of the
Company from September 1994 to October 1996. From February 1985 to September
1994, Mr. Nicastro held various product management positions with the Data
Services Division of NCR Corporation. In addition, Mr. Nicastro served in
various positions at Bristol Savings Bank and Citicorp.
Ms. Dabrowski has served as Controller of the Company since May 1997. From
August 1989 to April 1997, Ms. Dabrowski was employed by Price Waterhouse LLP,
an independent public accounting firm, most recently as Audit Manager in its
Technology Industry Group. Ms. Dabrowski is a certified public accountant.
Pursuant to an Amended and Restated Investors' Rights Agreement dated as of
August 22, 1997 among the Company and certain stockholders of the Company, such
stockholders were granted the right (which terminates upon the closing of this
offering) to designate representatives on the Company's Board of Directors.
Under this agreement, Messrs. Carlisle, McKay, Clarke and Neville were elected
the representatives of Menlo Ventures, Axiom, Aetna and BISYS, respectively.
Pursuant to a Software License and Marketing and Distribution Agreement
dated as of August 20, 1997 between the Company and BISYS, Inc., a subsidiary of
BISYS, BISYS, Inc. was granted the right (which continues until termination of
the agreement) to nominate a candidate to the Company's Board of Directors.
Following this offering, the Board of Directors of the Company 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.
Carlisle, Naudon and Waggoner), three Class II Directors (Messrs. Gurney, McKay
and Yanak) and three Class III Directors (Messrs. Anderson, Clarke and Neville).
At each annual meeting of stockholders, a class of directors will be elected for
a three-year term to succeed the directors 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 stockholders to be held during the calendar years 1999,
2000 and 2001, respectively.
Each officer serves at the discretion of the Board of Directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. There are no family relationships among any of
the directors or executive officers of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee composed of Messrs.
Carlisle, McKay and Yanak, which makes recommendations concerning salaries and
incentive compensation for employees of and consultants to the Company and
administers and grants stock options pursuant to the Company's stock option
plans, and an Audit Committee composed of Messrs. Clark, McKay and
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<PAGE> 42
Naudon, which reviews the results and scope of the audit and other services
provided by the Company's independent public accountants.
DIRECTOR COMPENSATION
Directors do not currently receive any compensation for their services on
the Board of Directors, other than reimbursement for out-of-pocket expenses.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1997 for the Company's Chief Executive Officer and
its three other most highly compensated executive officers in 1997 who were
serving as executive officers on December 31, 1997 (the Chief Executive Officer
and such other executive officers are hereinafter referred to as the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(1) COMPENSATION
- --------------------------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Douglas K. Anderson....... $175,000 $30,000 $-- 195,000(2) $40,000(2)
Chairman of the Board and
Chief Executive Officer
Graham H. Gurney.......... 100,000 15,400(3) -- -- --
Senior Vice President of
Sales
Clifford I. Waggoner...... 106,000 3,000 -- -- --
Senior Vice President and
Chief Technology Officer
John L. Person(4)......... 88,218 15,000 2,800(5) 100,000 4,936(6)
President and Chief
Operating Officer
</TABLE>
- ---------------
(1) Represents the number of shares covered by options to purchase shares of the
Company's Common Stock granted during the year ended December 31, 1997.
(2) In exchange for the surrender of the right to receive 175,000 shares of
Common Stock originally granted on October 2, 1995, Mr. Anderson received an
option to purchase 175,000 shares of Common Stock at an exercise price of
$0.45 per share and supplemental compensation of $40,000 in 1997 and $60,000
in 1998.
(3) Represents sales commissions.
(4) Mr. Person joined the Company in May 1997.
(5) Represents automobile allowance.
(6) Represents reimbursement for relocation expenses.
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<PAGE> 43
The following table sets forth grants of stock options to each of the Named
Executive Officers during the year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------------------ AT ASSUMED ANNUAL RATES
PERCENT OF OF STOCK PRICE
NUMBER OF TOTAL APPRECIATION FOR OPTION
SECURITIES OPTIONS TERM(3)
UNDERLYING GRANTED TO EXERCISE FAIR MARKET ------------------------------
OPTIONS EMPLOYEES IN PRICE VALUE PER EXPIRATION
NAME GRANTED(1) FISCAL YEAR PER SHARE SHARE(2) DATE 0% 5% 10%
- ---- ---------- ------------ ----------- ----------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas K. Anderson....... 175,000 36.3% $0.45 $1.50 7/21/07 $183,750 $299,309 $476,600
20,000 4.2% 0.45 1.50 7/21/07 21,000 34,207 54,469
Graham H. Gurney.......... -- -- -- -- -- -- -- --
Clifford I. Waggoner...... -- -- -- -- -- -- -- --
John L. Person............ 100,000 20.7% 0.45 1.50 5/07/07 105,000 171,034 272,343
</TABLE>
- ---------------
(1) Mr. Anderson's option to purchase 175,000 shares vested with respect to
84,722 shares immediately upon grant and the remaining shares underlying the
option vest in twenty-six equal monthly installments. Twenty-five percent of
Mr. Person's option and Mr. Anderson's option to purchase 20,000 shares vest
on the first anniversary of the date of grant and the remaining shares
underlying the options vest in thirty-six equal monthly installments.
(2) The fair market value of the Common Stock on the grant date was determined
in good faith by the Board of Directors, based upon factors such as the
terms upon which the Company issued securities to third parties in financing
transactions, the illiquid nature of the Company's securities, and the
financial condition, results of operations and business prospects of the
Company at each of the dates of grant. The Company's Common Stock was not
traded publicly at the time the options were granted to the Named Executive
Officers.
(3) 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 (0%, 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.
Assuming the fair market value of the Common Stock at the date of grant was
an assumed initial public offering price of $11.00 per share, the potential
realizable value of these options (a) at a 5% assumed annual rate of stock
price appreciation would be $3,351,043 for Mr. Anderson and $1,718,484 for
Mr. Person, and (b) at a 10% assumed annual rate of stock price appreciation
would be $5,335,977 for Mr. Anderson and $2,736,398 for Mr. Person.
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<PAGE> 44
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the Named Executive Officers on
December 31, 1997. None of the Named Executive Officers exercised any stock
options during the year ended December 31, 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglas K. Anderson................. 130,555 94,445 $536,248 $384,002
Graham H. Gurney.................... 81,272 30,208 342,314 126,874
Clifford I. Waggoner................ 19,792 30,208 83,126 126,874
John L. Person...................... -- 100,000 -- 405,000
</TABLE>
- ---------------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock at fiscal year end.
STOCK PLANS
1994 Stock Option Plan and 1998 Stock Incentive Plan
The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by the
Board of Directors and approved by the stockholders of the Company in March
1994. Amendments to the 1994 Plan increased the number of authorized shares
under the Plan to 3,000,000 shares of Common Stock. As of June 30, 1998, options
to purchase an aggregate of 1,689,500 shares of Common Stock at a weighted
average exercise price of $0.77 per share were outstanding under the 1994 Plan.
No additional option grants will be made under the 1994 Plan.
The Company's 1998 Stock Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors, subject to stockholder approval, in June 1998. Awards
may be made under the Incentive Plan for up to the sum of (i) 1,200,000 shares
of Common Stock (subject to adjustment in the event of stock splits and other
similar events), plus (ii) the number of shares of Common Stock (up to
1,700,000) (subject to adjustment in the event of stock splits and other similar
events) subject to awards granted under the 1994 Plan which are not actually
issued because options granted under such plan expire or otherwise result in
shares not being issued or, in the case of restricted stock, are repurchased by
the Company pursuant to the terms of the applicable stock restriction agreement.
The Incentive Plan provides for the grant of incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), nonstatutory stock options, restricted stock awards and
other stock-based awards (collectively, "Awards").
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to receive Awards under the Incentive Plan. Under
present law, however, incentive stock options may only be granted to employees.
The maximum number of shares with respect to which an Award may be granted to
any participant under the Incentive Plan may not exceed 400,000 shares per
calendar year.
Optionees receive the right to purchase a specified number of shares of
Common Stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant. Under present
law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the
42
<PAGE> 45
Company). The Incentive Plan permits the Board of Directors to determine the
manner of payment of the exercise price of options, including through payment by
cash, check or in connection with a "cashless exercise" through a broker, by
surrender to the Company of shares of Common Stock, by delivery to the Company
of a promissory note, or by any combination of the permitted forms of payment.
As of June 30, 1998, approximately 136 persons would have been eligible to
receive Awards under the Incentive Plan, including the Company's five executive
officers and six non-employee directors. The granting of Awards under the
Incentive Plan is discretionary.
The Incentive Plan is administered by the Board of Directors. The Board of
Directors has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the Incentive Plan and to interpret the
provisions thereof. Pursuant to the terms of the Incentive Plan, the Board of
Directors may delegate authority under the Incentive Plan to one or more
committees of the Board of Directors and, subject to certain limitations, to one
or more executive officers of the Company. The Board of Directors has authorized
the Compensation Committee to administer the Incentive Plan, including the
granting of options to executive officers. Subject to any applicable limitations
contained in the Incentive Plan, the Board of Directors, the Compensation
Committee or any other committee or executive officer to whom the Board of
Directors delegates authority, as the case may be, selects the recipients of
Awards and determines (i) the number of shares of Common Stock covered by
options and the dates upon which such options become exercisable, (ii) the
exercise price of options, (iii) the duration of options, and (iv) the number of
shares of Common Stock subject to any restricted stock or other stock-based
Awards and the terms and conditions of such Awards, including the conditions for
repurchase, issue price and repurchase price.
In the event of a merger, liquidation or other Acquisition Event (as
defined in the Incentive Plan), the Board of Directors is authorized to provide
for outstanding options or other stock-based Awards to be assumed or substituted
for by the acquiror. If the acquiror refuses to assume or substitute for
outstanding Awards, they will accelerate, becoming fully exercisable and free of
restriction, prior to consummation of the Acquisition Event. In addition,
following an Acquisition Event, an assumed or substituted Award will accelerate
if the employment of its holder with the acquiror is terminated prior to the
first anniversary of the Aquisition Event other than "for cause," as defined in
the Incentive Plan.
No Award may be granted under the Incentive Plan after June 2008, but the
vesting and effectiveness of Awards previously granted may extend beyond that
date. The Board of Directors may at any time amend, suspend or terminate the
Incentive Plan, except that no Award granted after an amendment of the Incentive
Plan and designated as subject to Section 162(m) of the Code by the Board of
Directors shall become exercisable, realizable or vested (to the extent such
amendment was required to grant such Award) unless and until such amendment is
approved by the Company's stockholders.
The Company intends to grant options to purchase an aggregate of 200,000
shares of Common Stock to certain employees (none of whom is an executive
officer) on the effective date of this offering at a price per share equal to
the initial public offering price.
1998 Employee Stock Purchase Plan
The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors, subject to stockholder approval, in June
1998. The Purchase Plan authorizes the issuance of up to a total of 250,000
shares of Common Stock to participating employees.
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries, whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year are eligible to participate in the
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<PAGE> 46
Purchase Plan. Employees who would immediately after the grant own 5% or more of
the total combined voting power or value of the stock of the Company or any
subsidiary are not eligible to participate. As of June 30, 1998, approximately
130 of the Company's employees would have been eligible to participate in the
Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase the number of shares of
Common Stock equal to an amount (a whole percentage from 1% to 10% of such
employee's base pay) authorized by the employee to be deducted by the Company
from such employee's base pay during the Offering Period. On the last day of the
Offering Period, the employee is deemed to have exercised the option, at the
option exercise price, to the extent of accumulated payroll deductions. Under
the terms of the Purchase Plan, the option price is an amount equal to 85% of
the closing price (as defined) per share of the Common Stock on either the first
business day or the last business day of the Offering Period, whichever is
lower. In no event may an employee purchase in any one Offering Period a number
of shares which exceeds the number of shares determined by dividing (a) the
product of $2,083 and the number of whole months in such Offering Period by (b)
the closing price per share of the Common Stock on the commencement date of the
Offering Period. The Compensation Committee may, in its discretion, choose an
Offering Period of 12 months or less for each Offering and choose a different
Offering Period for each Offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when such employee ceases employment for any reason, except
that upon termination of employment because of death, the employee's beneficiary
has certain rights to elect to exercise the option to purchase the shares which
the accumulated payroll deductions in the participant's account would purchase
at the date of death.
Because participation in the Purchase Plan is voluntary, the Company cannot
now determine the number of shares of Common Stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
401(k) PLAN
The Company currently maintains a 401(k) salary reduction plan (the "401(k)
Plan") which is intended to qualify under Sections 401(a) and 401(k) of the
Internal Revenue Code of 1986. Employees working more than 20 hours per week are
eligible to begin participating in the 401(k) Plan on the first day of each
calendar quarter. All eligible executive officers, other than Mr. Person, have
elected to participate in the 401(k) Plan.
Eligible employees electing to participate in the 401(k) Plan may defer a
portion of their compensation on a pre-tax basis, by contributing a percentage
thereof to the 401(k) Plan. The maximum contribution is prescribed in Section
401(k) of the Internal Revenue Code of 1986. The contribution limit for 1997 was
$9,500. The Company made matching contributions of $30.00 plus 25% of the first
four percent of the employee's compensation which is deferred under the plan in
1997, subject to the foregoing limit. Eligible employees who elect to
participate in the 401(k) Plan are generally vested in the Company's matching
contribution after three years of service.
EMPLOYMENT AGREEMENTS
Pursuant to a Key Employee Agreement dated October 2, 1995, as amended on
July 21, 1997, the Company agreed to employ Douglas K. Anderson as President and
Chief Executive Officer. The Company also agreed to maintain a policy on the
life of Mr. Anderson with a death benefit of $300,000 payable to a beneficiary
named by Mr. Anderson. Under the agreement, Mr. Anderson retained 175,000 shares
of Common Stock initially issued to him and surrendered the right to
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<PAGE> 47
receive 175,000 shares in exchange for the grant of an incentive stock option to
purchase 175,000 shares of Common Stock at an exercise price of $0.45 per share
and supplemental compensation of $40,000 in 1997 and $60,000 in 1998. The
Company also granted to Mr. Anderson an additional option to purchase 20,000
shares of Common Stock at an exercise price of $0.45 per share. On March 2,
1998, by action of the Company's Board of Directors, the Company agreed to pay
Mr. Anderson an annual base salary of not less than $225,000 and a bonus of
$50,000 in 1998 based on the achievement of certain performance targets. The
Company also agreed to provide, under certain circumstances, for 24 months of
salary continuation and acceleration of options upon termination of Mr.
Anderson's employment.
Pursuant to employment agreements dated January 2, 1993, as amended on
January 2, 1994, the Company agreed to employ each of Graham H. Gurney and
Clifford I. Waggoner. The Company agreed to pay each of Messrs. Gurney and
Waggoner an annual base salary of $100,000. The agreements also include a
covenant by each of Messrs. Gurney and Waggoner not to compete with the business
of the Company, or to solicit any employee or client of the Company, during the
two-year period following his employment termination, and contain customary
confidentiality and invention assignment provisions.
Pursuant to a letter agreement dated April 10, 1997, the Company agreed to
employ John L. Person as Executive Vice President and Chief Operating Officer
and to grant Mr. Person an incentive stock option to purchase 100,000 shares of
Common Stock at an exercise price of $0.45 per share. On March 2, 1998, by
action of the Company's Board of Directors, the Company agreed to pay Mr. Person
an annual base salary of $190,000 and a bonus of up to $35,000 based on the
achievement of certain performance targets. The Company also agreed to provide,
under certain circumstances, 12 months salary continuation and acceleration of
options upon termination of Mr. Person's employment.
Pursuant to a letter agreement dated February 27, 1998, the Company agreed
to employ Richard J. Willemin as Senior Vice President and Chief Financial
Officer. The Company agreed to pay Mr. Willemin an annual base salary of
$150,000 and to grant Mr. Willemin an incentive stock option to purchase 100,000
shares of Common Stock at an exercise price of $2.75 per share. The Company also
agreed that in the event of a change in control of the Company the vesting of
all such options will be accelerated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Carlisle, McKay and Yanak. No executive officer of the Company has
served as a director or member of the compensation committee (or other committee
serving an equivalent function) of any other entity, whose executive officers
served as a director of or member of the Compensation Committee of the Board of
Directors.
From January 1997 to June 1998, Mr. Naudon served as a member of the
Compensation Committee of the Board of Directors. Mr. Naudon is President, Chief
Executive Officer, a director and majority shareholder of Spectrum, a
shareholder of the Company. See "Certain Transactions."
Each of Messrs. Carlisle and McKay was appointed to the Board of Directors
as the designee of Menlo Ventures and Axiom, respectively. See "Certain
Transactions."
CERTAIN TRANSACTIONS
In January 1994, the Company entered into an agreement with Banking
Spectrum to license certain software products and for consulting and support
services. Pursuant to the agreement, the Company agreed to pay Banking Spectrum
a royalty based on the licensing of software products and related services,
ranging from three percent to 17% of net revenues, based on Banking Spectrum's
involvement in the sale of such products and services. In March 1998, the
Company and Banking
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<PAGE> 48
Spectrum entered into a distribution agreement and a termination agreement. The
March 1998 distribution agreement provides that the Company shall have a
fully-paid license to distribute twenty copies of an electronic regulatory
reference product developed by Banking Spectrum. The March 1998 termination
agreement releases the Company from any future royalty payments to Banking
Spectrum in exchange for a cash payment of $100,000 and grants to affiliates of
Banking Spectrum fully-vested options to purchase 275,000 shares of Common Stock
at an exercise price of $0.45 per share. Mr. Naudon, a director of the Company,
is President and Chief Executive Officer, director and the majority shareholder
of Spectrum. The stock options were estimated by management to have a fair value
of approximately $1.6 million, and the Company recorded a contract termination
expense of approximately $1.3 million (net of amounts previously accrued) for
the three months ended March 31, 1998.
In July 1992 and January 1994, the Company entered into Professional
Services Agreements (the "Prism Agreements") with Prince-Roth Information
Systems Management, Inc. T/A ("PRISM"). Under the PRISM Agreements, PRISM
provided data processing technical services to the Company, and the Company
deferred payment for such services under the agreements until June 1995 and June
1996, respectively. Pursuant to the terms of the PRISM Agreements, Messrs.
Gurney and Waggoner each received an aggregate of approximately $132,000.
Spouses of the shareholders of PRISM are shareholders of the Company.
On February 3, 1994, the Company issued an aggregate of 1,000,000 shares of
Series A-1 Preferred Stock at $1.50 per share for an aggregate purchase price of
$1.5 million to Menlo Ventures and Menlo Entrepreneurs Fund VI, L.P. ("Menlo
Entrepreneurs"). In addition, the Company issued warrants to purchase 333,333
shares of Series A-2 Preferred Stock with an exercise price of $3.00 per share.
These warrants were exercised on September 13, 1994 for $999,999. Mr. Carlisle,
a director of the Company, is a general partner of MV Management VI, L.P.
("MVM"). MVM is a general partner of Menlo Ventures and Menlo Entrepreneurs.
On September 14, 1994, the Company issued 83,333 shares of Series A-2
Preferred Stock at $3.00 per share for $50,000 cash and a $200,000 promissory
note from Banking Spectrum. Mr. Naudon, a director of the Company, is President
and Chief Executive Officer, and a director and the majority shareholder of
Banking Spectrum.
On May 12, 1995, the Company issued 166,667 shares of Series A-2 Preferred
Stock at $3.00 per share for an aggregate purchase price of $500,000 to
Connecticut Innovations, Incorporated ("CII"). CII is a holder of more than five
percent of the Convertible Preferred Stock.
On September 1, 1995, the Company issued demand notes with an interest rate
of 10% per annum to Menlo Ventures and Menlo Entrepreneurs in an aggregate
original principal amount of $500,000. On November 15, 1995, the Company issued
demand notes with an interest rate of 10% per annum to Menlo Ventures and Menlo
Entrepreneurs in an aggregate original principal amount of $500,000. Each of the
notes was repaid on December 27, 1995.
On December 27, 1995, the Company issued an aggregate of 1,543,334 shares
of Series B Preferred Stock at $3.00 per share for an aggregate purchase price
of $4,630,000 to certain investors, including Menlo Ventures, Menlo
Entrepreneurs, Axiom and CII. In addition, the Company issued warrants to
purchase 192,916 shares of Series B Preferred Stock at $4.00 per share. Warrants
to purchase 84,583 shares of Series B Preferred Stock were exercised by Menlo
Ventures and Menlo Entrepreneurs on March 6, 1998 for $338,332. The Company
granted each of Axiom and Menlo the right (which terminates upon the closing of
this offering) to designate one nominee for election to the Company's Board of
Directors. Mr. McKay, a director of the Company, is Chief Executive Officer of
Axiom Venture Associates, Inc. ("Axiom Associates"), the general partner of
Axiom.
On October 23, 1996, the Company issued 1,222,222 shares of Series C
Preferred Stock at $4.50 per share for an aggregate purchase price of $5,500,000
to Aetna, Menlo Ventures, Menlo Entrepreneurs, Axiom and CII. In addition, the
Company issued warrants to purchase 152,778 shares of
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<PAGE> 49
Series C Preferred Stock at $6.00 per share. Warrants to purchase 41,667 shares
of Series C Preferred Stock were exercised by Menlo Ventures and Menlo
Entrepreneurs on March 6, 1998 for $250,002. The Company granted Aetna the right
(which terminates upon the closing of this offering) to designate one nominee
for election to the Company's Board of Directors. Mr. Clarke, a director of the
Company, is Vice President, Private Equity, of Aetna.
On August 22, 1997, the Company issued 833,333 shares of Series D Preferred
Stock at $6.00 per share for an aggregate purchase price of $5,000,000 to BISYS.
In addition, the Company issued a warrant to purchase 416,667 shares of Series D
Preferred Stock at $6.00 per share. Concurrent with such preferred stock
offering, the Company entered into a software license and marketing and
distribution agreement with BISYS, Inc., a subsidiary of BISYS. See
"Business -- Sales and Marketing." Pursuant to such software license and
marketing and distribution agreement, BISYS, Inc. was granted the right (which
continues until termination of the agreement) to nominate a candidate to the
Company's Board of Directors. Mr. Neville, a director of the Company, is
President of BISYS, Inc.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i) be
approved by a majority of the members of the Company's Board of Directors and by
a majority of the disinterested members of the Company's Board of Directors and
(ii) be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of June 30, 1998, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the directors of the Company, (iii)
each of the Named Executive Officers, (iv) all directors and executive officers
as a group and (v) each of the other Selling Stockholders. Except as indicated
below, none of these entities has a relationship with the Company or, to the
knowledge of the Company, any of the Underwriters or their respective
affiliates. 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. The address of each of the officers and directors of the
Company is c/o Open Solutions Inc., 300 Winding Brook Drive, Glastonbury, CT
06033.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING (1) SHARES AFTER OFFERING(1)(2)
---------------------- BEING ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED(3) NUMBER PERCENTAGE
- ------------------------ --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
MV Management VI, L.P.(4)................... 2,469,583 32.7% -- 2,469,583 24.3%
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
The BISYS Group, Inc.(5).................... 1,250,000 15.7% -- 1,250,000 11.8%
11 Greenway Plaza
Houston, TX 77046
Axiom Venture Partners, L.P.(6)............. 875,000 11.5% -- 875,000 8.5%
City Place II, 17th Floor
Hartford, CT 06103
Aetna Life Insurance Company(7)............. 750,000 9.8% -- 750,000 7.3%
151 Farmington Avenue
Hartford, CT 06106
Carlos P. Naudon(8)......................... 550,042 7.1% 55,000 495,042 4.8%
Connecticut Innovations, Incorporated(9).... 479,167 6.3% -- 479,167 4.7%
999 West Street
Rocky Hill, CT 06067
Lorraine H. Rothstein....................... 440,000 5.8% 88,000 352,000 3.5%
157 Arbour Circle
Basking Ridge, NJ 07920
Graham H. Gurney(10)........................ 439,605 5.8% -- 439,605 4.3%
Ellen A. Dugan.............................. 430,000 5.7% 40,000 390,000 3.8%
33 Country Oaks
Lebanon, NJ 08833
Clifford I. Waggoner(11).................... 378,125 5.0% -- 378,125 3.7%
OTHER DIRECTORS AND EXECUTIVE OFFICERS
Douglas K. Anderson(12)..................... 339,652 4.4% -- 339,652 3.3%
Douglas C. Carlisle(4)...................... 2,469,583 32.7% -- 2,469,583 24.3%
David M. Clarke(7).......................... 750,000 9.8% -- 750,000 7.3%
Samuel F. McKay(6).......................... 875,000 11.5% -- 875,000 8.5%
William W. Neville.......................... -- -- -- -- --
John L. Person(13).......................... 31,250 * -- 31,250 *
Richard J. Willemin......................... -- -- -- --
Richard P. Yanak(14)........................ 11,250 * -- 11,250 *
All executive officers and directors as a
group (11 persons)(15).................... 5,844,507 70.7% 55,000 5,789,507 53.2%
</TABLE>
- ---------------
* Less than 1%
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<PAGE> 51
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual or entity has sole or shared voting power or
investment power and any shares as to which the individual or entity has
the right to acquire beneficial ownership within 60 days after June 30,
1998 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 stockholder is a direct or indirect beneficial owner of such
shares.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) In the event that the over-allotment option is exercised in full, Messrs.
Gurney and Waggoner will each sell 35,000 shares to the Underwriters. As a
result of such sale, Messrs. Gurney and Waggoner will thereafter
beneficially own 404,605 (3.8%) and 343,125 (3.3%), respectively, of the
shares outstanding after this offering.
(4) Consists of 2,433,003 shares held by Menlo Ventures and 36,580 shares held
by Menlo Entrepreneurs. MVM is a general partner of Menlo Ventures and
Menlo Entrepreneurs. Mr. Carlisle, a director of the Company, is a general
partner of MVM. Mr. Carlisle disclaims beneficial ownership of the shares
held by Menlo Ventures and Menlo Entrepreneurs, except to the extent of his
pecuniary interests therein.
(5) Includes 416,667 shares issuable upon the exercise of warrants held by
BISYS which are exercisable within 60 days after June 30, 1998.
(6) Includes 97,222 shares issuable upon the exercise of warrants held by Axiom
which are exercisable within 60 days after June 30, 1998. Mr. McKay, a
director of the Company, is Chief Executive Officer of Axiom Venture
Associates, Inc., the general partner of Axiom. Mr. McKay shares voting and
investment power with respect to such shares with two other executive
officers of Axiom Associates. Mr. McKay disclaims beneficial ownership of
the shares held by Axiom, except to the extent of his pecuniary interest
therein.
(7) Includes 83,333 shares issuable upon the exercise of warrants held by the
Aetna which are exercisable within 60 days after June 30, 1998. Mr. Clarke,
a director of the Company, is Vice President, Private Equity of Aetna.
(8) Consists of 251,762 shares held by Spectrum, 23,520 shares subject to
options held by Spectrum which are exercisable within 60 days after June
30, 1998, 14,375 shares held by Mr. Naudon, 205,695 shares held by Mr.
Naudon which are exercisable within 60 days after June 30, 1998, 10,000
shares held by The Enrique S. Naudon Trust, 10,000 shares held by The
Ignacio S. Naudon Trust, 10,000 shares held by The Huguette Rivet Trust,
9,065 shares held by The Eric P. Steingass Trust and 15,625 shares held by
Allister & Naudon Profit Sharing Pension Plan. Mr. Naudon, a director of
the Company, is President and Chief Executive Officer, and a director and
the majority shareholder of Spectrum, a trustee of the Allister & Naudon
Profit Sharing Plan, and Susan Steingass, his spouse, is a trustee of The
Enrique S. Naudon Trust, The Ignacio S. Naudon Trust, The Huguette Rivet
Trust and The Eric P. Steingass Trust.
(9) Includes 34,722 shares issuable upon the exercise of warrants held by CII
which are exercisable within 60 days after June 30, 1998.
(10) Includes 89,605 shares subject to options held by Mr. Gurney which are
exercisable within 60 days after June 30, 1998.
(11) Includes 28,125 shares subject to options held by Mr. Waggoner which are
exercisable within 60 days after June 30, 1998.
(12) Includes 164,652 shares subject to options held by Mr. Anderson which are
exercisable within 60 days after June 30, 1998.
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<PAGE> 52
(13) Consists of shares subject to options held by Mr. Person which are
exercisable within 60 days after June 30, 1998.
(14) Consists of shares subject to options held by Mr. Yanak which are
exercisable within 60 days after June 30, 1998.
(15) Includes an aggregate of 723,402 shares of Common Stock subject to options
or warrants which are exercisable within 60 days after June 30, 1998.
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<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
After the filing of the Company's Restated Certificate of Incorporation
upon the closing of this offering, the authorized capital stock of the Company
will consist of 50,000,000 shares of Common Stock, $0.01 par value per share,
and 5,000,000 shares of Preferred Stock, $0.01 par value per share ("Preferred
Stock"). As of June 30, 1998 (after giving effect to the conversion of all
outstanding shares of Convertible Preferred Stock into Common Stock to be
effected upon the closing of this offering), there were outstanding (i)
7,544,485 shares of Common Stock held by 38 stockholders of record, (ii) options
to purchase an aggregate of 1,689,500 shares of Common Stock and (iii) warrants
to purchase an aggregate of 636,111 shares of Common Stock ("Warrants").
The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, Warrants, Restated Certificate of Incorporation and Amended and
Restated By-laws (the "By-laws") is not intended to be complete and is qualified
by reference to the provisions of applicable law and to the Company's Restated
Certificate of Incorporation, By-laws and Warrants 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 submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in 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 to require the Company to effect the registration of their shares of
Common Stock in certain circumstances. See "Shares Eligible for Future Sale."
PREFERRED STOCK
Under the terms of the Restated Certificate of Incorporation, the Board of
Directors is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue shares of Preferred Stock in one or more series.
Each such series of Preferred Stock shall have such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
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<PAGE> 54
WARRANTS
As of June 30, 1998, the Company has outstanding warrants to purchase
108,333 shares of Series B Preferred Stock at an exercise price of $4.00 per
share, warrants to purchase 111,111 shares of Series C Preferred Stock at an
exercise price of $6.00 per share and a warrant to purchase 416,667 shares of
Series D Preferred Stock at an exercise price of $6.00 per share. The warrants
to purchase Series B Preferred Stock expire on December 27, 2000. The warrants
to purchase Series C Preferred Stock expire on October 23, 2001. The warrant to
purchase Series D Preferred Stock expires on August 22, 2001. All of these
warrants will become warrants to purchase Common Stock upon the closing of this
offering.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Restated 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 Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of holders of at least 75% of the votes which all
the stockholders would be entitled to cast in any annual election of directors
or class of directors. Under the Restated Certificate of Incorporation, any
vacancy on the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board of Directors, may only be filled by
vote of a majority of the directors then in office. The classification of the
Board of Directors and the limitations on the removal of directors and filling
of vacancies could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, control of the
Company.
The Restated Certificate of Incorporation also provides that, after the
closing of this offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The Restated
Certificate of Incorporation further provides that special meetings of the
stockholders may only be called by the Chairman of the Board, the President or
the Board of Directors. Under the Company's By-laws, in order for any matter to
be considered "properly brought" before a meeting, a stockholder must comply
with certain requirements regarding advance notice and provide certain
information to the Company. The foregoing provisions could have the effect of
delaying until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Common Stock, because such person or entity, even
if it acquired a majority of the outstanding voting securities of the Company,
would be able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders' meeting, and not by
written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Restated Certificate of Incorporation and
the By-laws require the affirmative vote of holders of at least 75% of the votes
which all the stockholders would
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<PAGE> 55
be entitled to cast in any annual election of directors or class of directors to
amend or repeal any of the provisions described in the prior two paragraphs.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the General Corporation Law of Delaware. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is BankBoston, N.A.
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<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the securities
of the Company. Upon completion of this offering, based upon the number of
shares outstanding at June 30, 1998, there will be 10,161,485 shares of Common
Stock of the Company outstanding (assuming no exercise of the Underwriters'
over-allotment option or outstanding warrants or options of the Company). Of
these shares, the 2,800,000 shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 7,361,485 shares of Common Stock are deemed "restricted
securities" under Rule 144. Of the restricted securities, approximately 10,000
shares of Common Stock, which are not subject to the 180-day lock-up agreements
(the "Lock-up Agreements") with the Representatives of the Underwriters, will be
eligible for immediate sale in the public market pursuant to Rule 144(k) under
the Securities Act. Approximately 146 additional shares of Common Stock, which
are not subject to Lock-up Agreements, will be eligible for sale in the public
market in accordance with Rule 144 or Rule 701 under the Securities Act
beginning 90 days after the date of this Prospectus. Upon expiration of the
Lock-up Agreements 180 days after the date of this Prospectus, approximately
7,351,339 additional shares of Common Stock will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act.
The officers and directors of the Company, and certain securityholders,
which executive officers, directors and securityholders in the aggregate hold
approximately 9,665,450 shares of Common Stock (including 2,314,111 shares of
Common Stock that may be acquired pursuant to the exercise of options and
warrants held by them) on the date of this Prospectus, have agreed that, for a
period of 180 days after the date of this Prospectus, they will not sell,
consent to sell or otherwise dispose of any shares of Common Stock, or any
shares convertible into or exchangeable for shares of Common Stock, owned
directly by such persons or with respect to which they have the power of
disposition, without the prior written consent of the Representatives of the
Underwriters.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 101,614 shares immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of
the Company for at least three months prior to the sale is entitled to sell the
shares immediately without compliance with the foregoing requirements under Rule
144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
acquired pursuant to the exercise of certain options granted under the Company's
stock plans) are also restricted securities and, beginning 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
may be sold by stockholders other than Affiliates of the Company subject only to
54
<PAGE> 57
the manner of sale provisions of Rule 144 and by Affiliates under Rule 144
without compliance with its one-year holding period requirement.
OPTIONS
The Company intends to file registration statements on Form S-8 with
respect to the shares of Common Stock issuable under the 1994 Plan, the
Incentive Plan and the Purchase Plan promptly following the consummation of this
offering. Shares issued upon the exercise of stock options after the effective
date of the Form S-8 registration statements will be eligible for resale in the
public market without restriction, subject to Rule 144 limitations applicable to
Affiliates and the Lock-Up Agreements noted above, if applicable.
REGISTRATION RIGHTS
Pursuant to an Amended and Restated Investors' Rights Agreement dated as of
August 22, 1997 among the Company and certain persons and entities (the
"Rightsholders"), including Aetna, Axiom, Spectrum, BISYS, CII and Menlo
Ventures and Menlo Entrepreneurs, such Rightsholders will be entitled following
the offering to certain rights with respect to the registration under the
Securities Act of a total of approximately 5,944,583 shares of Common Stock,
including the shares issuable upon exercise of outstanding warrants (the
"Registrable Stock"). The Amended and Restated Investors' Rights Agreement
generally provides that, in the event the Company proposes to register any of
its securities under the Securities Act, the Rightsholders shall be entitled to
include Registrable Stock in such Registration, subject to the right of the
managing underwriter of any underwritten offering to limit for marketing reasons
the number of shares of Registrable Stock included in such "piggyback"
registration period.
The Rightsholders may, upon the request of holders of Registrable Stock
having an aggregate offering price of at least $2,000,000, require the Company
to prepare and file a registration statement under the Securities Act with
respect to their shares of Registrable Stock at any time after this offering.
The Company need effect only two such demand registrations and is not required
to file a demand registration statement within one hundred eighty days after the
effective date of any other registration statement filed by the Company.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market sales
of shares of Common Stock or the availability of shares for sale will have on
the market price of the Common Stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
55
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, Credit Suisse First Boston Corporation and Warburg
Dillon Read LLC, a subsidiary of UBS AG, have severally agreed to purchase from
the Company and the Selling Stockholders the following respective numbers of
shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
BT Alex. Brown Incorporated.................................
Credit Suisse First Boston Corporation......................
Warburg Dillon Read LLC, a subsidiary of UBS AG.............
--------
Total............................................. 2,800,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per share to certain other dealers. After the initial public
offering, the public offering price and other selling terms may be changed by
the Representatives of the Underwriters.
The Company and certain stockholders of the Company (other than the Selling
Stockholders) have granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 420,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,800,000, and such stockholders will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,800,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company, the Selling Stockholders and certain other
stockholders against certain civil liabilities, including liabilities under the
Securities Act.
56
<PAGE> 59
The Company, each of its officers and directors, and certain of its
stockholders, including all of the Selling Stockholders, have agreed, subject to
certain exceptions, not to offer, sell, pledge, contract to sell (including any
short sale), grant any option to purchase or otherwise dispose of any shares of
Common Stock or any shares which may be issued upon exercise of a stock option
or warrant or conversion of any convertible securities into Common Stock or
enter into any hedging transaction relating to the Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
the Representatives of the Underwriters. The Representatives of the Underwriters
may, in their sole discretion and at any time without notice, release all or any
portion of the securities subject to Lock-up Agreements. See "Shares Eligible
for Future Sale."
The Representatives have advised the Company, the Selling Stockholders and
certain other stockholders that the Underwriters do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
In connection with this offering, the Underwriters and other persons
participating in this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Common Stock. Specifically, the
Underwriters may over-allot in connection with this offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of the Common Stock, the Underwriters may bid for, and
purchase, shares of Common Stock in the open market. The Underwriters may also
impose a penalty bid whereby they may reclaim selling concessions allowed to an
Underwriter or a dealer for distributing Common Stock in this offering, if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise. Finally,
the Underwriters may bid for, and purchase, shares of Common Stock in market
making transactions. These activities may stabilize or maintain the market price
of the Common Stock above market levels that may otherwise prevail. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations among the Company,
representatives of the Selling Stockholders and certain other stockholders and
the Representatives of the Underwriters. Among the factors 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 which the Company, representatives of
the Selling Stockholders and certain other stockholders and the Representatives
of the Underwriters 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. Application has been made for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"OSIF."
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company, the
Selling Stockholders and certain other stockholders hereby will be passed upon
for the Company by Hale and Dorr LLP, Boston, Massachusetts, and for the
Underwriters by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
The Company's financial statements as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
57
<PAGE> 60
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, certain parts of which
are omitted in accordance with the rules and regulations of the Commission, to
which Registration Statement reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Registration Statement and the exhibits thereto may be inspected and
copied at prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the Company is
required to file electronic versions to these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements. The Company also intends
to make available to its stockholders, within 45 days after the end of each
fiscal quarter, reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
58
<PAGE> 61
OPEN SOLUTIONS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet at December 31, 1996, 1997 and June 30, 1998
(unaudited)............................................... F-3
Statement of Operations for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30,
1997 (unaudited) and June 30, 1998 (unaudited)............ F-4
Statement of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30,
1997 (unaudited) and June 30, 1998 (unaudited)............ F-5
Statement of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1995, 1996 and 1997 and for
the six months ended June 30, 1998 (unaudited)............ F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Open Solutions Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of cash flows and of changes in stockholders' equity (deficit)
present fairly, in all material respects, the financial position of Open
Solutions Inc. at December 31, 1997 and 1996, and the results of its operations,
its cash flows and changes in stockholders' equity (deficit) for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Hartford, Connecticut
April 6, 1998
F-2
<PAGE> 63
OPEN SOLUTIONS INC.
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------------ EQUITY
1996 1997 ACTUAL (NOTE 2 AND 15)
---------- ----------- ------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $4,437,657 $ 7,596,183 $ 6,332,616
Restricted cash (Note 2)................... 94,241 281,090 --
Accounts receivable (Note 2)............... 1,448,573 1,505,940 3,109,943
Prepaid expenses and other (Note 2)........ 135,210 232,807 951,427
Deferred project costs (Note 2)............ 458,675 -- --
---------- ----------- -----------
Total current assets................... 6,574,356 9,616,020 10,393,986
Fixed assets, net (Notes 2 and 3)............ 767,390 1,153,090 1,372,324
Software development costs, net (Note 2)..... 204,035 533,343 646,308
---------- ----------- -----------
Total assets........................... $7,545,781 $11,302,453 $12,412,618
========== =========== ===========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................... $ 227,887 $ 104,249 $ 368,514
Royalties payable (Note 13)................ 68,315 378,981 --
Accrued expenses (Note 4).................. 372,108 1,081,917 1,294,950
Note payable (Note 5)...................... -- 175,000 --
Current portion of long-term debt (Note
6)....................................... -- 34,668 --
Deferred revenue (Note 2).................. 1,005,129 1,643,457 2,912,427
---------- ----------- -----------
Total current liabilities.............. 1,673,439 3,418,272 4,575,891
---------- ----------- -----------
Accrued rent expense (Note 2)................ 77,731 100,823 108,919
Long-term debt, less current portion (Note
6)......................................... -- 57,778 --
---------- ----------- -----------
77,731 158,601 108,919
---------- ----------- -----------
Total liabilities............................ 1,751,170 3,576,873 4,684,810
Commitments and contingencies (Note 10)......
Mandatorily redeemable convertible preferred
stock and warrants (Note 7)................ 10,573,480 15,551,214 16,139,549 $ --
Stockholders' equity (deficit) (Note 8 and
9):
Preferred stock, $0.01 par value;
1,416,666, 1,416,666, 1,416,666, and
5,000,000 shares authorized; 1,416,666,
1,416,666, 1,416,666, and 0 shares issued
and outstanding.......................... 14,167 14,167 14,167 --
Common stock, $0.01 par value; 8,580,417,
9,830,417, 19,055,417, and 50,000,000
shares authorized; 2,115,000, 2,165,325,
2,236,013 and 7,544,485 shares issued and
outstanding.............................. 21,150 21,653 22,360 75,445
Additional paid-in capital................. 2,674,465 2,682,569 4,311,842 20,412,473
Accumulated deficit........................ (7,488,651) (10,544,023) (12,760,110) (12,760,110)
---------- ----------- ----------- -----------
Total stockholders' equity (deficit)... (4,778,869) (7,825,634) (8,411,741) $ 7,727,808
---------- ----------- ----------- ===========
Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders' equity (deficit)............. $7,545,781 $11,302,453 $12,412,618
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 64
OPEN SOLUTIONS INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 2):
Software license............................ $ 212,653 $ 801,532 $ 4,099,722 $ 1,211,857 $ 2,758,437
Service and maintenance..................... 55,488 217,861 2,549,890 756,824 3,010,156
----------- ----------- ----------- ----------- -----------
Total revenues....................... 268,141 1,019,393 6,649,612 1,968,681 5,768,593
----------- ----------- ----------- ----------- -----------
Cost of revenues:
Software license............................ 223,015 507,094 1,160,005 368,606 618,795
Service and maintenance..................... 476,991 1,530,528 3,150,536 1,390,648 2,455,041
----------- ----------- ----------- ----------- -----------
Total cost of revenues............... 700,006 2,037,622 4,310,541 1,759,254 3,073,836
----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing......................... 398,496 1,050,831 2,132,410 954,373 1,562,158
Product development......................... 660,510 1,059,879 1,901,892 995,216 918,356
General and administrative.................. 399,576 645,334 1,569,568 739,708 1,345,729
Contract termination (Note 13).............. -- -- -- -- 1,265,292
----------- ----------- ----------- ----------- -----------
Total operating expenses............. 1,458,582 2,756,044 5,603,870 2,689,297 5,091,535
----------- ----------- ----------- ----------- -----------
Loss from operations.......................... (1,890,447) (3,774,273) (3,264,799) (2,479,870) (2,396,778)
Interest income (expense), net................ (4,506) 135,801 209,427 74,834 180,691
----------- ----------- ----------- ----------- -----------
Net loss...................................... $(1,894,953) $(3,638,472) $(3,055,372) $(2,405,036) $(2,216,087)
=========== =========== =========== =========== ===========
Net loss per common share (basic and diluted)
(Note 2).................................... $ (0.98) $ (1.73) $ (1.42) $ (1.12) $ (1.01)
=========== =========== =========== =========== ===========
Weighted average common shares outstanding
(Note 2).................................... 1,935,644 2,102,568 2,155,333 2,146,459 2,191,878
=========== =========== =========== =========== ===========
Unaudited pro forma net loss per common share
(basic and diluted) (Note 2)................ $ (0.41) $ (0.30)
=========== ===========
Unaudited pro forma weighted average common
shares outstanding (Note 2)................. 7,463,805 7,500,350
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 65
OPEN SOLUTIONS INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $(1,894,953) $(3,638,472) $(3,055,372) $(2,405,036) $(2,216,087)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization............. 53,865 147,790 352,326 126,129 277,665
Compensation expense related to stock and
options granted......................... -- 52,500 85,526 52,756 68,952
Options granted to Banking Spectrum (Note
13)..................................... -- -- -- -- 1,608,750
Changes in operating assets and
liabilities:
Restricted cash......................... -- (94,241) (186,849) (254,734) 281,090
Accounts receivable..................... (146,240) (1,302,333) (57,367) (830,700) (1,604,003)
Prepaid expenses and other.............. (17,054) (110,005) (97,597) (276,286) (274,620)
Deferred project costs.................. -- (458,675) 458,675 458,675 --
Accounts payable and accrued expenses... 264,158 371,774 500,645 231,981 (35,654)
Royalties payable....................... -- 68,315 310,666 (68,315) (378,981)
Deferred revenue........................ -- 968,254 638,328 583,386 1,268,970
Accrued rent expense.................... -- 77,731 23,092 12,616 8,096
----------- ----------- ----------- ----------- -----------
Net cash used by operating activities... (1,740,224) (3,917,362) (1,027,927) (2,369,528) (995,822)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of fixed assets................... (92,523) (696,874) (597,256) (348,969) (374,422)
Software development costs.................. (119,514) (153,209) (215,078) (34,977) (235,442)
----------- ----------- ----------- ----------- -----------
Net cash used by investing activities... (212,037) (850,083) (812,334) (383,946) (609,864)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from the sale of preferred
stock..................................... 5,092,000 5,481,480 4,977,734 -- --
Proceeds from exercise of stock options..... 1,500 -- 8,607 7,936 21,230
Proceeds from exercise of warrants.......... -- -- -- -- 588,335
Proceeds from short-term debt............... 1,000,000 -- -- -- --
Payments of short-term debt................. (1,000,000) (250,000) -- -- (209,668)
Proceeds from long-term debt................ -- -- 104,002 104,002 --
Payments of long-term debt.................. -- -- (91,556) -- (57,778)
Proceeds from subscription note
receivable................................ 120,000 60,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities........................... 5,213,500 5,291,480 4,998,787 111,938 342,119
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................... 3,261,239 524,035 3,158,526 (2,641,536) (1,263,567)
Cash and cash equivalents at beginning of
period.................................... 652,383 3,913,622 4,437,657 4,437,657 7,596,183
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.................................... $ 3,913,622 $ 4,437,657 $ 7,596,183 $ 1,796,121 $ 6,332,616
=========== =========== =========== =========== ===========
Supplemental disclosure
Cash paid for:
Interest.................................. $ 21,781 $ 3,438 $ 9,148 $ 4,235 $ 4,305
Income taxes.............................. 4,156 25,923 19,172 12,300 25,300
</TABLE>
See discussion of non-cash transaction in Note 5.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 66
OPEN SOLUTIONS INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
------------------- ------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
--------- ------- --------- ------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31,
1994....................... 1,416,667 $14,167 1,930,000 $19,300 $ 2,442,315 $(1,955,226) $ 520,556
Exercise of stock
options.................. -- -- 10,000 100 1,400 -- 1,500
Proceeds from subscription
note receivable.......... -- -- -- -- 120,000 -- 120,000
Net loss................... -- -- -- -- -- (1,894,953) (1,894,953)
--------- ------- --------- ------- ----------- ------------ -----------
Balance -- December 31,
1995....................... 1,416,667 14,167 1,940,000 19,400 2,563,715 (3,850,179) (1,252,897)
Issuance of common stock
(Note 8)................. -- -- 175,000 1,750 50,750 -- 52,500
Proceeds from subscription
note receivable.......... -- -- -- -- 60,000 -- 60,000
Net loss................... -- -- -- -- -- (3,638,472) (3,638,472)
--------- ------- --------- ------- ----------- ------------ -----------
Balance -- December 31,
1996....................... 1,416,667 14,167 2,115,000 21,150 2,674,465 (7,488,651) (4,778,869)
Exercise of stock
options.................. -- -- 50,325 503 8,104 -- 8,607
Net loss................... -- -- -- -- -- (3,055,372) (3,055,372)
--------- ------- --------- ------- ----------- ------------ -----------
Balance -- December 31,
1997....................... 1,416,667 14,167 2,165,325 21,653 2,682,569 (10,544,023) (7,825,634)
Exercise of stock
options.................. -- -- 70,688 707 20,523 -- 21,230
Issuance of stock options
(Note 13)................ -- -- -- -- 1,608,750 -- 1,608,750
Net loss................... -- -- -- -- -- (2,216,087) (2,216,087)
--------- ------- --------- ------- ----------- ------------ -----------
Balance -- June 30, 1998
(unaudited)................ 1,416,667 $14,167 2,236,013 $22,360 $ 4,311,842 $(12,760,110) $(8,411,741)
========= ======= ========= ======= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 67
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
Open Solutions Inc. (the "Company") is a provider of client/server core
processing software and related professional services to small to mid-size banks
and credit unions. The Company was incorporated in Delaware in May 1992, and was
formed to design and develop enterprise wide banking software. The Company
released its first major product, The Complete Banking Solution, in the second
quarter of 1995. The Company's design and development efforts have principally
been funded through the sale of redeemable and non-redeemable equity securities
as more fully described in Notes 7 and 8. The Company's current products operate
in a Microsoft Windows NT environment using an Oracle relational database.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit with banks, as well as
short-term investments with original maturities of 90 days or less.
Restricted Cash
As of December 31, 1996 and 1997, certain cash amounts were restricted by a
customer in an escrow account. In February 1998, the restriction was removed.
Accounts Receivable
Receivables are net of the allowance for doubtful accounts. As of December
31, 1996 and 1997 and June 30, 1998, the allowance for doubtful accounts was
approximately $86,000, $214,000 and $260,000 (unaudited), respectively.
Prepaid Expenses and Other (Unaudited)
At June 30, 1998, offering costs of $444,000 have been accrued and deferred
in anticipation of an initial public offering of common stock.
Fixed Assets
Fixed assets are stated at cost and are depreciated using the straight-line
method over the estimated useful lives of the assets, ranging from 5 and 7
years. Leasehold improvements are amortized over the shorter of the term of the
lease or the useful life of the asset.
Software Development Costs
Software development costs for new software products and additional modules
for existing software are expensed as incurred until technological feasibility
is established, in accordance with Statement of Financial Accounting Standard
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed." Technological feasibility is defined as the point in time
at which the Company has a product design and working model of the software
product that has been appropriately tested. Software development costs incurred
subsequent to the establishment of technological feasibility and prior to
general release of the product are capitalized and amortized based on the
greater of the amount computed using (a) the ratio that current gross revenues
for a product bear to the total of current and anticipated future gross revenues
for that product or (b) the straight-line method over the remaining estimated
economic life of the product, generally three years. Capitalized software
development costs were $153,209, $455,078 and $235,442 (unaudited) for years
ended December 31, 1996, 1997 and for the six months ended June 30, 1998,
respectively. Amortization expense was $19,919, $48,769, $125,770, $25,376
(unaudited) and $122,477
F-7
<PAGE> 68
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(unaudited) for the years ended December 31, 1995, 1996, 1997 and the six months
ended June 30, 1997 and 1998, respectively. Accumulated amortization was
$68,688, $194,458, and $316,935 (unaudited) as of December 31, 1996, 1997 and
June 30, 1998, respectively.
Accrued Rent Expense
Accrued rent expense results from the recognition of rent expense on a
straight-line basis relating to a seven year lease agreement with escalating
payments expiring April 2003.
Pro Forma Data (Unaudited)
If the offering contemplated in this Prospectus is consummated, all of the
Company's preferred stock outstanding at the closing date will be converted into
an equal number of shares of common stock and all outstanding warrants to
purchase shares of preferred stock will become warrants to purchase an equal
number of shares of common stock. The unaudited pro forma stockholders' equity
as of June 30, 1998 reflects the conversion of all outstanding preferred stock
into 5,308,472 shares of common stock. The unaudited pro forma net loss per
common share data included in the Statement of Operations for the year ended
December 31, 1997 and for the six months ended June 30, 1998 give effect to this
conversion as if the shares were outstanding at the beginning of the respective
periods.
Revenue Recognition
The Company generates revenues from licensing the rights to use its
software products and certain third-party software products to end users. The
Company also generates revenues from customer support and maintenance, and from
implementation and training services provided to customers.
Effective January 1, 1997 the Company early adopted AICPA Statement of
Position 97-2, "Software Revenue Recognition" (SOP 97-2). Under SOP 97-2, the
Company recognizes software license revenue when a noncancelable license
agreement has been executed, fees are fixed and determinable, the software has
been delivered, accepted by the customer if acceptance is required by the
contract and other than perfunctory, and collection is considered probable.
Beginning in December 1997, the Company revised its standard end user license
agreements, eliminating certain customer acceptance provisions. License revenue
under the revised agreement will be recognized upon software delivery, assuming
all other revenue recognition criteria are met. Prior to 1997, the Company
recognized software license revenue in accordance with AICPA Statement of
Position 91-1, "Software Revenue Recognition" (SOP 91-1). Under SOP 91-1, the
Company recognized software license revenue when the software was delivered,
collectibility was probable and no other significant post delivery obligations
remained.
Maintenance revenues are recognized ratably over the maintenance period,
generally one year. Revenues from implementation and training services are
recognized as services are performed. The Company enters into contracts which
provide both license and service elements. As such service elements are not
essential to functionality of the software, in accordance with SOP 97-2, the
license fees are generally recognized upon delivery and the service revenues are
recognized when performed.
Deferred revenue is comprised of payments received in advance of product
delivery, maintenance and other services which have been paid by customers prior
to the services being performed. Deferred project costs are comprised of costs
associated with projects in process for which revenue has not yet been
recognized.
F-8
<PAGE> 69
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company receives royalties from several software vendors for marketing
referrals. Royalty income is recognized at the time the software vendor receives
payment from its customer, and such income is included in service and
maintenance revenue.
As described in Note 10, the Company anticipates receiving payments under
certain license and marketing agreements. The Company expects to recognize such
license revenue when the software has been delivered to the reseller's customer.
When extended payment terms exist, generally the software license fee will be
recognized as payments become due, unless a determination is made at the outset
of the arrangement that the fee is fixed and determinable.
Income Taxes
The Company uses the liability method of accounting for income taxes, as
set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the financial statement carrying amounts and the tax basis of the assets
and liabilities and the net operating loss carryforwards using presently enacted
tax rates.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" (EPS) (SFAS 128) which specifies the computation,
presentation and disclosure requirements for earnings per share of entities with
publicly held common stock or potential common stock. SFAS 128 is effective for
financial statements for both interim and annual periods ended after December
15, 1997. The statement defines two earnings per share calculations, basic and
diluted. Basic EPS is computed by dividing income available to common stock by
the weighted average number of common shares outstanding; diluted EPS is
computed by giving effect to all dilutive potential common shares that were
outstanding during the period. The calculation of diluted EPS is similar to
basic EPS except both the numerator and denominator are increased for the
conversion of potential common shares. Dilutive common share equivalents include
stock options, warrants, and convertible preferred stock.
The 1995, 1996, 1997 and June 1998 calculations of diluted EPS do not
include the exercise of stock options, conversion of preferred stock or the
exercise of warrants as the effect on diluted earnings per share would have been
antidilutive.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk are limited to accounts receivable. Sales to one
bank accounted for approximately 11% (unaudited) of total revenues in the six
months ending June 30, 1998. Sales to two banks accounted for approximately 17%
and 15% of total revenues, respectively, in the year ended December 31, 1997.
Sales to four banks accounted for approximately 38%, 22%, 20% and 14% of total
revenues, respectively, in the year ended December 31, 1996. Sales to two banks
accounted for approximately 56% and 43% of total revenues, respectively, in the
year ended December 31, 1995. The Company maintains reserves for potential
credit risks and otherwise controls this risk through credit approvals and
monitoring procedures.
Stock Based Compensation
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plan. Under APB 25, compensation expense is
recognized to the extent that the fair market value of the underlying stock on
the date of grant exceeds the exercise price of the employee stock option.
Additional disclosures required under Financial Accounting Standards Board
Statement
F-9
<PAGE> 70
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), are included in
Note 9, Stock Option Plan.
Use of Estimates
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.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 applies to all
companies and is effective for fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for the reporting and display of comprehensive
income in a set of financial statements. Comprehensive income is defined as the
change in net assets of a business enterprise during a period from transactions
generated from non-owner sources. It includes all changes in equity during a
period except those resulting from investment by owners and distributions to
owners. The Company has adopted SFAS 130 beginning January 1, 1998. For the
years ended December 31, 1995, 1996, and 1997 and for the six months ended June
30, 1998, comprehensive loss was the same as net loss.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 applies to all public companies and is effective for fiscal years
beginning after December 15, 1997. SFAS 131 requires that business segment
financial information be reported in the financial statements utilizing the
management approach. The management approach is defined as the manner in which
management organizes the segments within the enterprise for making operating
decisions and assessing performance. The Company has adopted SFAS 131 beginning
January 1, 1998. The Company's operations are currently managed all within one
segment.
Unaudited Interim Financial Statements. The financial statements as of
June 30, 1998 and for the six months ended June 30, 1997 and 1998 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 six months
ended June 30, 1998 are not necessarily indicative of the results to be expected
for any future period.
NOTE 3 -- FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1996 1997 1998
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment................... $633,664 $1,106,892 $1,394,467
Office furniture and equipment....... 112,262 198,200 266,468
Leasehold improvements............... 186,855 239,945 258,524
-------- ---------- ----------
932,781 1,545,037 1,919,459
Less: accumulated depreciation....... (165,391) (391,947) (547,135)
-------- ---------- ----------
$767,390 $1,153,090 $1,372,324
======== ========== ==========
</TABLE>
F-10
<PAGE> 71
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense was $33,946, $99,021 and $226,556, for the years ended
December 31, 1995, 1996 and 1997, respectively, and $100,753 (unaudited) and
$155,188 (unaudited) for the six months ended June 30, 1997 and 1998,
respectively.
NOTE 4 -- ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1996 1997 1998
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued compensation................. $146,555 $ 423,833 $ 335,774
Accrued third party license fees..... 75,275 327,425 192,949
Accrued sales tax.................... 113,102 316,463 297,392
Accrued offering costs............... -- -- 444,000
Other................................ 37,176 14,196 24,835
-------- ---------- -----------
$372,108 $1,081,917 $ 1,294,950
======== ========== ===========
</TABLE>
NOTE 5 -- NOTE PAYABLE
In August 1997, the Company entered into an agreement with another software
company for the purchase of certain assets, properties and rights relating to an
ATM software product in exchange for a $255,000 note. The amount due to the
vendor was paid down based on per copy fees of the purchased software products
and any remaining balance was due in full on June 30, 1998. At December 31, 1997
and June 30, 1998, the balance due to the software company was $175,000 and $0
(unaudited), respectively.
NOTE 6 -- LINES OF CREDIT
In September 1996, the Company entered into a $250,000 equipment line of
credit with a bank. The equipment line allowed for draw downs through September
1997 with the outstanding borrowings on the equipment line converting to a
$104,002, nine percent term loan payable in 36 months beginning October 1997.
Borrowings are secured by a first security interest in the related equipment. At
December 31, 1997 and June 30, 1998 the term loan balance was $92,446 and $0
(unaudited), respectively.
In June 1997, the Company entered into a $1,000,000 working capital line of
credit with the same bank. At December 31, 1997 and June 30, 1998, there was no
balance outstanding under this line of credit. The line of credit is secured
with a first security interest in all assets, exclusive of those financed under
the equipment line. The line of credit is available up to 75% of domestic
accounts receivable less than 90 days outstanding. Interest will be paid monthly
at the bank's prime plus 50 basis points.
In conjunction with these credit agreements, the Company must maintain
certain liquidity, tangible capital base and quick ratio financial covenants.
The Company was in compliance with its financial covenants at June 30, 1998
(unaudited). Payment of dividends is prohibited under the lines of credit.
NOTE 7 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In May 1995, the Company issued to Connecticut Innovations, Incorporated
("CII") 166,667 shares of Series A-2 Preferred Stock at $3.00 per share for
$500,000. As a requirement of the funding, the Company must maintain its
principal place of business and conduct the majority of its operations in
Connecticut. If the Company fails to maintain its Connecticut presence, CII may
require the Company to purchase CII's shares at the greater of the original
purchase price plus a 40% annual
F-11
<PAGE> 72
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
compounded rate of return or the fair market value of the shares. In addition,
CII may require the Company to purchase its shares if the Company is a private
company and is acquired by a third party or if the Company disposes of
substantially all of its assets to a third party. The price of redemption will
be the greater of the original purchase price of the shares plus a 25% annually
compounded rate of return or the fair market value of the shares. Management
does not consider any of the events that would trigger mandatory redemption to
be probable events, has determined a reliable estimate of when the circumstances
that would result in the shares becoming mandatorily redeemable cannot be made,
and therefore does not accrue for accretion.
In December 1995, the Company issued to a group of investors 1,543,334
shares of Series B Preferred Stock at $3.00 per share for $4,630,000. In
conjunction with the sale, the Company issued 192,916 warrants to purchase
additional shares of Series B Preferred Stock at $4.00 per share of which 84,583
warrants were exercised in March 1998. The Series B Preferred Stock has similar
mandatory redemption features as the May 1995 Series A-2.
In October 1996, the Company issued to a group of investors 1,222,222
shares of Series C Preferred Stock at $4.50 per share for $5,500,000. In
conjunction with the sale, the Company issued 152,778 warrants to purchase
additional shares of Series C Preferred Stock at $6.00 per share of which 41,667
warrants were exercised in March 1998. The Series C Preferred Stock has similar
mandatory redemption features as the May 1995 Series A-2 and Series B.
In August 1997, the Company issued to an investor 833,333 shares of Series
D Preferred Stock at $6.00 per share for $5,000,000. In conjunction with the
sale, the Company issued 416,667 warrants to purchase additional shares of
Series D Preferred Stock at $6.00 per share. The Series D Preferred Stock has
similar mandatory redemption features as the May 1995 Series A-2, Series B and
Series C. Concurrent with the preferred stock offering, the investor in the
Series D Preferred Stock offering also entered into a marketing and distribution
agreement with the Company. For the six months ended June 30, 1998, there were
revenues of $115,658 recognized under this agreement.
The holders of preferred stock are entitled to receive noncumulative cash
dividends when and as declared by the Board of Directors and have similar voting
rights as common stockholders in addition to certain other defined voting
rights. In the event of any voluntary or involuntary liquidation of the Company,
the holders of Series A-1, Series A-2, Series B, Series C and Series D Preferred
Stock shall be entitled to all unpaid dividends at the time of liquidation and
$1.50, $3.00, $3.00 or $4.50 and $6.00, respectively, per share as a liquidating
distribution prior to any liquidating distribution to the common stockholders.
At the option of the preferred stockholders, their shares may be converted to
common stock at the rate of one common stock share for one share of preferred
stock. The preferred stock shall automatically convert into shares of common
stock upon the closing of a firm commitment underwritten public offering (i)
with an aggregate offering price of at least $10,000,000, (ii) with an offering
price per share, with respect to the shares of Series A-1, Series A-2 and Series
B Preferred Stock, of $6.00 and, with respect to the shares of Series C and
Series D Preferred Stock, of $7.50, (iii) where the common stock is listed for
trading on the Nasdaq National Market System and (iv) with the consent of the
holders of at least two-thirds of the outstanding shares of Series B and Series
C Preferred Stock.
The mandatory redemption features terminate upon the closing of a public
offering and the expiration of any related lock-up agreements, with the
exception of the Series A-2 Preferred Stock held by CII and the Series B
Preferred Stock. The rights of CII and of the holders of Series B Preferred
Stock to require the Company to purchase their shares of Series A-2 Preferred
Stock and Series B Preferred Stock, respectively, in the event the Company fails
to maintain its Connecticut presence do not terminate. The right of CII to
require the Company to purchase its shares of Series A-2 Preferred Stock in the
event of a change of control terminates upon the closing of a public offering.
(See Note 15).
F-12
<PAGE> 73
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STOCKHOLDERS' EQUITY
Capital Stock Transactions
In December 1995, in conjunction with the issuance of the Series B
Preferred Stock, the Company revised its certificate of incorporation to
authorize 11,000,000 shares, of which 7,680,417 were common stock and 3,319,583
were preferred stock. In October 1996, in conjunction with the issuance of the
Series C Preferred Stock, the Company revised its certificate of incorporation
to authorize 13,275,000 shares of which 8,580,417 were common stock and
4,694,583 were preferred stock. In August 1997, in conjunction with the issuance
of the Series D Preferred Stock, the Company revised its certificate of
incorporation to authorize 15,775,000 shares, of which 9,830,417 were common
stock and 5,944,583 were preferred stock. In February 1998, the Company revised
its certificate of incorporation to approve an increase in authorized shares
from 15,775,000 to 25,000,000.
In January 1996, the Company issued 175,000 shares of common stock to the
Chief Executive Officer, resulting in compensation expense of $52,500.
The Company has reserved shares of common stock as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Conversion of preferred stock.......................... 5,182,222 5,308,472
Conversion of preferred stock upon exercise of
warrants............................................. 762,361 636,111
Exercise of options.................................... 1,610,000 3,000,000
------------ ------------
7,554,583 8,944,583
============ ============
</TABLE>
Preferred Stock
In February 1994, the Company issued 1,000,000 shares of preferred stock
designated as Series A-1 Preferred Stock at $1.50 per share. In conjunction with
the issuance of the Series A-1 Preferred Stock, the Company issued a warrant to
purchase 333,333 shares of Series A-2 Preferred Stock with an exercise price of
$3.00 per share. The warrant was subsequently converted to 333,333 shares of
Series A-2 Preferred Stock in September 1994 for $999,999.
In September 1994, the Company issued an additional 83,333 shares of
preferred stock designated as Series A-2 Preferred Stock at $3.00 per share. The
Company received $50,000 in cash and a note for $200,000 payable in monthly
installments of $10,000 plus interest, of which $60,000 and $0 was outstanding
at December 31, 1995 and 1996, respectively. The shares were pledged as
collateral against the note.
At the option of the preferred stockholders, their shares may be converted
to common stock at the rate of one common stock share for one share of preferred
stock. The preferred stock shall automatically convert into shares of common
stock upon the closing of a public offering meeting certain criteria.
NOTE 9 -- STOCK OPTION PLAN
The Company has established the 1994 Stock Option Plan (the "1994 Plan")
for employees, officers, directors, and consultants or advisors to the Company
under which the Board of Directors may grant incentive stock options and
non-qualified stock options. Incentive stock options will be granted at the fair
value of the Common Stock at the time of grant, as determined by the Board of
Directors. Generally, incentive stock options vest 25% on the first anniversary
of the date of grant
F-13
<PAGE> 74
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and then ratably on a monthly basis over the subsequent three years. In certain
circumstances, at the discretion of the Board of Directors, options are granted
with a vesting schedule of other than four years. Non-qualified stock options
have a vesting period as determined by the Board of Directors generally vesting
25% on the first anniversary of the date of grant and then ratably on a monthly
basis over the subsequent three years. The stock options are exercisable over a
period of ten years from the date of grant.
In May 1997, the shareholders approved an increase in the maximum number of
shares that may be issued under the 1994 Plan from 1,110,000 to 1,610,000. In
February 1998, the shareholders approved an increase in the maximum number of
shares that may be issued under the 1994 Plan from 1,610,000 to 3,000,000.
A summary of stock option activity under the 1994 Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1995............................ 595,500 $0.20
Granted................................................... 386,500 0.30
---------
Outstanding at December 31, 1996............................ 982,000 0.24
Granted................................................... 482,250 1.23
Canceled.................................................. (47,675) 0.24
Exercised................................................. (50,325) 0.17
---------
Outstanding at December 31, 1997............................ 1,366,250 0.59
Granted................................................... 404,500 1.32
Canceled.................................................. (10,562) 2.11
Exercised................................................. (70,688) 0.30
---------
Outstanding at June 30, 1998 (unaudited).................... 1,689,500 0.77
=========
</TABLE>
Stock options outstanding at June 30, 1998 include 275,000 stock options
granted to affiliates of Banking Spectrum Services, Inc., a shareholder of the
Company, in March 1998. The Company recorded contract termination expense in
connection with these stock options, as described in Note 13, Related Parties.
The following table summarizes information regarding stock options granted
during 1995, 1996 and 1997, and the six months ended June 30, 1998 (unaudited):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SFAS123
WEIGHTED MINIMUM
NUMBER OF AVERAGE VALUE AT
OPTIONS EXERCISE GRANT
GRANTED PRICE DATE
--------- --------- ----------
<S> <C> <C> <C>
1995:
Options granted with an exercise price equal to market
value..................................................... 245,500 $0.28 $0.09
1996:
Options granted with an exercise price equal to market
value..................................................... 386,500 0.30 0.10
1997:
Options granted with an exercise price equal to market
value..................................................... 8,500 0.36 0.12
Options granted with an exercise price less than market
value..................................................... 473,750 1.25 1.10
1998:
Options granted with an exercise price less than market
value..................................................... 404,500 1.32 5.72
</TABLE>
F-14
<PAGE> 75
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average SFAS 123 minimum value at grant date is the amount
attributable to the option that is calculated without considering the expected
volatility of the underlying stock.
The following table summarizes additional information about stock options
outstanding at June 30, 1998 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------- OPTIONS EXERCISABLE
NUMBER WEIGHTED- --------------------------------
OUTSTANDING AT AVERAGE WEIGHTED NUMBER WEIGHTED
EXERCISE JUNE 30, REMAINING AVERAGE EXERCISABLE AT AVERAGE
PRICE 1998 CONTRACTUAL LIFE IN YEARS EXERCISE PRICE JUNE 30, 1998 EXERCISE PRICE
- -------- -------------- ------------------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.15 296,000 5.9 $0.15 291,250 $0.15
0.15 20,000 6.6 0.15 17,083 0.15
0.30 133,000 7.1 0.30 104,759 0.30
0.30 368,000 7.9 0.30 181,510 0.30
0.45 311,000 8.7 0.45 164,261 0.45
0.45 275,000 9.7 0.45 275,000 0.45
2.75 157,500 9.3 2.75 2,292 2.75
2.75 8,500 9.7 2.75 -- --
2.75 100,000 9.8 2.75 -- --
4.50 9,000 9.8 4.50 -- --
6.00 11,500 10.0 6.00 -- --
--------- ---------
1,689,500 1,036,155
========= =========
</TABLE>
Had compensation expense been recognized based on the minimum value of the
employee options at their grant dates, as prescribed in SFAS 123, the Company's
pro forma net loss would have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------ JUNE 30,
1995 1996 1997 1998
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss:
As reported................. $1,894,953 $3,638,472 $3,055,372 $2,216,087
Pro forma................... 1,896,688 3,646,337 3,131,847 2,317,576
Pro forma net loss per share
(basic and diluted):
As reported................. $ (0.98) $ (1.73) $ (1.42) $ (1.01)
Pro forma................... (0.98) (1.73) (1.45) (1.06)
</TABLE>
The minimum value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for options granted during the applicable period: .
<TABLE>
<CAPTION>
JUNE 30,
1995 1996 1997 1998
------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Risk free interest rate....................... 7.24% 6.72% 5.65%-6.66% 5.32%-5.46%
Expected dividend yield....................... None None None None
Expected life of option....................... 6 years 6 years 6 years 6 years
Expected volatility........................... 0% 0% 0% 0%
</TABLE>
The minimum value method requires the input of subjective assumptions.
Changes in the subjective input assumptions can materially affect the minimum
value estimate.
F-15
<PAGE> 76
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Compensation of $358,513 and $419,325 (unaudited) has been attributed to
those common stock options granted to employees during 1997 and the six months
ended June 30, 1998, respectively, with an exercise price below estimated fair
value. Compensation expense is recognized over the four year vesting period and
totaled $85,526, $52,756 (unaudited) and $68,952 (unaudited) for the year ended
December 31, 1997 and the six months ended June 30, 1997 and 1998, respectively.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
At June 30, 1998, the Company was committed under facility and various
other operating leases with an initial term of more than one year which expire
at various dates through 2003. Terms of the facility lease provide for
escalating rent payments in future years. Minimum lease payments under these
noncancelable leases are approximately as follows:
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
January 1 -- June 30, 1998.......... $ -- $ 82,000
July 1 -- December 31, 1998......... 86,000 86,000
1999................................ 182,000 182,000
2000................................ 191,000 191,000
2001................................ 211,000 211,000
2002................................ 219,000 219,000
Thereafter.......................... 72,000 72,000
---------- ----------
Total minimum
obligations............. $ 961,000 $1,043,000
========== ==========
</TABLE>
Rent expense under operating leases was approximately $36,000, $149,000 and
$194,000 for the years ended December 31, 1995, 1996 and 1997 and $101,000
(unaudited) and $127,000 (unaudited) for the six months ended June 30, 1997 and
1998, respectively.
The Company has license and marketing agreements which provide certain
geographically exclusive rights to use the Company's software product for the
outsourcing of core processing services to banks and credits unions. The
agreements provide defined geographic exclusivity as long as minimum revenue
targets are met.
From time to time in the ordinary course of business, the Company is
subject to legal proceedings. While it is impossible to determine the ultimate
outcome of such matters, it is management's opinion that the resolution of any
pending issues will not have a material adverse effect on the financial
position, results of operations or cash flows of the Company.
NOTE 11 -- DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, trade accounts receivable, other current
assets, trade accounts payable, royalties payable, accrued expenses, notes
payable and outstanding lines of credit approximate fair value because of the
short maturity of those instruments.
F-16
<PAGE> 77
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- INCOME TAXES
Significant components of the Company's deferred tax asset at December 31,
1996 and 1997, and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Gross deferred tax assets:
Net operating loss
carryforwards.............. $ 2,853,000 $ 3,967,000 $ 4,105,000
Research & development credit
carryforwards.............. 130,000 332,000 446,000
Stock option expense.......... -- -- 643,000
Other......................... 32,000 126,000 147,000
----------- ----------- -----------
3,015,000 4,425,000 5,341,000
----------- ----------- -----------
Gross deferred tax liability:
Capitalized software
development costs.......... 84,000 221,000 189,000
Accelerated depreciation...... 14,000 71,000 86,000
----------- ----------- -----------
98,000 292,000 275,000
----------- ----------- -----------
Valuation allowance............. (2,917,000) (4,133,000) (5,066,000)
----------- ----------- -----------
Net deferred tax asset.......... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The Company has provided a valuation allowance for the full amount of the
net deferred tax asset as of December 31, 1996 and 1997 and June 30, 1998 since
management has not determined realization of these future benefits to be more
likely than not. If the Company achieves profitability, the deferred tax asset
would be available, subject to certain annual limitations, to offset future
income taxes.
At June 30, 1998, the Company had approximately $10.1 million (unaudited)
of federal net operating loss carryforwards that begin expiring in 2007 and had
approximately $10.9 million (unaudited) of state net operating loss
carryforwards that begin expiring in 1998. At June 30, 1998, the Company had
approximately $446,000 (unaudited) of research and development credit
carryforwards that begin expiring in 2007.
As defined in the Internal Revenue Code, certain ownership changes limit
the annual utilization of federal net operating loss and tax credit
carryforwards. The Company experienced such an ownership change in December 1995
which limits approximately $3.2 million of federal net operating loss
carryforwards and $149,000 of research tax credits to a $307,000 annual Section
382 limitation.
NOTE 13 -- RELATED PARTIES
Banking Spectrum
In January 1994, the Company entered into an agreement with Banking
Spectrum Services, Inc., a shareholder of the Company, and Banking Spectrum,
Inc. (collectively, "Banking Spectrum"), to provide and receive certain
consulting and support services. The majority shareholder of Banking Spectrum
Services, Inc. is a director and shareholder of the Company. Pursuant to the
agreement, the Company agreed to pay Banking Spectrum a royalty based on the
licensing of software products and related services, ranging from three percent
to 17% of net revenues, based on Banking Spectrum's involvement in the sale of
such products and services. The Company recognized royalty expense of $9,021,
$72,064, $337,945, $75,515 (unaudited) and $90,403 (unaudited) for the years
F-17
<PAGE> 78
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1995, 1996, 1997 and for the six months ended June 30, 1997
and 1998, respectively.
In March 1998, the Company and Banking Spectrum terminated their previous
agreement and entered into a distribution and termination agreement. The new
agreement released the Company from any future royalty payments to Banking
Spectrum in exchange for cash payment of $100,000 to Banking Spectrum and fully
vested options to affiliates of Banking Spectrum Services, Inc. to purchase
275,000 shares of Common Stock at an exercise price of $0.45 per share. The
stock options were estimated by management to have a fair value of approximately
$1.6 million (unaudited). Net of amounts previously accrued, the Company
recorded a contract termination expense of approximately $1.3 million
(unaudited) for the six months ended June 30, 1998.
PRISM
During 1994, the Company borrowed $250,000 from Prince-Roth Information
Systems Management Inc. ("PRISM"), a related party. Spouses of the shareholders
of PRISM are shareholders of the Company. The note was paid in full during 1996
including interest due. Interest expense was $0 and $3,000 for the years ended
December 31, 1995 and 1996, respectively.
NOTE 14 -- 401(K) PLAN
In 1994 the Company established a voluntary 401(k) plan in which all full
time employees are eligible to participate. Since July 1996 the Company has
provided matching contributions of $30.00 per year plus 25% of the first four
percent of the employee's compensation which is deferred under the plan.
Eligible employees who elect to participate in the 401(k) plan are generally
vested in the Company's matching contributions after three years of service.
Company contributions for the years ended December 31, 1995, 1996 and 1997 and
for the six months ended June 30, 1998, were $0, $9,926, $27,773, and $24,112
(unaudited), respectively.
NOTE 15 -- SUBSEQUENT EVENTS (UNAUDITED)
Amended and Restated Certificate of Incorporation
After the filing of the Company's Amended and Restated Certificate of
Incorporation upon the closing of this offering, the authorized capital stock of
the Company will consist of 50,000,000 shares of common stock, $0.01 par value
per share, and 5,000,000 shares of preferred stock, $0.01 par value per share.
1994 Plan
The Company's 1994 Plan was amended by the Board of Directors, subject to
stockholder approval, in June 1998, effective upon the closing of the offering,
to provide for acceleration of vesting upon an acquisition event, as defined.
1998 Stock Incentive Plan
The Company's 1998 Stock Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors, subject to stockholder approval, in June 1998,
effective upon the closing of the offering contemplated in this Prospectus.
Awards may be made under the Incentive Plan for up to the sum of (i) 1,200,000
shares of common stock (subject to adjustment in the event of stock splits and
other similar events), plus (ii) the number of shares of common stock (up to
1,700,000) (subject to adjustment in the event of stock splits and other similar
events) subject to awards granted under the 1994 Plan which are not actually
issued because options granted under such plan expire or
F-18
<PAGE> 79
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
otherwise result in shares not being issued or, in the case of restricted stock,
are repurchased by the Company pursuant to the terms of the applicable stock
restriction agreement.
1998 Employee Stock Purchase Plan
The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors, subject to stockholder approval, in June
1998, effective upon the closing of the offering. The Purchase Plan authorizes
the issuance of up to a total of 250,000 shares of common stock to participating
employees.
Amendment to Preferred Stock and Warrant Purchase Agreements
In July 1998, the Company, CII and the requisite number of holders of
Series B and Series C Preferred Stock amended the Series A-2 Preferred Stock and
Warrant Purchase Agreement, dated as of May 12, 1995, the Series B Preferred
Stock and Warrant Purchase Agreement, dated as of December 27, 1995, and the
Series C Preferred Stock and Warrant Purchase Agreement, dated as of October 23,
1996, to provide that the mandatory redemption provisions of the Series A-2,
Series B and Series C Preferred Stock terminate upon the closing of a public
offering.
F-19
<PAGE> 80
- -----------------------------------------------------
- -----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME 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 Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 28
Management............................ 37
Certain Transactions.................. 45
Principal and Selling Stockholders.... 48
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 54
Underwriting.......................... 56
Legal Matters......................... 57
Experts............................... 57
Additional Information................ 58
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
2,800,000 SHARES
[OPEN SOLUTIONS LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BT ALEX. BROWN
CREDIT SUISSE FIRST BOSTON
WARBURG DILLON READ LLC
, 1998
- -----------------------------------------------------
- -----------------------------------------------------
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, 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........................................ $ 11,800
NASD filing fee............................................. 4,500
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. 10,000
Transfer Agent and Registrar fees........................... 15,000
Accounting fees and expenses................................ 250,000
Legal fees and expenses..................................... 250,000
Printing and mailing expenses............................... 150,000
Miscellaneous............................................... 113,700
--------
Total.................................................. $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct
II-1
<PAGE> 82
required for indemnification, or if the Registrant fails to make an
indemnification payment within 60 days after such payment is claimed by such
person, such person is permitted to petition the court to make an independent
determination as to whether such person is entitled to indemnification. As a
condition precedent to the right of indemnification, the director or officer
must give the Registrant notice of the action for which indemnity is sought and
the Registrant has the right to participate in such action or assume the defense
thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of Common
Stock and Preferred Stock issued, warrants issued and options granted by the
Registrant since June 1995. Further included is the consideration, if any,
received by the Registrant for such shares, warrants and options and information
relating to the section of the Securities Act of 1933, as amended (the
"Securities Act"), or rule of the Securities and Exchange Commission under which
exemption from registration was claimed.
1. On December 27, 1995, the Registrant sold a total of 1,543,334
shares of Series B Preferred Stock to Axiom Venture Partners L.P., Barry
Bloom, Mark Heller, Menlo Ventures VI, L.P., Menlo Entrepreneurs Fund VI,
L.P., Connecticut Innovations, Incorporated and Zachs CMP for an aggregate
purchase price of $4.6 million. The Registrant also issued such investors
warrants to purchase an aggregate of 192,916 shares of Series B Preferred
Stock at an exercise price of $4.00 per share.
2. On October 23, 1996, the Registrant sold a total of 1,222,222
shares of Series C Preferred Stock to Aetna Life Insurance Company, Axiom
Venture Partners L.P., Menlo Ventures VI, L.P., Menlo Entrepreneurs Fund
VI, L.P. and Connecticut Innovations, Incorporated for an aggregate
purchase price of $5.5 million. The Registrant also issued such investors
warrants to purchase an aggregate of 152,778 shares of Series C Preferred
Stock at an exercise price of $6.00 per share.
3. On August 22, 1997, the Registrant sold a total of 833,333 shares
of Series D Preferred Stock to The BISYS Group, Inc. for $5.0 million. The
Company also issued such investor a warrant to purchase 416,667 shares of
Series D Preferred Stock at an exercise price of $6.00 per share.
II-2
<PAGE> 83
4. On March 6, 1998, the Registrant issued a total of 84,583 shares
of Series B Preferred Stock and 41,667 shares of Series C Preferred Stock
to Menlo Ventures VI, L.P. and Menlo Entrepreneurs Fund VI, L.P. upon the
exercise of warrants.
Certain of the transactions described above involved directors, officers
and five percent stockholders of the Registrant. See "Certain Transactions."
The Registrant's 1994 Stock Option Plan was adopted by the Board of
Directors and approved by the stockholders of the Registrant in March 1994. As
of June 30, 1998, options to purchase 61,013 shares of Common Stock had been
exercised for an aggregate consideration of $10,336, options to purchase
1,689,500 shares of Common Stock were outstanding and 175,000 shares of Common
Stock had been issued under an award of restricted stock under such plan.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from Securities Act registration set forth
in Sections 3(b) and 4(2) of the Securities Act, or any regulations promulgated
thereunder, relating to sales by an issuer not involving any public offering, or
(ii) in the case of certain options to purchase shares of Common Stock and
shares of Common Stock issued upon the exercise of such options, such offers and
sales were made in reliance upon an exemption from registration under Rule 701
of the Securities Act. No underwriters were involved in the foregoing sales of
securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*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 effective upon the closing of this
offering.
*3.3 By-Laws of the Registrant, as amended.
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.
5 Opinion of Hale and Dorr LLP.
10.1 1994 Stock Option Plan, as amended.
10.2 1998 Stock Incentive Plan, including forms of stock option
agreement for incentive and nonstatutory stock options.
*10.3 1998 Employee Stock Purchase Plan.
10.4 Amended and Restated Investors' Rights Agreement, dated as
of August 22, 1997, between the Company and the Investors
(as defined therein).
10.5 Form of Stock Subscription Warrant to Purchase Series B
Preferred Stock dated December 27, 1995.
10.6 Form of Stock Subscription Warrant to Purchase Series C
Preferred Stock dated October 23, 1996.
10.7 Stock Subscription Warrant to Purchase Series D Preferred
Stock, dated August 22, 1997, issued to The BISYS Group,
Inc.
10.8 Key Employee Agreement between the Company and Douglas K.
Anderson dated September 1995, as amended.
+*10.9 Software License and Marketing and Distribution Agreement,
between the Company and BISYS, Inc., dated as of August 20,
1997.
+*10.10 License and Marketing Agreement, between the Company and
Connecticut On-Line Computer Center, Inc., dated as of
December 9, 1997.
+*10.11 Software License Agreement, between the Company and Unisys
Corporation, dated as of June 18, 1997.
</TABLE>
II-3
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.12 Employment Agreement between the Company and Graham H.
Gurney dated January 2, 1993, as amended.
10.13 Employment Agreement between the Company and Clifford I.
Waggoner dated January 2, 1993, as amended.
*10.14 Letter Agreement between the Company and John L. Person
dated April 10, 1997.
*10.15 Letter Agreement between the Company and Richard J. Willemin
dated February 27, 1998.
*10.16 Form of Information Processing System Agreement.
*10.17 Form of prior Information Processing System Agreement.
10.18 Agreement, dated March 26, 1998, among the Company, Banking
Spectrum, Inc. and Banking Spectrum Services, Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5).
*24 Power of Attorney (included on page II-6).
27 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts is included in this
Registration Statement. All other schedules have been omitted because they are
not required or because the required information is given in the Registrant's
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 Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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 form 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.
II-4
<PAGE> 85
(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-5
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Glastonbury,
Connecticut, on this 17th day of July, 1998.
OPEN SOLUTIONS INC.
By: /s/ DOUGLAS K. ANDERSON
--------------------------------------
Douglas K. Anderson
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DOUGLAS K. ANDERSON Chairman of the Board and Chief July 17, 1998
- --------------------------------------------------- Executive Officer (Principal
Douglas K. Anderson Executive Officer)
/s/ RICHARD J. WILLEMIN Senior Vice President and Chief July 17, 1998
- --------------------------------------------------- Financial Officer (Principal
Richard J. Willemin Financial and Accounting Officer)
* Director July 17, 1998
- ---------------------------------------------------
Douglas C. Carlisle
* Director July 17, 1998
- ---------------------------------------------------
David M. Clarke
* Director July 17, 1998
- ---------------------------------------------------
Graham H. Gurney
* Director July 17, 1998
- ---------------------------------------------------
Samuel F. McKay
* Director July 17, 1998
- ---------------------------------------------------
Carlos P. Naudon
* Director July 17, 1998
- ---------------------------------------------------
William W. Neville
</TABLE>
II-6
<PAGE> 87
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director July 17, 1998
- ---------------------------------------------------
Clifford I. Waggoner
* Director July 17, 1998
- ---------------------------------------------------
Richard P. Yanak
*/s/ RICHARD J. WILLEMIN
- ---------------------------------------------------
Attorney-in-fact
</TABLE>
II-7
<PAGE> 88
SCHEDULE II
OPEN SOLUTIONS INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ---------------------------------- DEDUCTIONS BALANCE AT
BEGINNING OF CHARGE TO COSTS CHARGE TO OTHER NET OF END OF
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS WRITE-OFFS PERIOD
----------- ------------ ---------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
Years ended
December 31, 1995......... $ -- $ -- $ -- $ -- $ --
December 31, 1996......... -- 86 -- -- 86
December 31, 1997......... 86 239 -- 111 214
Six months ended June 30,
1998 (unaudited).......... 214 175 -- 129 260
</TABLE>
S-1
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*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 effective upon the closing of this
offering.
*3.3 By-Laws of the Registrant, as amended.
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.
5 Opinion of Hale and Dorr LLP.
10.1 1994 Stock Option Plan, as amended.
10.2 1998 Stock Incentive Plan, including forms of stock option
agreement for incentive and nonstatutory stock options.
*10.3 1998 Employee Stock Purchase Plan.
10.4 Amended and Restated Investors' Rights Agreement, dated as
of August 22, 1997, between the Company and the Investors
(as defined therein).
10.5 Form of Stock Subscription Warrant to Purchase Series B
Preferred Stock dated December 27, 1995.
10.6 Form of Stock Subscription Warrant to Purchase Series C
Preferred Stock dated October 23, 1996.
10.7 Stock Subscription Warrant to Purchase Series D Preferred
Stock, dated August 22, 1997, issued to The BISYS Group,
Inc.
10.8 Key Employee Agreement between the Company and Douglas K.
Anderson dated September 1995, as amended.
+*10.9 Software License and Marketing and Distribution Agreement,
between the Company and BISYS, Inc., dated as of August 20,
1997.
+*10.10 License and Marketing Agreement, between the Company and
Connecticut On-Line Computer Center, Inc., dated as of
December 9, 1997.
+*10.11 Software License Agreement, between the Company and Unisys
Corporation, dated as of June 18, 1997.
10.12 Employment Agreement between the Company and Graham H.
Gurney dated January 2, 1993, as amended.
10.13 Employment Agreement between the Company and Clifford I.
Waggoner dated January 2, 1993, as amended.
*10.14 Letter Agreement between the Company and John L. Person
dated April 10, 1997.
*10.15 Letter Agreement between the Company and Richard J. Willemin
dated February 27, 1998.
*10.16 Form of Information Processing System Agreement.
*10.17 Form of prior Information Processing System Agreement.
10.18 Agreement, dated March 26, 1998, among the Company, Banking
Spectrum, Inc. and Banking Spectrum Services, Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5).
*24 Power of Attorney (included on page II-6).
27 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
<PAGE> 1
Exhibit No. 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF OPEN SOLUTIONS INC.
OPEN SOLUTIONS INC., a corporation incorporated under the General
Corporation Law of Delaware, hereby amends and restates its Certificate of
Incorporation, which was originally filed with the Secretary of State on May 18,
1992, so that the same shall read, in its entirety, as follows:
ARTICLE I.
The name of this corporation is Open Solutions Inc.
ARTICLE II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
ARTICLE III.
A. CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Fifteen Million Seven Hundred Seventy-Five Thousand (15,775,000) shares. Nine
Million Eight Hundred Thirty Thousand Four Hundred Seventeen (9,830,417) shares
shall be Common Stock par value $.01 per share and Five Million Nine Hundred
Forty-Four Thousand Five Hundred Eighty. Three (5,944,583) shares shall be
Preferred Stock par value $.01 per share.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
rights, preferences, privileges, and restrictions granted to and imposed on the
Series A-1 Preferred Stock, which series shall consist of One Million
(1,000,000) shares, the Series A-2 Preferred Stock, which series shall consist
of Five Hundred Eighty-Three Thousand Three Hundred Thirty-Three (583,333)
shares, the Series B Preferred Stock, which series shall consist of One Million
Seven Hundred Thirty-Six Thousand Two Hundred Fifty (1,736,250) shares, the
Series C Preferred Stock, which series shall consist of One Million Three
Hundred Seventy-Five Thousand (1,375,000) shares and the Series D Preferred
Stock, which series shall consist of One Million Two Hundred Fifty Thousand
(1,250,000) shares are as set forth below in this Article III(B).
1. DIVIDEND PROVISIONS. The holders of shares of Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in preference
to any declaration
<PAGE> 2
or payment of any dividend (payable other than in Common Stock or other
securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Common Stock of this corporation, at the rate of (i) $.11
per share per annum for the Series A-1 Preferred Stock and (ii) $.21 per share
per annum for the Series A-2 Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock, or, if greater (as
determined on a per-annum basis and an as-converted basis for the Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock), an amount equal to that paid on
any other outstanding shares of this corporation, payable quarterly when, as and
if declared by the Board of Directors in their sole discretion. Such dividends
shall not be cumulative.
2. LIQUIDATION PREFERENCE.
a. In the event of any liquidation, dissolution or winding up of
this corporation, either voluntarily or involuntarily, the holders of Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of this corporation
to the holders of Common Stock by reason of their ownership thereof, (i) for the
Series A-1 Preferred Stock, an amount per share equal to the sum of (A) $1.50
for each outstanding share of Series A-1 Preferred Stock (the "Original Issue
Price" for the Series A-1 Preferred Stock) and (B) an amount equal to declared
but unpaid dividends on such share; (ii) for the Series A-2 Preferred Stock, an
amount per share equal to the sum of (A) $3.00 for each outstanding share of
Series A-2 Preferred Stock (the "Original Issue Price" for the Series A-2
Preferred Stock) and (B) an amount equal to declared but unpaid dividends on
such share; (iii) for the Series B Preferred Stock, an amount per share equal to
the sum of (A) $3.00 for each outstanding share of Series B Preferred Stock (the
"Original Issue Price" for the Series B Preferred Stock) and (B) an amount equal
to accrued, but unpaid, dividends on such share; (iv) for the Series C Preferred
Stock, an amount per share equal to the sum of (A) $4.50 for each outstanding
share of Series C Preferred Stock (the "Original Issue Price" for the Series C
Preferred Stock) and (B) an amount equal to accrued, but unpaid, dividends on
such share; and (v) for the Series D Preferred Stock, an amount per share equal
to the sum of (A) $6.00 for each outstanding share of Series D Preferred Stock
(the "Original Issue Price" for the Series D Preferred Stock) and (B) an amount
equal to accrued, but unpaid, dividends on such share. If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the Series B
Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the
Series B
-2-
<PAGE> 3
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock
in proportion to the preferential amount each such holder is otherwise entitled
to receive.
b. Upon the completion of the distribution required by
subparagraph (a) of this Section 2, the remaining assets of the corporation
available for distribution to stockholders shall be distributed among the
holders of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Common
Stock pro rata based on the number of shares of Common Stock held by each
(assuming conversion of all such Preferred Stock).
c. (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include: (A) the acquisition of the corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but excluding any merger
effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; UNLESS in the case of (A) or (B), the corporation's shareholders of
record as constituted immediately prior to such acquisition or sale will,
immediately after such acquisition or sale (by virtue of securities issued as
consideration for the corporation's acquisition or sale or otherwise) hold at
least 50% of the voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration received
by the corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or through the
Nasdaq National Market System, the value shall be deemed to be the average of
the closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the Board of
the corporation and the holders of at least a majority of the voting power of
all then outstanding shares of Preferred Stock.
-3-
<PAGE> 4
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof; as mutually determined by the Board of the corporation and
the holders of at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(iii) In the event the requirements of this subsection 2(c)
are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A-1 Preferred Stock, the
Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock and the Series D Preferred Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately prior to the date of the
first notice referred to in subsection 2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and the Series D Preferred Stock written notice
of such impending transaction not later than twenty (20) days prior to the
shareholders' meeting called to approve such transaction, or twenty (20) days
prior to the closing of such transaction, whichever is earlier, and shall also
notify such holders in writing of the final approval of such transaction. The
first of such notices shall describe the material terms and conditions of the
impending transaction and the provisions of this Section 2, and the corporation
shall thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
corporation has given the first notice provided for herein or sooner than ten
(10) days after the corporation has given notice of any material changes
provided for herein; PROVIDED, HOWEVER that such periods may be shortened upon
the written consent of the holders of Preferred Stock that are entitled to such
notice rights or similar notice rights and that represent at least a majority of
the voting power of all then outstanding shares of such Preferred Stock.
3. [Intentionally left blank.]
4. CONVERSION. The holders of the Series A-1 Preferred Stock,
the Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
-4-
<PAGE> 5
a. RIGHT TO CONVERT. Each share of Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and the Series D Preferred Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share, at the
office of this corporation or any transfer agent for such stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing the Original Issue Price by the Conversion Price applicable to such
share, determined as hereafter provided, in effect on the date the certificate
is surrendered for conversion. The initial Conversion Price per share for shares
of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock shall be the
Original Issue Price for such share; provided, however, that the Conversion
Price for the Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock shall be subject to adjustment as set forth in subsection 4(d).
Accrued dividends, if any (i) on the Series A-1 Preferred Stock and the Series
A-2 Preferred Stock will be eliminated upon conversion and shall not be applied
upon conversion to the Common Stock; and (ii) on the Series B Preferred Stock,
the Series C Preferred Stock and the Series D Preferred Stock shall be payable
upon conversion.
b. AUTOMATIC CONVERSION. Except as provided below in
subsection 4(c), each share of Preferred Stock shall automatically be converted
into shares of Common Stock at the Conversion Price at the time in effect for
such share immediately upon the corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement
under the Securities Act of 1933, as amended, the aggregate public offering
price of which was at least $10,000,000, based on a public offering price of at
least $6.00 per share of Common Stock with respect to conversion of Series A-1
Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock and
$7.50 per share of Common Stock with respect to conversion of Series C Preferred
Stock and Series D Preferred Stock and the Common Stock is listed for trading on
the Nasdaq National Market System.
c. MECHANICS OF CONVERSION. Before any holder of Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock shall be entitled to convert the
same into shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of this corporation or of
any transfer agent for such series of Preferred Stock, and shall give written
notice to this corporation at its principal corporate office of his election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. This
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A-1 Preferred Stock, Series A-2 Preferred Stock,
Series B Preferred Stock Series C Preferred Stock or Series D Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such
-5-
<PAGE> 6
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, the conversion may, at the option of any holder tendering Series A-1
Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock upon
conversion of the Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall
not be deemed to have converted such Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock until immediately prior to the closing of such sale of
securities.
d. CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
CERTAIN DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of the
Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock
shall be subject to adjustment from time to time as follows:
(i) (A) Upon each issuance by this corporation of any
Additional Stock (as defined below) after the effective date of filing of this
Restated Certificate of Incorporation (the "Effective Date"), without
consideration or for a consideration per share less than the Conversion Price
for such series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for such series in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price equal to the quotient obtained by dividing the total
computed under clause (x) below by the total computed under clause (y) below as
follows:
(x) an amount equal to the sum of
(1) the aggregate purchase price of the shares of such
series sold pursuant to the agreement pursuant to which
shares of such series are first issued (the "Stock Purchase
Agreement"), plus
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<PAGE> 7
(2) the aggregate consideration, if any, received by
the corporation for all Additional Stock issued on or after
the Effective Date for such series,
(y) an amount equal to the sum of
(1) the aggregate purchase price of the shares of such
series sold pursuant to the Stock Purchase Agreement divided
by the Conversion Price for such shares in effect at the
Effective Date for such series, plus
(2) the number of shares of Additional Stock issued
since the Effective Date for such series.
(B) No adjustment of the Conversion Price for the
Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock or Series D Preferred Stock shall
be made in an amount less than one cent per share, provided that any adjustments
that are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to 3 years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of 3 years from the date of the
event giving rise to the adjustment being carried forward, and upon such
adjustment the Conversion Price for such Preferred Stock shall be rounded up or
down to the nearest cent. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 4(d)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof
(D) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to purchase or rights to
subscribe for such convertible or exchangeable securities, the following
provisions shall apply for all purposes of this subsection 4(d)(i) and
subsection 4(d)(ii):
-7-
<PAGE> 8
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (whether or not then
exercisable) of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for
a consideration equal to the consideration (determined in the
manner provided in subsections 4(d)(i)(C) and (d)(i)(D)), if
any, received by the corporation upon the issuance of such
options or rights plus the minimum exercise price provided in
such options or rights for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (whether
or not then convertible or exchangeable) for any such
convertible or exchangeable securities or upon the exercise
of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such
options or rights were issued and for a consideration equal
to the consideration, if any, received by the corporation for
any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if
any, to be received by the corporation upon the conversion or
exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be
determined in the manner provided in subsections 4(d)(i)(C)
and (d)(i)(D)).
(3) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable
to this corporation upon exercise of such options or rights
or upon conversion of or in exchange for such convertible or
exchangeable securities, including, but not limited to, a
change resulting from the anti-dilution provisions thereof,
the Conversion Price of the Series A-1 Preferred Stock, the
Series A-2 Preferred Stock and the Series B Preferred Stock,
to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect
such change, but no further adjustment shall be made for the
actual issuance
-8-
<PAGE> 9
of Common Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion or
exchange of such securities.
(4) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Price
of the Series A-1 Preferred Stock, the Series A-2 Preferred
Stock, the Series B Preferred Stock, the Series C Preferred
Stock and Series D Preferred Stock, to the extent in any way
affected by or computed using such options, rights or
securities or options or rights related to such securities,
shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or
exchangeable securities that remain in effect) actually
issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the
exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to
subsections 4(d)(i)(E)(i) and (2) shall be appropriately
adjusted to reflect any change, termination or expiration of
the type described in either subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E))
by this corporation after the Effective Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof;
(B) 1,610,000 shares of Common Stock issuable or
issued (and not repurchased at cost by the corporation in
connection with the termination of employment) to employees
of this corporation directly or pursuant to the stock option
plan approved by the Board of Directors of this corporation
and existing on the Effective Date or such other stock option
plan or restricted plan or amendment thereto approved by a
majority of the holders of Preferred Stock;
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<PAGE> 10
(C) Common Stock issued upon conversion of shares of
Preferred Stock;
(D) shares of Common Stock issued or issuable in a
public offering in connection with which all outstanding
shares of Series A-1 Preferred Stock, Series A-2 Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock will be converted to Common Stock;
(E) the warrants to purchase up to 192,916 shares of
Series B Preferred Stock issued by the corporation in
connection with the initial sale of the Series B Preferred
Stock (the "Series B Warrants"), the Series B Preferred Stock
issued upon exercise of the Series B Warrants and the Common
Stock issued upon conversion of such Series B Preferred
Stock;
(F) the warrants to purchase up to 152,778 shares of
Series C Preferred Stock issued by the corporation in
connection with the initial sale of the Series C Preferred
Stock (the "Series C Warrants"), the Series C Preferred Stock
issued upon exercise of the Series C Warrants and the Common
Stock issued upon conversion of such Series C Preferred
Stock; or
(G) the warrants to purchase up to 416,667 shares of
Series D Preferred Stock issued by the corporation in
connection with the initial sale of the Series D Preferred
Stock (the "Series D Warrants"), the Series D Preferred Stock
issued upon exercise of the Series D Warrants and the Common
Stock issued upon conversion of such Series D Preferred
Stock.
(iii) In the event the corporation should at any time or
from time to time after the Effective Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of
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<PAGE> 11
such record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price of the Series A-1
Preferred Stock, the Series A-2 Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock and Series D Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock
outstanding at any time after the Effective Date is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Price for the Series A-1 Preferred Stock, the
Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock and the Series D Preferred Stock shall be appropriately increased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be decreased in proportion to such decrease in outstanding
shares.
e. OTHER DISTRIBUTIONS. In the event this corporation shall
declare a distribution to holders of the corporation's Common Stock payable in
securities of other persons, evidences of indebtedness issued by this
corporation or other persons, assets (excluding cash dividends) or options or
rights not referred to in subsection 4(d)(iii), then, in each such case for the
purpose of this subsection 4(e), the holders of the Series A-1 Preferred Stock,
the Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock and Series D Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the corporation into which their shares
of Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock
are convertible as of the record date fixed for the determination of the holders
of Common Stock of the corporation entitled to receive such distribution.
f. RECAPITALIZATIONS. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2), provision shall be made so that the holders of the
Series A-1 Preferred Stock, the Series A2 Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock
shall thereafter be entitled to receive upon conversion of such Preferred Stock
the number of shares of stock or other securities or property of the Company or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of the Series A-1 Preferred Stock, the
Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock and the Series D Preferred Stock after
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<PAGE> 12
the recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series A-1 Preferred Stock, the Series A-2
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series D Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
g. NO IMPAIRMENT. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock against impairment.
h. NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A-1 Preferred Stock, the Series
A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
or the Series D Preferred Stock, and the number of shares of Common Stock to be
issued shall be rounded to the nearest whole share. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Series A-1 Preferred Stock, Series A-2 Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series
D Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of the Series A-1 Preferred Stock, the Series A-2
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or
the Series D Preferred Stock pursuant to this Section 4, this corporation, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. This corporation shall,
upon the written request at any time of any holder of Series A-1 Preferred
Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B)
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<PAGE> 13
the Conversion Price for such series of Preferred Stock at the time in effect,
and (C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
such Preferred Stock
i. NOTICES OF RECORD DATE. In the event of any taking by this
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 (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend distribution or right.
j. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A-1 Preferred Stock, the Series A-2
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series D Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Preferred Stock,
this corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to these articles.
k. NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A-1 Preferred Stock,
Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock shall be deemed given if deposited in the United
States mail, postage prepaid, and addressed to each holder of record at his
address appearing on the books of this corporation.
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<PAGE> 14
5. VOTING RIGHTS.
a. Except as set forth in subsection 5(b) of this Section 5, the
holder of each share of Series A-1 Preferred Stock, Series A-2 Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall have the right to one vote for each share of Common Stock, if and when
issued, into which such Series A-1 Preferred Stock, Series A-2 Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
could then be converted, and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, outstanding any provision
hereof, to notice of any shareholders' meeting in accordance with the Bylaws of
this corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
b. ELECTION OF DIRECTORS. Except as set forth below, at each
election of directors in which there are shares of Preferred Stock outstanding,
the holders of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock and Series D Preferred Stock,
voting together as a separate class, shall be entitled to elect four (4) members
to the Board of Directors. Except as set forth below, at each election of
directors in which there are shares of Preferred Stock outstanding, the holders
of Common Stock, voting separately as a class, shall be entitled to elect four
(4) members to the Board of Directors. Except as set forth below, at each
election of directors, the holders of Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Common Stock, voting together as a separate class, shall be
entitled to elect one member, or such additional number of members as the
majority of the holders of Preferred Stock and Common Stock each voting as a
separate class shall approve, to the Board of Directors.
c. Vacancies in the Board of Directors may be filled only by the
vote of a majority of the outstanding shares entitled to vote thereon
represented at a duly held meeting at which a quorum is present, or by written
consent of a majority of the shares entitled to vote thereon. Each director so
elected shall hold office until the next annual meeting of shareholders and
until a successor has been elected and qualified.
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<PAGE> 15
6. PROTECTIVE PROVISIONS.
a. So long as any shares of Series A-1 Preferred Stock,
Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock are outstanding, this corporation shall not, without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of a majority of the outstanding Preferred Stock, which majority
must include the holders of a majority of the outstanding Series B Preferred
Stock that is entitled to vote with respect to the matter and the holders of a
majority of the outstanding Series C Preferred Stock that is entitled to vote
with respect to the matter:
(i) sell, convey, or otherwise dispose of or encumber all
or substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
(ii) alter or change the rights, preferences or privileges
of the shares of Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the
Series B Preferred Stock or the Series C Preferred Stock so as to affect
adversely the shares;
(iii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A-1 Preferred Stock,
Series A-2 Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock;
(iv) create (by new authorization, reclassification,
recapitalization or otherwise) any class or series of stock or any other
securities convertible into equity securities of this corporation having a
preference over, or being on a parity with, the Series A-1 Preferred Stock, the
Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock or the Series D Preferred Stock with respect to voting, dividends or upon
liquidation;
(v) effect a reclassification or recapitalization of the
outstanding capital stock of the corporation;
(vi) amend Article VII hereof to provide limits on director
liability or indemnification other than to the maximum extent permitted by law;
or
(vii) change the size of the corporation's Board of
Directors from its existing size of nine (9).
b. So long as any shares of Series B Preferred Stock or Series C
Preferred Stock are outstanding, this corporation shall not, without first
obtaining
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<PAGE> 16
the approval (by vote or written consent, as provided by law) of the holders of
two-thirds (2/3) of the outstanding shares of each such series of Preferred
Stock, cause a conversion under Section 4(b) hereof.
c. So long as any shares of Series D Preferred Stock are
outstanding, this corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of a majority of
the outstanding shares of Series D Preferred Stock:
(i) alter or change the rights, preferences or privileges
of the shares of Series D Preferred Stock so as to affect adversely such shares;
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series D Preferred Stock;
(iii) effect a reclassification or recapitalization of the
outstanding capital stock of the corporation so as to (x) alter or change the
rights, preferences or privileges of the shares of Series D Preferred Stock so
as to affect adversely such shares or (y) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Series D
Preferred Stock; or
(iv) amend Article VII hereof to provide limits on director
liability or indemnification other than to the maximum extent permitted by law.
7. STATUS OF CONVERTED STOCK. In the event any shares of
Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock shall be converted
pursuant to Section 4 hereof, the shares so converted shall be cancelled and
shall not be issuable by the corporation. The Articles of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
C. COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors in their sole discretion.
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<PAGE> 17
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article III hereof.
3. [Intentionally left blank.]
4. 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.
ARTICLE IV.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have the power, subject to the provisions
of Section B.6 of Article III, both before and after receipt of any payment for
any of the corporation's capital stock, to adopt, amend, repeal or otherwise
alter the Bylaws of the corporation without any action on the part of the
stockholders; provided, however, that the grant of such power to the Board of
Directors shall not divest the stockholders of, nor limit their power, subject
to the provisions of Section B.6 of Article THREE, to adopt, amend, repeal or
otherwise alter the Bylaws or otherwise limit any other stockholder rights.
ARTICLE V.
Elections of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
ARTICLE VI.
The corporation reserves the right to adopt, repeal, rescind or amend
in any respect any provisions contained in this Restated Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
ARTICLE VII.
A director of the corporation shall, to the fill extent permitted by
the Delaware General Corporation Law as it now exists or as it may hereafter be
amended, not be liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Neither any amendment nor
repeal of this Article VII, nor the adoption of any provision of this Restated
Certificate of Incorporation inconsistent with this Article VII, shall eliminate
or reduce the effect of this Article VII in respect of any matter occurring, or
any cause of action, suit or claim that, but
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<PAGE> 18
for this Article VII, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE VIII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX.
To the fullest extent permitted by applicable law, the corporation is
authorized to provide indemnification of (and advancement of expenses to)
officers and agents of the corporation (and any other persons to which Delaware
law permits the corporation to provide indemnification) through bylaw
provisions, agreements with such officers, agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by applicable
Delaware law (statutory or non-statutory), with respect to actions for breach of
duty to the corporation, its stockholders, and others.
ARTICLE X.
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
Delaware 19805. The Corporation's registered agent at such address is
Corporation Service Company.
This Restated Certificate of Incorporation has been duly adopted by the
written consent of the stockholders in accordance with the provisions of
Sections 242, 245 and 228 of the General corporation Law of Delaware, as
amended, and written notice has been given as provided in Section 228 of the
General Corporation Law of Delaware.
[INTENTIONALLY LEFT BLANK]
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<PAGE> 19
IN WITNESS WHEREOF, OPEN SOLUTIONS INC., has caused this certificate to
be signed by its President as of this 22 day of August, 1997.
OPEN SOLUTIONS INC.
By /s/ Douglas K. Anderson
-------------------------
Douglas K. Anderson
Its President
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<PAGE> 20
FIRST CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
OPEN SOLUTIONS INC.
OPEN SOLUTIONS INC. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law"), does hereby certify:
FIRST: That the Restated Certificate of Incorporation of the
Corporation was filed with the Secretary of State of August 22, 1997; and
SECOND: That, pursuant to the provisions of Section 242 of the General
Corporation Law, the Board of Directors of the Corporation, at the Board of
Directors meeting held February 25, 1998, duly adopted resolutions setting forth
a proposed first amendment to the Restated Certificate of Incorporation of the
Corporation, declared said proposed first amendment to be advisable and directed
that it be submitted to the stockholders of the Corporation for approval; and
THIRD: That thereafter, pursuant to the provisions of Sections 228 and
242 of the General Corporation Law, the stockholders of the Corporation, by
written consent filed with the minutes of the stockholders' meetings, duly
adopted the following resolution setting forth the proposed amendment:
RESOLVED, that the Restated Certificate of Incorporation of the
Corporation be, and it hereby is, amended by deleting, in its entirety, the
first full paragraph of Article III thereof and substituting for the first full
paragraph of Article III the following:
"A. CLASSES OF STOCK. This corporation is authorized to issue
two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the corporation is
authorized to issue is Twenty-five Million (25,000,000) shares.
Nineteen Million, Fifty-five Thousand, Four Hundred Seventeen
(19,055,417) shares shall be Common Stock par value $.01 per share and
Five Million Nine Hundred Forty-Four Thousand Five Hundred Eighty Three
(5,944,583) shares shall be Preferred Stock par value $.01 per share."
FOURTH: That said amendment was only adopted in accordance with the
provisions of Section 242 of the General Corporation Law.
<PAGE> 21
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President this ninth day of March, 1998.
OPEN SOLUTIONS INC.
By: /s/ Clifford I. Waggoner
-------------------------------
Clifford I. Waggoner, Secretary
<PAGE> 22
SECOND CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
OPEN SOLUTIONS INC.
OPEN SOLUTIONS INC. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law"), does hereby certify:
FIRST: That the original Certificate of Incorporation of the
Corporation was filed with the Secretary of State on May 19, 1992.
SECOND: That, pursuant to the provisions of Section 242 of the General
Corporation Law, the Board of Directors of the Corporation, by unanimous written
consent in accordance with the provisions of Section 141(f) of the General
Corporation Law, and the stockholders of the Corporation, by written consent in
accordance with Section 228 of the General Corporation Law, duly adopted the
following resolutions setting forth a proposed second amendment to the Restated
Certificate of Incorporation of the Corporation:
RESOLVED, that Article III, Section B.4.d(ii)B of the
Corporation's Restated Certificate of Incorporation be and hereby is
amended by deleting such section in its entirety and replacing it with
the following:
"(B) 3,000,000 shares of Common Stock issuable or
issued (and not repurchased at cost by the
corporation in connection with the termination of
employment) to employees, directors, consultants,
advisors, suppliers and vendors of this corporation
directly or pursuant to the stock option plan
approved by the Board of Directors of this
corporation and existing on the Effective Date or
such other stock option plan or restricted plan or
amendment thereto approved by a majority of the
holders of Preferred Stock;"; and be it
FURTHER RESOLVED, that there be and there hereby is added the
following sentence as the penultimate sentence of Article III, Section
B.4.a:
"As of the date of this Amendment to the Restated
Certificate of Incorporation, the Conversion Price
per share for shares of Series A-1 Preferred Stock,
Series A-2 Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock
shall be the Original Issue Price for such share."
<PAGE> 23
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its Chairman of the Board and Chief Executive Officer this 13th day of
July, 1998.
OPEN SOLUTIONS INC.
By: /s/ Douglas K. Anderson
----------------------------------
Douglas K. Anderson
Its Chairman of the Board and
Chief Executive Officer
<PAGE> 1
Exhibit No. 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
OPEN SOLUTIONS INC.
Open Solutions Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of the State of Delaware on May 18, 1992.
2. At a duly called meeting of the Board of Directors of the Corporation
at which a quorum was present at all times, a resolution was duly adopted,
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware, setting forth an Amended and Restated Certificate of Incorporation of
the Corporation and declaring said Amended and Restated Certificate of
Incorporation advisable. The stockholders of the Corporation duly approved said
proposed Amended and Restated Certificate of Incorporation by written consent in
accordance with Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware. The resolution setting forth the Amended and Restated
Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be and
hereby is amended and restated in its entirety so that the same
shall read as follows:
FIRST. The name of the Corporation is:
Open Solutions Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
<PAGE> 2
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 55,000,000 shares, consisting of
(i) 50,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed
2
<PAGE> 3
to constitute different classes of shares for the purposes of voting by classes
unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided in this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the
Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot, except as
and to the extent provided in the By-Laws of the Corporation.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation, except as and to the extent provided in
the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as
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<PAGE> 4
the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
NINTH. 1. Actions, Suits and Proceedings Other than by or in the Right of
the Corporation. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the
4
<PAGE> 5
Indemnitee unless the initiation thereof was approved by the Board of Directors
of the Corporation. Notwithstanding anything to the contrary in this Article,
the Corporation shall not indemnify an Indemnitee to the extent such Indemnitee
is reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was
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<PAGE> 6
unlawful, the Indemnitee shall be considered for the purposes hereof to have
been wholly successful with respect thereto.
4. Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
provided, however, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article. Such undertaking shall be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
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<PAGE> 7
6. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority vote
of the directors of the Corporation consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation), or (e) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions
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or facts occurring prior to the final adoption of such amendment, termination or
repeal.
9. Other Rights. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
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<PAGE> 9
13. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. Except as otherwise provided herein, the Corporation reserves the
right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. Number of Directors. The number of directors of the Corporation
shall not be less than three. The exact number of directors within the
limitations specified in the preceding sentence shall be fixed from time to time
by, or in the manner provided in, the Corporation's By-Laws.
2. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the
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extra directors shall be a member of Class II, unless otherwise provided from
time to time by resolution adopted by the Board of Directors.
3. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 1999; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 2000; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 2001; and provided further, that the
term of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
4. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
5. Quorum; Action at Meeting. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third of the number
of directors fixed pursuant to Section 1 above constitute a quorum. If at any
meeting of the Board of Directors there shall be less than such a quorum, a
majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is required by law, by the By-Laws of the
Corporation or by this Certificate of Incorporation.
6. Removal. Directors of the Corporation may be removed only for cause
by the affirmative vote of the holders of at least seventy-five percent (75%) of
the votes which all the stockholders would be entitled to cast in any annual
election of directors or class of directors.
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7. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
8. Stockholder Nominations and Introduction of Business, Etc. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
9. Amendments to Article. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast in any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast in any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the President or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting. Notwithstanding any other provision of law, this Certificate of
Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least seventy-five percent (75%) of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article THIRTEENTH.
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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Incorporation to be signed by its
Chairman of the Board and Chief Executive Officer this _____ day of ___________,
1998.
OPEN SOLUTIONS INC.
By:_________________________________
Douglas K. Anderson
Chairman of the Board and
Chief Executive Officer
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<PAGE> 1
Exhibit No. 3.4
AMENDED AND RESTATED BY-LAWS
OF
OPEN SOLUTIONS INC.
ARTICLE I. - Stockholders
1. Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors, the Chairman of the Board or the
President or, if not so designated, at the registered office of the corporation.
2. Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors, the Chairman of the Board or the President (which date shall not be a
legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors, the Chairman of the Board or the
President and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as is convenient. If no annual meeting
is held in accordance with the foregoing provisions, a special meeting may be
held in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
3. Special Meetings. Special meetings of stockholders may be called at
any time only by the Chairman of the Board, the President or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
4. Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
<PAGE> 2
5. Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
6. Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
7. Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
8. Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law, the Certificate of Incorporation or these By-Laws. Each stockholder of
record entitled to vote at a meeting of stockholders may vote in person or may
authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
9. Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express
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provision of law, the Certificate of Incorporation or these By-Laws. Any
election by stockholders shall be determined by a plurality of the votes cast by
the stockholders entitled to vote at the election.
10. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
11. Notice of Business at Annual Meetings. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before an annual meeting by a
stockholder. For business to be
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properly brought before an annual meeting by a stockholder, if such business
relates to the election of directors of the corporation, the procedures in
Section 10 of Article I must be complied with. If such business relates to any
other matter, the stockholder must have given timely notice thereof in writing
to the Secretary. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever occurs
first. A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these By-Laws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 11 and except that any
stockholder proposal which complies with Rule 14a-8 of the proxy rules (or any
successor provision) promulgated under the Securities Exchange Act of 1934, as
amended, and is to be included in the corporation's proxy statement for an
annual meeting of stockholders shall be deemed to comply with the requirements
of this Section 11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
12. Action without Meeting. Stockholders may not take any action by
written consent in lieu of a meeting.
13. Organization. The Chairman of the Board, or in his absence the Vice
Chairman of the Board, or the President, in the order named, shall call meetings
of the stockholders to order, and shall act as chairman of such meeting,
provided, however, that the Board of Directors may appoint any stockholder to
act as chairman of any meeting in the absence of the Chairman of the Board. The
Secretary of the corporation shall act as secretary at all meetings of the
stockholders; but in the absence of the Secretary at any meeting of the
stockholders, the presiding officer may appoint any person to act as secretary
of the meeting.
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ARTICLE II. - Directors
1. General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2. Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
3. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
1999; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2000, and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2001; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member and (ii) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors among
the three classes of
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<PAGE> 6
directors so as to ensure that no one class has more than one director more than
any other class. To the extent possible, consistent with the foregoing rule, any
newly created directorships shall be added to those classes whose terms of
office are to expire at the latest dates following such allocation, and any
newly eliminated directorships shall be subtracted from those classes whose
terms of offices are to expire at the earliest dates following such allocation,
unless otherwise provided from time to time by resolution adopted by the Board
of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third (1/3) of the
number of directors fixed pursuant to Section 2 above constitute a quorum. If at
any meeting of the Board of Directors there shall be less than such a quorum, a
majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is required by law, by the Certificate of
Incorporation or these By-Laws.
7. Removal. Directors of the corporation may be removed only for cause
by the affirmative vote of the holders of at least seventy-five percent (75%) of
the votes which all the stockholders would be entitled to cast in any annual
election of directors or class of directors.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the Chairman of the
Board or Secretary. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
10. Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may
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<PAGE> 7
be held without notice immediately after and at the same place as the annual
meeting of stockholders.
11. Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
12. Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy
or telex, or delivering written notice by hand, to his last known business or
home address at least 24 hours in advance of the meeting, or (iii) by mailing
written notice to his last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
13. Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
14. Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
15. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation
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<PAGE> 8
to be affixed to all papers which may require it. Each such committee shall keep
minutes and make such reports as the Board of Directors may from time to time
request. Except as the Board of Directors may otherwise determine, any committee
may make rules for the conduct of its business, but unless otherwise provided by
the directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-Laws for the Board of
Directors.
16. Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE III. - Officers
1. Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
2. Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
4. Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
5. Resignation and Removal. Any officer may resign by delivering his or
her written resignation to the corporation at its principal office or to the
Chairman of the Board, President or Secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Any officer may be removed at any time, with or without cause, by vote of
a majority of the entire number of directors then in office.
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<PAGE> 9
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
6. Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
7. Chairman of the Board and Vice Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. Unless otherwise provided by the
Board of Directors, he shall preside at all meetings of the stockholders, and if
he is a director, at all meetings of the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him or her by
the Board of Directors. The person designated as the Chief Executive Officer of
the Company shall, subject to the direction of the Board of Directors, have
general charge and supervision of the business of the corporation.
8. President. Unless the Board of Directors has designated the Chairman
of the Board or another officer as Chief Executive Officer, the President shall
be the Chief Executive Officer of the corporation. The President shall perform
such other duties and shall have such other powers as the Chief Executive
Officer or the Board of Directors may from time to time prescribe.
9. Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the Chief Executive Officer, then, in the order determined by the
Board of Directors, the President (if he is not the Chief Executive Officer) and
the Vice President (or if there shall be more than one, the Vice Presidents)
shall perform the duties of the Chief Executive Officer and when so performing
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer. The Board of Directors may assign to any Vice President
the title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
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<PAGE> 10
10. Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the secretary, including without limitation the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Secretary, the Assistant Secretary (or if there shall be more than one,
the Assistant Secretaries in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
11. Treasurer and Assistant Treasurers. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him or
her by the Board of Directors or the Chief Executive Officer. In addition, the
Treasurer shall perform such duties and have such powers as are incident to the
office of treasurer, including without limitation the duty and power to keep and
be responsible for all funds and securities of the corporation, to deposit funds
of the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Treasurer, the Assistant Treasurer (or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Treasurer.
12. Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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<PAGE> 11
Article IV. - Capital Stock
1. Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
2. Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him or her in the corporation. Each such certificate shall be signed
by, or in the name of the corporation by, the Chairman or Vice Chairman, if any,
of the Board of Directors, or the President or a Vice President, and the
Treasurer or any Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
3. Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4. Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or
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<PAGE> 12
destruction and the giving of such indemnity as the Board of Directors may
require for the protection of the corporation or any transfer agent or
registrar.
5. Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE V. - General Provisions
1. Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January of each year and end on the last day of December in each year.
2. Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
3. Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
4. Voting of Securities. Except as the directors may otherwise
designate, the Chairman of the Board or Treasurer may waive notice of, and act
as, or appoint any person or persons to act as, proxy or attorney-in-fact for
this corporation (with or
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<PAGE> 13
without power of substitution) at any meeting of stockholders or shareholders of
any other corporation or organization, the securities of which may be held by
this corporation.
5. Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6. Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Amended and
Restated Certificate of Incorporation of the corporation, as amended and in
effect from time to time.
7. Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
a. The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
b. The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
c. The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
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<PAGE> 14
8. Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
9. Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE VI. - Amendments
1. By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
2. By the Stockholders. Subject to the following paragraph, these
By-Laws may be altered, amended or repealed or new by-laws may be adopted by the
affirmative vote of the holders of a majority of the shares of the capital stock
of the corporation issued and outstanding and entitled to vote at any regular or
special meeting of stockholders, provided notice of such alteration, amendment,
repeal or adoption of new by-laws shall have been stated in the notice of such
regular or special meeting.
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<PAGE> 1
Exhibit 4.1
Number Shares
[LOGO]
OPEN SOLUTIONS INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 68371P 10 2
THIS CERTIFIES THAT____________________________________________________________
is the owner of________________________________________________________________
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
Open Solutions Inc. transferrable upon the books of the Corporation in person or
by attorney upon surrender of this certificate duly endorsed or assigned. This
certificate and the shares represented hereby are subject to the laws of the
State of Delaware and to the provisions of the Certificate of Incorporation and
By-Laws of the Corporation as from time to time amended or restated.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, Open Solutions Inc. has caused its facsimile corporate
seal and facsimile signatures of its duly authorized officers to be hereunto
affixed.
Dated:_________________ COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY___________________________
AUTHORIZED SIGNATURE
/s/ Richard J. Willemin /s/ Douglas K. Anderson
SECRETARY CHAIRMAN OF THE BOARD OF DIRECTORS
[CORPORATE
SEAL]
<PAGE> 2
OPEN SOLUTIONS INC.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. THE
CORPORATION WILL FURNISH TO EACH STOCKHOLDER UPON REQUEST WITHOUT CHARGE THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
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:
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
survivorship and not as tenants Minors Act______________
in common (State)
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 capital 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:_____________________ __________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S)
GUARANTEED:________________________________________________________
THE SIGNATURE(S) MUST 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> 1
Exhibit 5
HALE AND DORR LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 FAX 617-526-5000
August , 1998
Open Solutions Inc.
300 Winding Brook Drive
Glastonbury, Connecticut 06033
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-56503) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of an aggregate of 3,220,000 shares of Common Stock, $.01 par value per share
(the "Shares"), of Open Solutions Inc., a Delaware corporation (the "Company"),
of which (i) up to 2,967,000 Shares will be issued and sold by the Company
(including 350,000 Shares issuable upon exercise of an over-allotment option
granted by the Company), and (ii) up to 253,000 Shares will be sold by certain
stockholders of the Company (the "Selling Stockholders") (including 70,000
Shares issuable upon exercise of an over-allotment option granted by certain of
the Selling Stockholders).
The Shares are to be sold by the Company and the Selling Stockholders
pursuant to an underwriting agreement (the "Underwriting Agreement") to be
entered into by and among the Company, the Selling Stockholders and BT Alex.
Brown Incorporated, Credit Suisse First Boston Corporation and Warburg Dillon
Read LLC, as representatives of the several underwriters named in the
Underwriting Agreement, the form of which has been filed as Exhibit 1 to the
Registration Statement.
We are acting as counsel for the Company in connection with the sale by
the Company and the Selling Stockholders of the Shares. We have examined signed
copies of the Registration Statement as filed with the Commission. We have also
examined and relied upon the Underwriting Agreement, minutes of meetings of the
stockholders and the Board of Directors of the Company as provided to us by the
<PAGE> 2
Open Solutions Inc.
August , 1998
Page 2
Company, stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and By-Laws of the Company, each as restated and/or
amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, 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 copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
Our opinion in clause (ii) below, insofar as it relates to the Selling
Stockholders' shares being fully paid, is based solely on a certificate of the
Chief Financial Officer of the Company.
We assume that the appropriate action will be taken, prior to the offer
and sale of the Shares in accordance with the Underwriting Agreement, to
register and qualify the Shares for sale under all applicable state securities
or "blue sky" laws.
We express no opinion herein as to the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts, the
Delaware General Corporation Law statute and the federal securities laws of the
United States of America. To the extent that any other laws govern the matters
as to which we are opining herein, we have assumed that such laws are identical
to the state laws of the Commonwealth of Massachusetts, and we are expressing no
opinion herein as to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that (i)
the Shares to be issued and sold by the Company have been duly authorized for
issuance and, when such Shares are issued and paid for in accordance with the
terms and conditions of the Underwriting Agreement, such Shares will be validly
issued, fully paid and nonassessable and (ii) the Shares to be sold by the
Selling Stockholders have been duly authorized and are validly issued, fully
paid and nonassessable.
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters. This
opinion is based upon currently existing statutes, rules, regulations and
judicial decisions, and we disclaim any obligation to advise you of any change
in any of these sources of
<PAGE> 3
Open Solutions Inc.
August , 1998
Page 3
law or subsequent legal or factual developments which might affect any matters
or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in 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,
<PAGE> 1
Exhibit No. 10.1
OPEN SOLUTIONS INC.
1994 STOCK OPTION PLAN
Adopted by the Board of Directors on March 10, 1994
Approved by the Shareholders on March 10, 1994
1. PURPOSE.
The purpose of this plan (the "Plan") is to secure for OPEN SOLUTIONS
INC. (the "Company") and its shareholders the benefits arising from capital
stock ownership by employees, officers and directors of, and consultants or
advisors to, the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success. Except where
the context otherwise requires, the term "Company" shall include the parent and
all present and future subsidiaries of the Company as defined in Sections 424(e)
and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from
time to time (the "Code"). Those provisions of the Plan which make express
reference to Section 422 shall apply only to Incentive Stock Options (as that
term is defined in the Plan).
2. TYPE OF OPTIONS AND ADMINISTRATION.
(a) TYPE OF OPTIONS AND AWARDS. Options granted pursuant to the Plan
shall be authorized by action of the Board of Directors of the Company (or a
Committee designated by the Board of Directors) and may be either incentive
stock options ("Incentive Stock Options") meeting the requirements of Section
422 of the Code or non-statutory options which are not intended to meet the
requirements of Section 422 of the Code. Restricted stock awards ("awards")
granted pursuant to the Plan shall be authorized by action of the Board of
Directors of the Company (or a Committee designated by the Board of Directors)
and shall meet the requirements of Section 13 of the Plan.
(b) ADMINISTRATION. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion (i) grant options to purchase shares of the Company's
Common Stock ("Common Stock") and issue shares upon exercise of such options as
provided in the Plan and (ii) make awards for the purchase of shares of Common
Stock pursuant to Section 13 of the Plan. The Board shall have authority,
subject to the express provisions of the Plan, to construe the respective option
agreements, awards and the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of the
respective option agreements and awards, which need not be identical, and to
make all other determinations in the
<PAGE> 2
judgment of the Board of Directors necessary or desirable for the administration
of the Plan. The Board of Directors may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option agreement
or award in the manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of such expediency. No
director or person acting pursuant to authority delegated by the Board of
Directors shall be liable for any action or determination under the Plan made in
good faith. The Board of Directors may, to the full extent permitted by or
consistent with applicable laws or regulations (including, without limitation,
applicable state law and Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3")),
delegate any or all of its powers under the Plan to a committee (the
"Committee") appointed by the Board of Directors, and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee.
(c) APPLICABILITY OF RULE 16B-3. Those provisions of the Plan which
make express reference to Rule 16b-3 shall apply only to such persons as are
required to file reports under Section 16(a) of the Exchange Act (a "Reporting
Person").
3. ELIGIBILITY.
(a) GENERAL. Options and awards may be granted to persons who are,
at the time of grant, employees, officers or directors of, or consultants or
advisors to, the Company; PROVIDED, that Incentive Stock Options may only be
granted to employees Company. A person who has been granted an option or award
if he or she is otherwise eligible, be granted additional options or awards if
the Board of Directors shall so determine.
(b) GRANT OF OPTIONS TO DIRECTORS AND OFFICERS. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of a director or an officer (as the terms "director" and "officer" are
defined for purposes of Rule 16b-3) as a recipient of an option or award, the
timing of the option grant or award, the exercise price of the option or the
sale price of the award and the number of shares subject to the option or award
shall be determined either (i) by the Board of Directors, of which all members
shall be "disinterested persons" (as hereinafter defined), or (ii) by two or
more directors having full authority to act in the matter, each of whom shall be
a "disinterested person." For the purposes of the Plan, a director shall be
deemed to be a "disinterested person" only if such person qualifies as a
"disinterested person" within the meaning of Rule 16b-3, as such term is
interpreted from time to time.
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4. STOCK SUBJECT TO PLAN.
Subject to adjustment as provided in Section 16 below, the maximum
number of shares of Common Stock of the Company which be issued and sold under
the Plan is 650,000 shares. If (i) an option granted under the Plan shall expire
or terminate for reason without having been exercised in full, the unpurchased
shares subject to such option shall again be available for subsequent option
grants or awards under the Plan and (ii) if restricted stock awarded under the
Plan shall be repurchased by the Company, the repurchased shares subject to such
award shall again be available for subsequent option grants or awards under the
Plan. If shares issued upon exercise of an option or award under the Plan are
tendered to the Company in payment of the exercise price of an option granted
under the Plan, such tendered shares shall again be available for subsequent
option grants or awards under the Plan; provided, that in no event shall such
shares be made available for issuance to Reporting Persons or pursuant to
exercise of Incentive Stock Options.
5. FORMS OF OPTION AGREEMENTS.
As a condition to the grant of an option under the Plan, each recipient
of an option shall execute an option agreement in such form not inconsistent
with the Plan as may be approved by the Board of Directors. Such option
agreements may differ among recipients.
6. PURCHASE PRICE.
(a) GENERAL. The purchase price per share of stock deliverable upon
the exercise of an option shall be determined by the Board of Directors,
PROVIDED, HOWEVER, that in the case of an Incentive Stock Option, the exercise
price shall not be less than 100% of the fair market value of such stock, as
determined by the Board of Directors, at the time of grant of such option, or
less than 110% of such fair market value in the case of options described in
Section 11(b).
(b) PAYMENT OF PURCHASE PRICE. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i) by
delivery to the Company of shares of Common Stock of the Company already owned
by the optionee having a fair market value equal in amount to the exercise price
of the options being exercised, (ii) by any other means (including, without
limitation, by delivery of a promissory note of the optionee payable on such
terms as are specified by the Board of Directors) which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment. The
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fair market value of any shares of the Company's Common Stock or other non-cash
consideration which may be delivered upon exercise of an option shall be
determined by the Board of Directors.
7. OPTION PERIOD.
Each option and all rights thereunder shall expire on such date as
shall be set forth in the applicable option agreement, except that, in the case
of an Incentive Stock Option, such date shall not be later than ten years after
the date on which the option is granted and, in all cases, options shall be
subject to earlier termination as provided in the Plan.
8. EXERCISE OF OPTIONS.
Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
9. NONTRANSFERABILITY OF OPTIONS.
Incentive Stock Options, and all options granted to Reporting Persons,
shall not be assignable or transferable by the person to whom they are granted,
either voluntarily or by operation of law, except by will or the laws of descent
and distribution, and, during the life of the optionee, shall be exercisable
only by the optionee; provided, however, that non-statutory options may be
transferred pursuant to a qualified domestic relations order (as defined in
Rule 16b-3).
10. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which an optionee may exercise an option
following (i) the termination of the optionee's employment or other relationship
with the Company or (ii) the death or disability of the optionee. Such periods
shall be set forth in the agreement evidencing such option.
11. INCENTIVE STOCK OPTIONS.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
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<PAGE> 5
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the fair
market value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years
from the date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive
Stock Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an
employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), PROVIDED, that the
agreement with respect to such option may designate a longer exercise
period and that the exercise after such three-month period shall be
treated as the exercise of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company,
or within three months after the optionee ceases to be such an
employee, the Incentive Stock Option may be exercised by the person to
whom it is transferred by will or the laws of descent and distribution
within the period of one year after the date of death (or within such
lesser period as may be specified in the applicable option agreement);
and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e) (3) of the Code or any successor provision thereto) while
in the employ
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<PAGE> 6
of the Company, the Incentive Stock Option may be exercised within the
period of one year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser period as
may be specified in the applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. ADDITIONAL PROVISIONS.
(a) ADDITIONAL OPTION PROVISIONS. The Board of Directors may, in its
sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or such other provisions as shall be determined by the Board of
Directors; PROVIDED THAT such additional provisions shall not be inconsistent
with any other term or condition of the Plan and such additional provisions
shall not cause any Incentive Stock Option granted under the Plan to fail to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code.
(b) ACCELERATION, EXTENSION, ETC. The Board of Directors may, in its
sole discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised; PROVIDED, HOWEVER, that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3.
13. AWARDS.
An award shall consist of the sale and issuance by the Company of
shares of Common Stock, and purchase by the recipient of such shares, subject to
the terms, conditions and restrictions described in the document evidencing the
award and in this Section 13 and elsewhere in the Plan.
(a) EXECUTION OF RESTRICTED STOCK AWARD AGREEMENT. As a condition to
an award under the Plan, each recipient of an award shall execute an agreement
in such form, which may differ among recipients, as shall be specified by the
Board of Directors at the time of such award.
(b) PRICE. The Board of Directors shall determine the price at which
shares of Common Stock shall be sold to recipients of awards under the Plan. The
Board of
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<PAGE> 7
Directors may, in its discretion, issue shares pursuant to awards without the
payment of any cash purchase price by the recipients or issue shares pursuant to
awards at a purchase price below the then fair market value of the Common Stock.
If a purchase price is required to be paid it shall be paid in cash or by check
payable to the order of the Company at the time that the award is accepted by
the recipient or by such other means as may be approved by the Board of
Directors.
(c) NUMBER OF SHARES. The award shall specify the number of shares of
Common Stock granted thereunder.
(d) RESTRICTIONS ON TRANSFER. In addition to such other terms,
conditions and restrictions upon awards as shall be imposed by the Board of
Directors, all shares issued pursuant to an award shall be subject to the
following restrictions:
(1) All shares of Common Stock subject to an award (including
any shares issued pursuant to paragraph (e) of this Section) shall be
subject to certain restrictions on disposition and obligations of
resale to the Company as provided in subparagraph (2) below for the
period specified in the document evidencing the award, and shall not be
sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of until such restrictions lapse. The period during which such
restrictions are applicable is referred to as the "Restricted Period."
(2) In the event that a recipient's employment with the Company
(or consultancy or advisory relationship, as the case may be) is
terminated within the Restricted Period, whether such termination is
voluntary or involuntary, with or without cause, or because of the
death or disability of the recipient, the Company shall have the right
and option for a period of three months following such termination to
buy for cash that number of the shares of Common Stock purchased under
the award as to which the restrictions on transfer and the forfeiture
provisions contained in the award have not then lapsed, at a price
equal to the price per share originally paid by the recipient. If such
termination occurs within the last three months of the applicable
restrictions, the restrictions and repurchase rights of the Company
shall continue to apply until the expiration of the Company's three
month option period.
(3) Notwithstanding subparagraphs (1) and (2) above, the Board
of Directors may, in its discretion, either at the time that an award
is made or at any time thereafter, waive its right to repurchase shares
of Common Stock upon the occurrence of any of the events described in
this paragraph (d) or remove or modify any part or all of the
restrictions. In addition, the Board of Directors may, in its
discretion, impose upon the recipient of an award at the
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time of such award such other restrictions on any shares of Common
Stock issued pursuant to such award as the Board of Directors may deem
advisable.
(e) ADDITIONAL SHARES. Any shares received by a recipient of an award
as a stock dividend on, or as a result of stock splits, combinations, exchanges
of shares, reorganizations, mergers, consolidations or otherwise with respect
to, shares of Common Stock received pursuant to such award shall have the same
status and shall bear the same restrictions, all on a proportionate basis, as
the shares initially purchased pursuant to such award.
(f) TRANSFERS IN BREACH OF AWARD. If any transfer of shares purchased
pursuant to an award is made or attempted contrary to the terms of the Plan and
of such award, the Board of Directors shall have the right to purchase for the
account of the Company those shares from the owner thereof or his or her
transferee at any time before or after the transfer at the price paid for such
shares by the person to whom they were awarded under the Plan. In addition to
any other legal or equitable remedies which it may have, the Company may enforce
its rights by specific performance to the extent permitted by law. The Company
may refuse for any purpose to recognize as a shareholder of the Company any
transferee who receives any shares contrary to the provisions of the Plan and
the applicable award or any recipient of an award who breaches his or her
obligation to resell shares as required by the provisions of the Plan and the
applicable award, and the Company may retain and/or recover all dividends on
such shares which were paid or payable subsequent to the date on which the
prohibited transfer or breach was made or attempted.
(g) ADDITIONAL AWARD PROVISIONS. The Board of Directors may, in its
sole discretion, include additional provisions in any award granted under the
Plan, including without limitation commitments to pay cash bonuses, make,
arrange for or guarantee loans or transfer other property to recipients upon the
grant of awards, or such other provisions as shall be determined by the Board of
Directors.
14. GENERAL RESTRICTIONS.
(a) INVESTMENT REPRESENTATIONS. The Company may require any person to
whom an option or award is granted, as a condition of exercising such option or
purchasing the shares subject to the award, to give written assurances in
substance and form satisfactory to the Company to the effect that such person is
acquiring the Common Stock subject to the option or award for his or her own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
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(b) COMPLIANCE WITH SECURITIES LAWS. Each option and award shall be
subject to the requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such option or award upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental or regulatory body,
or that the disclosure of non-public information or the satisfaction of any
other condition is necessary as a condition of, or in connection with, the
issuance or purchase of shares thereunder, such option or award may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board of Directors.
Nothing herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification, or to satisfy such condition.
(c) FIRST REFUSAL RIGHTS. Until such time as the Company's
outstanding shares of Common Stock are first registered under Section 12(g) of
the Securities Exchange Act of 1934, the Company shall have the right of first
refusal with respect to any proposed sale or other disposition by any person
granted an option or award (or any successor in interest by reason of purchase,
gift or other transfer) of any shares of Common stock issued under the Plan.
Such right of first refusal shall be exercisable in accordance with the terms
and conditions established by the Board of Directors and set forth in the
agreement evidencing such right.
15. RIGHTS AS A SHAREHOLDER.
The holder of an option or recipient of an award shall have no rights
as a shareholder with respect to any shares covered by the option or award
(including, without limitation, any rights to receive dividends or non-cash
distributions with respect to such shares) until the date of issue of a stock
certificate to him or her for such shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
16. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS AND RELATED TRANSACTIONS.
(a) GENERAL. If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to any then outstanding options under the
Plan, and (z) the price for each share subject to any
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<PAGE> 10
then outstanding options under the Plan or repurchase rights of the Company,
without changing the aggregate purchase price as to which such options remain
exercisable. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 16 if such adjustment would cause the Plan to fail to comply
with Section 422 of the Code or with Rule 16b-3.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 16 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
17. MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
(a) GENERAL. In the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options and
awards: (i) provide that such options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), PROVIDED that any such options substituted for Incentive
Stock Options shall meet the requirements of Section 424(a) of the Code, (ii)
upon written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such transaction unless
exercised by the optionee within a specified period following the date of such
notice, (iii) in the event of a merger under the terms of which holders of the
Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the merger (the "Merger Price"), make or
provide for a cash payment to the optionees equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
outstanding options (to the extent then exercisable at prices not in excess of
the Merger Price) and (B) the aggregate exercise price of all such outstanding
options in exchange for the termination of such options, and (iv) provide that
all or any outstanding options shall become exercisable in full immediately
prior to such event and any restrictions on and rights of the Company to
repurchase shares covered by outstanding awards issued pursuant to the Plan
shall terminate.
(b) SUBSTITUTE OPTIONS. The Company may grant options under the Plan
in substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one
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of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
18. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option or award shall confer
upon any recipient of an award or optionee any right with respect to the
continuation of his or her employment by the Company or interfere in any way
with the right of the Company at any time to terminate such employment or to
increase or decrease the compensation of the optionee.
19. OTHER EMPLOYEE BENEFITS.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise or the value of an award granted to an employee will not
constitute compensation with respect to which any other employee benefits of
such employee are determined, including, without limitation, benefits under any
bonus, pension, profit-sharing, life insurance or salary continuation plan,
except as otherwise specifically determined by the Board of Directors.
20. AMENDMENT OF THE PLAN.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the approval
of the shareholders of the Company is required under Section 422 of the Code or
any successor provision with respect to Incentive Stock Options, or under
Rule 16b-3, the Board of Directors may not effect such modification or amendment
without such approval.
(b) The termination or any modification or amendment of the Plan
shall not, without the consent of an optionee or recipient of an award, affect
his or her rights under an option or award previously granted to him or her.
With the consent of the optionee or recipient of an award affected, the Board of
Directors may amend outstanding option agreements or awards in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and of any outstanding option or award to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3.
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21. WITHHOLDING.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee or recipient of an award any federal, state
or local taxes of any kind required by law to be withheld with respect to any
shares issued upon exercise of options under the Plan or the purchase of shares
subject to the award. Subject to the prior approval of the Company, which may be
withheld by the Company in its sole discretion, the optionee or recipient of an
award may elect to satisfy such obligations, in whole or in part, (i) by causing
the Company to withhold shares of Common Stock otherwise issuable pursuant to
the exercise of an option or subject to an award or (ii) by delivering to the
Company shares of Common Stock already owned by the optionee or subject to an
award. The shares so delivered or withheld shall have a fair market value equal
to such withholding obligation. The fair market value of the shares used to
satisfy such withholding obligation shall be determined by the Company as of the
date that the amount of tax to be withheld is to be determined. An optionee or
award recipient who has made an election pursuant to this Section 21(a) may only
satisfy his or her withholding obligation with shares of Common Stock which are
not subject to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
(c) If the recipient of an award under the Plan elects, in accordance
with Section 83(b) of the Code, to recognize ordinary income in the year of
acquisition of any shares awarded under the Plan, the Company will require at
the time of such election an additional payment for withholding tax purposes
based on the difference, if any, between the purchase price of such shares and
the fair market value of such shares as of the date immediately preceding the
date of the award.
22. CANCELLATION AND NEW GRANT OF OPTIONS, ETC.
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
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23. EFFECTIVE DATE AND DURATION OF THE PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by
the Board of Directors, but no Incentive Stock Option granted under the Plan
shall become exercisable unless and until the Plan shall have been approved by
the Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 20) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
and awards may be granted under the Plan at any time after the effective date
and before the date fixed for termination of the Plan.
(b) TERMINATION. Unless sooner terminated in accordance with
Section 17, the Plan shall terminate, with respect to Incentive Stock Options,
upon the earlier of (i) the close of business on the day next preceding the
tenth anniversary of the date of its adoption by the Board of Directors, or (ii)
the date on which all shares available for issuance under the Plan shall have
been issued pursuant to the exercise or cancellation of options or the final
vesting of awards granted under the Plan. Unless sooner terminated in accordance
with Section 17, the Plan shall terminate with respect to options which are not
Incentive Stock Options and awards on the date specified in (ii) above. If the
date of termination is determined under (i) above, then options outstanding on
such date shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such options.
Adopted by the Board of Directors on
March 10, 1994.
-13-
<PAGE> 14
OPEN SOLUTIONS INC.
AMENDMENT NO. 1 TO 1994 STOCK OPTION PLAN
May 23, 1996
RESOLVED, that the 1994 Stock Option Plan of the Company be, and it
hereby is, amended by changing Section 4 thereof to read in its entirety as
follows:
"Subject to adjustment as provided in Section 16 below, the maximum number of
shares of the Common Stock of the Company which may be issued and sold under the
Plan is 1,110,000 shares. If (i) an Option granted under the Plan shall expire
or terminate for any reason without having been exercised in full, the
unpurchased shares subject to such option shall again be available for
subsequent option grants or awards under the Plan and (ii) if restricted stock
awarded under the Plan shall be repurchased by the Company, the repurchased
shares subject to such award shall again be available for subsequent option
grants or awards under the Plan. If shares issued upon exercise of an option or
award under the Plan are tendered to the Company in payment of the exercise
price of an option granted under the Plan, such tendered shares shall again be
available for subsequent option grants or awards under the Plan; provided, that
in no event shall such shares be made available for issuance to Reporting
Persons or pursuant to exercise of Incentive Stock Options."
<PAGE> 15
OPEN SOLUTIONS INC.
AMENDMENT NO. 2 TO 1994 STOCK OPTION PLAN
June 10, 1997
RESOLVED, that the 1994 Stock Option Plan of the Company be, and it
hereby is, amended by changing Section 4 thereof to read in its entirety as
follows:
"4. Stock Subject to Plan
Subject to adjustment as provided in Section 16 below, the maximum
number of shares of the Common Stock of the Company which may be issued and sold
under the Plan is 1,610,000 shares. If (I) an Option granted under the Plan
shall expire or terminate for any reason without having been exercised in full,
the unpurchased shares subject to such option shall again be available for
subsequent option grants or awards under the Plan and (ii) if restricted stock
awarded under the Plan shall be repurchased by the Company, the repurchased
shares subject to such award shall again be available for subsequent option
grants or awards under the Plan. If shares issued upon exercise of an option or
award under the Plan are tendered to the Company in payment of the exercise
price of an option granted under the Plan, such tendered shares shall again be
available for subsequent option grants or awards under the Plan, provided, that
in no event shall such shares be made available for issuance to Reporting
Persons or pursuant to exercise of Incentive Stock Options."
<PAGE> 16
OPEN SOLUTIONS INC.
AMENDMENT NO. 3 TO 1994 STOCK OPTION PLAN
February 25, 1998
RESOLVED, that the 1994 Stock Option Plan of the Company be, and it
hereby is, amended by changing Section 4 thereof to read in its entirety as
follows:
"4. Stock Subject to Plan
Subject to adjustment as provided in Section 16 below, the maximum
number of shares of the Common Stock of the Company which may be issued and sold
under the Plan is 3,000,000 shares. If (i) an Option granted under the Plan
shall expire or terminate for any reason without having been exercised in full,
the unpurchased shares subject to such option shall again be available for
subsequent option grants or awards under the Plan and (ii) if restricted stock
awarded under the Plan shall be repurchased by the Company, the repurchased
shares subject to such award shall again be available for subsequent option
grants or awards under the Plan. If shares issued upon exercise of an option or
award under the Plan are tendered to the Company in payment of the exercise
price of an option granted under the Plan, such tendered shares shall again be
available for subsequent option grants or awards under the Plan; provided, that
in no event shall such shares be made available for issuance to Reporting
Persons or pursuant to exercise of Incentive Stock Options."
<PAGE> 17
OPEN SOLUTIONS INC.
AMENDMENT NO. 4 TO 1994 STOCK OPTION PLAN
Section 17 of the 1994 Stock Option Plan shall be amended and restated
in its entirety, effective upon the closing of the Company's initial public
offering of shares of Common Stock, par value $.01 per share, pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
to provide as follows:
"17. MERGER, CONSOLIDATION, LIQUIDATION, ETC.
(a) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation
or dissolution of the Company, the Board of Directors shall upon written notice
to the holders of options provide that all then unexercised options will (i)
become exercisable in full as of a specified time at least 10 business days
prior to the effective date of such liquidation or dissolution and (ii)
terminate effective upon such liquidation or dissolution, except to the extent
exercised before such effective date. The Board of Directors may specify the
effect of a liquidation or dissolution on any option or award granted under the
Plan at the time of the grant of such option or award.
(b) ACQUISITION EVENTS.
(i) DEFINITIONS.
(1) An "Acquisition Event" shall mean: (a) any merger
or consolidation of the Company with or into another entity as
a result of which the Common Stock is converted into or
exchanged for the right to receive cash, securities or other
property or (b) any exchange of shares of the Company for
cash, securities or other property pursuant to a statutory
share exchange transaction.
(2) "Cause" shall mean any (a) willful failure by the
holder of an option, which failure is not cured within 30 days
of written notice to such holder from the Company, to perform
his or her material responsibilities to the Company or (b)
willful misconduct by the holder of an option which causes
material injury to the Company.
(ii) CONSEQUENCES OF AN ACQUISITION EVENT ON OPTIONS. Upon the
occurrence of an Acquisition Event, or the execution by the Company of
any agreement with respect to an Acquisition Event, the Board of
Directors shall provide that all outstanding options shall be assumed,
or equivalent options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof). Notwithstanding the
foregoing, if the acquiring or succeeding corporation (or an affiliate
thereof) does not agree to assume, or substitute for, such options,
then the Board of Directors shall, upon written notice to the
<PAGE> 18
holders of options, provide that all then unexercised options will
become exercisable in full as of a specified time prior to the
Acquisition Event and will terminate immediately prior to the
consummation of such Acquisition Event, except to the extent exercised
by the holders of options before the consummation of such Acquisition
Event; provided, however, that in the event of an Acquisition Event
under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share of Common Stock
surrendered pursuant to such Acquisition Event (the "Acquisition
Price"), then the Board of Directors may instead provide that all
outstanding options shall terminate upon consummation of such
Acquisition Event and that each holder of an option shall receive, in
exchange therefor, a cash payment equal to the amount (if any) by which
(A) the Acquisition Price multiplied by the number of shares of Common
Stock subject to such outstanding options (whether or not then
exercisable), exceeds (B) the aggregate exercise price of such options.
(iii) CONSEQUENCES OF AN ACQUISITION EVENT ON AN AWARD. Upon
the occurrence of an Acquisition Event, the repurchase and other rights
of the Company under each outstanding award shall inure to the benefit
of the Company's successor and shall apply to the cash, securities or
other property which the Common Stock was converted into or exchanged
for pursuant to such Acquisition Event in the same manner and to the
same extent as they applied to the Common Stock subject to such award.
(iv) ACCELERATION FOLLOWING ACQUISITION EVENT. If outstanding
options held by an optionee are assumed or substituted for pursuant to
Section 17(b)(ii) in connection with an Acquisition Event, the assumed
or substituted option held by such optionee following the Acquisition
Event shall become immediately exercisable in full if, prior to the
first anniversary of the Acquisition Event, the employment of such
optionee is terminated by the Company (or the acquiring or succeeding
corporation) without Cause; PROVIDED, that such assumed or substituted
option shall not become fully exercisable upon any such termination if
the Company desires to account for the Acquisition Event as a
pooling-of-interests and such acceleration of exercisability would, in
the opinion of the Company's independent accountants, jeopardize such
accounting treatment. Any determination by such accountants shall be
final and binding on all optionees.
(c) SUBSTITUTE OPTIONS. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the
circumstances."
<PAGE> 1
Exhibit 10.2
OPEN SOLUTIONS INC.
1998 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Open
Solutions Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any present or future subsidiary corporations of Open Solutions Inc. as defined
in Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board
<PAGE> 2
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
common stock, $.01 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act." All references in the Plan to the "Board" shall mean
the Board or a Committee of the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under the Plan
have been delegated to such Committee or executive officer.
4. STOCK AVAILABLE FOR AWARDS
(a) NUMBER OF SHARES. Subject to adjustment under Section 8, Awards may
be made under the Plan for up to the sum of (i) 1,200,000 shares of Common
Stock, plus (ii) the number of shares of Common Stock (up to 1,700,000) subject
to Awards granted under the Company's 1994 Stock Option Plan which are not
actually issued because options granted under such plan expire or otherwise
result in shares not being issued or, in the case of restricted stock, are
repurchased by the Company pursuant to the terms of the applicable stock
restriction agreement. If any Award expires or is terminated, surrendered or
canceled without having been fully exercised or is forfeited in whole or in part
or results in any Common Stock not being issued, the unused Common Stock covered
by such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 8, for
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares of Common Stock with respect to which an Award may be
granted to any Participant under the Plan shall be 400,000 per calendar year.
The per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
- 2 -
<PAGE> 3
5. STOCK OPTIONS
(a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) EXERCISE OF OPTION. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (ii) delivery by the Participant
to the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price;
- 3 -
<PAGE> 4
(3) at such time as the Common Stock is registered under the
Exchange Act, delivery of shares of Common Stock owned by the Participant valued
at their fair market value as determined by (or in a manner approved by) the
Board in good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion
(i) by delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) by payment of such other lawful consideration
as the Board may determine; or
(5) any combination of the above permitted forms of payment.
6. RESTRICTED STOCK
(a) GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. OTHER STOCK-BASED AWARDS
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
- 4 -
<PAGE> 5
8. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS
(a) CHANGES IN CAPITALIZATION. In the event of any stock split,
reverse stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off, merger, consolidation or other similar
change in capitalization or event, or any distribution to holders of Common
Stock other than a normal cash dividend, (i) the number and class of securities
available under this Plan, (ii) the per-Participant limit set forth in Section
4(b), (iii) the number and class of securities and exercise price per share
subject to each outstanding Option, (iv) the repurchase price per share subject
to each outstanding Restricted Stock Award, and (v) the terms of each other
outstanding Award shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate.
(b) LIQUIDATION OR DISSOLUTION. In the event of a proposed
liquidation or dissolution of the Company, the Board shall upon written notice
to the Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) ACQUISITION EVENTS
(1) DEFINITIONS.
(a) An "Acquisition Event" shall mean: (a) any
merger or consolidation of the Company with
or into another entity as a result of which
the Common Stock is converted into or
exchanged for the right to receive cash,
securities or other property or (b) any
exchange of shares of the Company for cash,
securities or other property pursuant to a
statutory share exchange transaction.
(b) "Cause" shall mean any (i) willful failure
by the Participant, which failure is not
cured within 30 days of written notice to
the Participant from the Company, to perform
his or her material responsibilities to the
Company or (ii) willful misconduct by the
Participant which causes material injury to
the Company.
(2) CONSEQUENCES OF AN ACQUISITION EVENT ON OPTIONS. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
- 5 -
<PAGE> 6
agreement with respect to an Acquisition Event, the Board shall provide that all
outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants before the consummation of such Acquisition
Event; provided, however, that in the event of an Acquisition Event under the
terms of which holders of Common Stock will receive upon consummation thereof a
cash payment for each share of Common Stock surrendered pursuant to such
Acquisition Event (the "Acquisition Price"), then the Board may instead provide
that all outstanding Options shall terminate upon consummation of such
Acquisition Event and that each Participant shall receive, in exchange therefor,
a cash payment equal to the amount (if any) by which (A) the Acquisition Price
multiplied by the number of shares of Common Stock subject to such outstanding
Options (whether or not then exercisable), exceeds (B) the aggregate exercise
price of such Options.
(3) CONSEQUENCES OF AN ACQUISITION EVENT ON RESTRICTED STOCK
AWARDS. Upon the occurrence of an Acquisition Event, the repurchase and other
rights of the Company under each outstanding Restricted Stock Award shall inure
to the benefit of the Company's successor and shall apply to the cash,
securities or other property which the Common Stock was converted into or
exchanged for pursuant to such Acquisition Event in the same manner and to the
same extent as they applied to the Common Stock subject to such Restricted Stock
Award.
(4) CONSEQUENCES OF AN ACQUISITION EVENT ON OTHER AWARDS. The
Board shall specify the effect of an Acquisition Event on any other Award
granted under the Plan at the time of the grant of such Award.
(5) ACCELERATION FOLLOWING ACQUISITION EVENT. If outstanding
Options held by a Participant are assumed or substituted for pursuant to Section
8(c)(2) in connection with an Acquisition Event, the assumed or substituted
Option held by such Participant following the Acquisition Event shall become
immediately exercisable in full if, prior to the first anniversary of the
Acquisition Event, the employment of such Participant is terminated by the
Company (or the acquiring or succeeding corporation) without Cause; PROVIDED,
that such assumed or substituted Option shall not become fully exercisable upon
any such termination if the Company desires to account for the Acquisition Event
as a pooling-of-interests and such acceleration of exercisability would, in the
opinion of the Company's independent accountants, jeopardize such accounting
treatment. Any determination by such accountants shall be final and binding on
all Participants.
- 6 -
<PAGE> 7
9. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award shall be evidenced by a written
instrument in such form as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, Participants may satisfy such tax obligations in whole or
in part by delivery of shares of Common Stock, including shares retained from
the Award creating the tax obligation, valued at their Fair Market Value. The
Company may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to a Participant.
(f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
- 7 -
<PAGE> 8
(g) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) ACCELERATION. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of restrictions in full or in part or that any other
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
10. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant
- 8 -
<PAGE> 9
designated as subject to Section 162(m) by the Board shall become exercisable,
vested or realizable, as applicable to such Award, unless and until the Plan has
been approved by the Company's stockholders to the extent stockholder approval
is required by Section 162(m) in the manner required under Section 162(m)
(including the vote required under Section 162(m)). No Awards shall be granted
under the Plan after the completion of ten years from the earlier of (i) the
date on which the Plan was adopted by the Board or (ii) the date the Plan was
approved by the Company's stockholders, but Awards previously granted may extend
beyond that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant designated as subject to
Section 162(m) by the Board after the date of such amendment shall become
exercisable, realizable or vested, as applicable to such Award (to the extent
that such amendment to the Plan was required to grant such Award to a particular
Participant), unless and until such amendment shall have been approved by the
Company's stockholders as required by Section 162(m) (including the vote
required under Section 162(m)).
(e) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors Approved by the Stockholders
on_______________, 1998 on_______________, 1998
- 9 -
<PAGE> 10
OPEN SOLUTIONS INC.
INCENTIVE STOCK OPTION AGREEMENT
GRANTED UNDER 1998 STOCK INCENTIVE PLAN
1. GRANT OF OPTION.
This agreement evidences the grant by Open Solutions Inc., a Delaware
corporation (the "Company"), on , 199[ ] (the "Grant Date") to [ ], an employee
of the Company (the "Participant"), of an option to purchase, in whole or in
part, on the terms provided herein and in the Company's 1998 Stock Incentive
Plan (the "Plan"), a total of [ ] shares (the "Shares") of common stock, $.01
par value per share, of the Company ("Common Stock") at $[ ] per Share. Unless
earlier terminated, this option shall expire on [_______] (the "Final Exercise
Date").
It is intended that the option evidenced by this agreement shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended and any regulations promulgated thereunder (the "Code"). Except
as otherwise indicated by the context, the term "Participant", as used in this
option, shall be deemed to include any person who acquires the right to exercise
this option validly under its terms.
2. VESTING SCHEDULE.
This option will become exercisable ("vest") as to % of the original
number of Shares on the [FIRST] anniversary of the Grant Date and as to an
additional ___% of the original number of Shares at the end of each successive
full [THREE-MONTH] period following the first anniversary of the Grant Date
until the [FIFTH] anniversary of the Grant Date.
The right of exercise shall be cumulative so that to the extent the
option is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
3. EXERCISE OF OPTION.
(a) FORM OF EXERCISE. Each election to exercise this option shall be
in writing, signed by the Participant, and received by the Company at its
principal
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<PAGE> 11
office, accompanied by this agreement, and payment in full in the manner
provided in the Plan. The Participant may purchase less than the number of
shares covered hereby, provided that no partial exercise of this option may be
for any fractional share.
(b) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except as
otherwise provided in this Section 3, this option may not be exercised unless
the Participant, at the time he or she exercises this option, is, and has been
at all times since the Grant Date, an employee, officer or director of, or
consultant or advisor to, the Company or any parent or subsidiary of the Company
as defined in Section 424(e) or (f) of the Code (an "Eligible Participant").
(c) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the Participant
ceases to be an Eligible Participant for any reason, then, except as provided in
paragraphs (d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), PROVIDED THAT this option shall be exercisable only to the extent that
the Participant was entitled to exercise this option on the date of such
cessation. Notwithstanding the foregoing, if the Participant, prior to the Final
Exercise Date, violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon such violation.
(d) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Participant dies
or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior
to the Final Exercise Date while he or she is an Eligible Participant and the
Company has not terminated such relationship for "cause" as specified in
paragraph (e) below, this option shall be exercisable, within the period of one
year following the date of death or disability of the Participant by the
Participant, PROVIDED THAT this option shall be exercisable only to the extent
that this option was exercisable by the Participant on the date of his or her
death or disability, and further provided that this option shall not be
exercisable after the Final Exercise Date.
(e) DISCHARGE FOR CAUSE. If the Participant, prior to the Final
Exercise Date, is discharged by the Company for "cause" (as defined below), the
right to exercise this option shall terminate immediately upon the effective
date of such discharge. "Cause" shall mean willful misconduct by the Participant
or willful failure by the Participant to perform his or her responsibilities to
the Company (including, without limitation, breach by the Participant of any
provision of any employment, consulting, advisory, nondisclosure,
non-competition or other similar agreement between the Participant and the
Company), as determined by the Company, which determination shall be conclusive.
The Participant shall be considered to have been discharged for
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<PAGE> 12
"Cause" if the Company determines, within 30 days after the Participant's
resignation, that discharge for cause was warranted.
4. WITHHOLDING.
No Shares will be issued pursuant to the exercise of this option unless
and until the Participant pays to the Company, or makes provision satisfactory
to the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
5. NONTRANSFERABILITY OF OPTION.
This option may not be sold, assigned, transferred, pledged or
otherwise encumbered by the Participant, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
lifetime of the Participant, this option shall be exercisable only by the
Participant.
6. DISQUALIFYING DISPOSITION.
If the Participant disposes of Shares acquired upon exercise of this
option within two years from the Grant Date or one year after such Shares were
acquired pursuant to exercise of this option, the Participant shall notify the
Company in writing or by any other form of notice (including electronic notice)
approved by the Board of such disposition.
7. PROVISIONS OF THE PLAN.
This option is subject to the provisions of the Plan, a copy of which
is furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
OPEN SOLUTIONS INC.
Dated: _________ By:
--------------------------
Name:
------------------------
Title:
------------------------
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<PAGE> 13
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1998 Stock Incentive Plan.
PARTICIPANT:
-----------------------------------
Address:
---------------------------
---------------------------
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<PAGE> 14
OPEN SOLUTIONS INC.
NONSTATUTORY STOCK OPTION AGREEMENT
GRANTED UNDER 1998 STOCK INCENTIVE PLAN
1. GRANT OF OPTION.
This agreement evidences the grant by Open Solutions Inc., a Delaware
corporation (the "Company"), on _________, 199[ ] (the "Grant Date") to
[________], an [employee], [consultant], [director] of the Company (the
"Participant"), of an option to purchase, in whole or in part, on the terms
provided herein and in the Company's 1998 Stock Incentive Plan (the "Plan"), a
total of [________] shares (the "Shares") of common stock, $.01 par value per
share, of the Company ("Common Stock") at $[________] per Share. Unless earlier
terminated, this option shall expire on [_______] (the "Final Exercise Date").
It is intended that the option evidenced by this agreement shall not be
an incentive stock option as defined in Section 422 of the Internal Revenue Code
of 1986, as amended and any regulations promulgated thereunder (the "Code").
Except as otherwise indicated by the context, the term "Participant", as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.
2. VESTING SCHEDULE.
This option will become exercisable ("vest") as to ___% of the original
number of Shares on the [FIRST] anniversary of the Grant Date and as to an
additional ___% of the original number of Shares at the end of each successive
full [THREE- MONTH] period following the first anniversary of the Grant Date
until the [FIFTH] anniversary of the Grant Date. This option shall expire upon,
and will not be exercisable after, the Final Exercise Date.
The right of exercise shall be cumulative so that to the extent the
option is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
3. EXERCISE OF OPTION.
(a) FORM OF EXERCISE. Each election to exercise this option shall be
in writing, signed by the Participant, and received by the Company at its
principal
<PAGE> 15
office, accompanied by this agreement, and payment in full in the manner
provided in the Plan. The Participant may purchase less than the number of
shares covered hereby, provided that no partial exercise of this option may be
for any fractional share.
(b) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except as
otherwise provided in this Section 3, this option may not be exercised unless
the Participant, at the time he or she exercises this option, is, and has been
at all times since the Grant Date, an employee, officer or director of, or
consultant or advisor to, the Company or any parent or subsidiary of the Company
as defined in Section 424(e) or (f) of the Code (an "Eligible Participant").
(c) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the Participant
ceased to be an Eligible Participant for any reason, then, except as provided in
paragraphs (d) and (e) below, the right to exercise this option shall terminate
[THREE] months after such cessation (but in no event after the Final Exercise
Date), PROVIDED THAT this option shall be exercisable only to the extent that
the Participant was entitled to exercise this option on the date of such
cessation. Notwithstanding the foregoing, if the Participant, prior to the Final
Exercise Date, violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon such violation.
(d) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Participant dies
or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior
to the Final Exercise Date while he or she is an Eligible Participant and the
Company has not terminated such relationship for "cause" as specified in
paragraph (e) below, this option shall be exercisable, within the period of one
year following the date of death or disability of the Participant, by the
Participant, PROVIDED THAT this option shall be exercisable only to the extent
that this option was exercisable by the Participant on the date of his or her
death or disability, and further provided that this option shall not be
exercisable after the Final Exercise Date.
(e) DISCHARGE FOR CAUSE. If the Participant, prior to the Final
Exercise Date, is discharged by the Company for "cause" (as defined below), the
right to exercise this option shall terminate immediately upon the effective
date of such discharge. "Cause" shall mean willful misconduct by the Participant
or willful failure by the Participant to perform his or her responsibilities to
the Company (including, without limitation, breach by the Participant of any
provision of any employment, consulting, advisory, nondisclosure,
non-competition or other similar agreement between the Participant and the
Company), as determined by the Company, which determination shall be conclusive.
The Participant shall be considered to have been discharged for
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<PAGE> 16
"Cause" if the Company determines, within 30 days after the Participant's
resignation, that discharge for cause was warranted.
4. WITHHOLDING.
No Shares will be issued pursuant to the exercise of this option unless
and until the Participant pays to the Company, or makes provision satisfactory
to the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
5. NONTRANSFERABILITY OF OPTION.
This option may not be sold, assigned, transferred, pledged or
otherwise encumbered by the Participant, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
lifetime of the Participant, this option shall be exercisable only by the
Participant.
6. PROVISIONS OF THE PLAN.
This option is subject to the provisions of the Plan, a copy of which
is furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
OPEN SOLUTIONS INC.
Dated: _________________ By:
----------------------------
Name:
-----------------------
Title:
-----------------------
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<PAGE> 17
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1998 Stock Incentive Plan.
PARTICIPANT:
--------------------------------
Address: -----------------------
-----------------------
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<PAGE> 1
Exhibit No. 10.4
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"Agreement") is made as of the 22nd day of August, 1997, by and among Open
Solutions Inc., a Delaware corporation (the "Company") and the investors listed
on Schedule A, Schedule B, Schedule C, and Schedule D hereto (each an "Investor"
and collectively the "Investors").
RECITALS
WHEREAS, the Investors listed on Schedule A have purchased from the
Company shares of Series A-1 Preferred Stock of the Company, par value $.01 per
share (the "Series A-1 Preferred Stock") and Series A-2 Preferred Stock of the
Company, par value $.01 per share (the "Series A-2 Preferred Stock"); and
WHEREAS, the Investors listed on Schedule B have purchased from the
Company shares of Series B Preferred Stock of the Company, par value $.01 per
share (the "Series B Preferred Stock"); and
WHEREAS, the Investors listed on Schedule C have purchased from the
Company shares of Series C Preferred Stock of the Company, par value $.01 per
share (the "Series C Preferred Stock");
WHEREAS, the Investor listed on Schedule D has agreed to purchase from
the Company shares of Series D Preferred Stock of the Company, par value $.01
per share (the "Series D Preferred Stock"); and
WHEREAS, in order to induce the Company to issue the Series D Preferred
Stock and to induce the Investor listed on Schedule D to invest funds in the
Company, the Investors and the Company hereby agree that this Agreement shall
govern the rights of the Investors to cause the Company to register shares of
Common Stock issuable to the Investors and certain other matters as set forth
herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHT. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
<PAGE> 2
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof.
(d) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
(e) The terms "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A-1 Preferred Stock, (ii) the
Common Stock issuable or issued upon conversion of the Series A-2 Preferred
Stock, (iii) the Common Stock issuable or issued upon conversion of the Series B
Preferred Stock, including shares of Series B Preferred Stock issuable upon
exercise of any warrant, (iv) the Common Stock issuable or issued upon
conversion of the Series C Preferred Stock, including shares of Series C
Preferred Stock issuable upon exercise of any warrant, (v) the Common Stock
issuable or issued upon conversion of the Series D Preferred Stock, including
shares of Series D Preferred Stock issuable upon exercise of any warrant, and
(vi) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security that is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i), (ii), (iii) and (iv) above,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which his rights under this Section 1 are not assigned.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
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<PAGE> 3
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after (i) February
1, 1997, and before the effective date of the first registration statement for a
public offering of securities of the Company (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction), a written request from the Holders of a majority of the
Registrable Securities then outstanding that the Company file a registration
statement under the Act covering the registration of at least thirty percent
(30%) of the Registrable Securities then outstanding, or (ii) the effective date
of the first registration statement for a public offering of securities of the
Company (other than a registration statement relating to either the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
Holders of Registrable Securities covering the registration of Registrable
Securities with an anticipated gross offering price of at least $2,000,000, then
the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in any event
within ninety (90) days of the receipt of such request, the registration under
the Act of all Registrable Securities that the Holders request to be registered
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 3.5, subject to the limitations of subsection 1.2(b).
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form for a large institutional investor with
the underwriter or underwriters selected for such underwriting. Notwithstanding
any other provision of this Section 1.2, if the underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Initiating Holders shall so advise
all Holders of Registrable
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<PAGE> 4
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders thereof, including the Initiating Holders,
in proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; PROVIDED, HOWEVER, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 60 days after receipt
of the request of the Initiating Holders; PROVIDED, HOWEVER, that the Company
may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 that have been declared or ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.12 below.
1.3 COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
capital stock under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt
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<PAGE> 5
securities which are also being registered), the Company shall, at such time,
promptly give each Holder written notice of such registration. Upon the written
request of each Holder given within twenty (20) days after mailing of such
notice by the Company in accordance with Section 3.5, the Company shall, subject
to the provisions of Section 1.8, cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; PROVIDED, HOWEVER, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Act or (II) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders, as the case may be, such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
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<PAGE> 6
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders or
the Common Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities in each case not later than the effective date of such
registration.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding himself or itself, the Registrable
Securities held by him or it, and the intended method of disposition of such
securities as shall be required to effect the registration of such Holder's
Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.2(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to
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<PAGE> 7
originally trigger the Company's obligation to initiate such registration as
specified in subsection 1.2(a) or subsection 1.12(b)(2), whichever is
applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; PROVIDED, HOWEVER, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Participating Holders shall bear such expenses),
unless (i) the registration is withdrawn following any deferral of the
registration by the Company pursuant to Section 1.2(c); (ii) the registration is
withdrawn due to a material adverse change in the Company's business or
financial condition; or (iii) the Holders of a majority of the Registrable
Securities agree to forfeit their right to one (1) demand registration pursuant
to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the success
of the offering by the Company, provided that such underwriting requirement
shall not provide for indemnification or contribution obligations on the part of
the Holders greater than the obligations set forth in Section 1.10(b). If the
total amount of securities, including Registrable Securities requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters reasonably believe
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities which the underwriters believe will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
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<PAGE> 8
among the selling stockholders according to the total amount of securities
entitled to be included therein owned by each selling stockholder or in such
other proportions as shall mutually be agreed to by such selling stockholders,
but in no event shall the amount of securities of the selling Holders included
in the offering be reduced below twenty-five (25%) percent of the total amount
of securities included in such offering, unless such offering is the initial
public offering of the Company's securities in which case the selling
stockholders may be excluded entirely if the underwriters make the determination
described above and no other stockholder's securities are included. For purposes
of the preceding parenthetical concerning apportionment, for any selling
stockholder that is a holder of Registrable Securities that is a partnership or
corporation, the partners, retired partners and stockholders of such holder
(and, in the case of a partnership, any affiliated partnerships), or the estates
and family members of any such partners and retired partners and any trusts for
the benefit of any of the foregoing persons shall be deemed to be a single
"selling stockholder," and any prorata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; PROVIDED, HOWEVER, that
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the indemnity agreement contained in this subsection 1.10(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between
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such indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 1.10, but the omission
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
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(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive a
written request or requests from Holders of at least one-third (1/3) of the
Registrable Securities then outstanding that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the
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public (net of any underwriters' discounts or commissions) of less than
$2,000,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such Form S-3 Registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than sixty (60)
days after receipt of the request of the Holder or Holders under this Section
1.12, PROVIDED, HOWEVER, that the Company shall not utilize this right more than
once in any twelve-month period; or (4) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be paid by the
Company. Registrations effected pursuant to this Section 1.12 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to Section 1 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities who, after such assignment or transfer, holds at least
100,000 shares of Registrable Securities (subject to appropriate adjustment for
stock splits, stock dividends, combinations and other recapitalizations),
provided: (a) the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; (b) such transferee or assignee agrees in writing to be bound by
and subject to the terms and conditions of this Agreement, including without
limitation the provisions of Section 1.15 below; and (c) such assignment shall
be effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is restricted under the Act.
For the purposes of determining the number of shares of Registrable Securities
held by a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership and its
affiliated partnerships; provided that all assignees and
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transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under Section 1.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders that is included, (b) to include such securities in any registration
filed under Section 1.3 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
reduce the amount of the Registrable Securities of the Holders that is included,
or (c) to make a demand registration that could result in such registration
statement being declared effective prior to the earlier of either of the dates
set forth in subsection 1.2(a) or within one hundred eighty (180) days of the
effective date of any registration effected pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Investor and each Common
Holder hereby agrees that, during the period of duration specified by the
Company and an underwriter of common stock or other securities of the Company,
following the effective date of a registration statement of the Company filed
under the Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except common stock included in such registration; PROVIDED, HOWEVER, that:
(a) all officers, employees and directors of the Company, all
stockholders holding more than one percent (1%) of the outstanding capital stock
of the Company and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements; and
(b) such market stand-off time period shall not exceed one
hundred eighty (180) days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities (and the
shares or
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securities of every other person subject to the foregoing restriction) until the
end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated
in the future, or a registration relating solely to a SEC Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future.
1.16 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to
request registration or inclusion in any registration pursuant to Sections 1.2,
1.3 or 1.12 shall terminate on the date five (5) years following the closing of
the first firm commitment underwritten public offering pursuant to an effective
registration statement under the Act covering the offer and sale of Common Stock
for the account of the Company to the public at an aggregate offering price
resulting in gross proceeds to the Company as seller of not less than
$10,000,000 before deducting underwriting commissions, provided that the
offering price per share of Common Stock is not less than $7.50 per share and
the Common Stock is listed for trading on the NASDAQ NMS, or its equivalent.
2. COVENANTS OF THE COMPANY. The Company covenants and agrees
as follows:
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to
each Investor:
(a) as soon as practicable, but in any event within seventy-
five (75) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("gaap"),
and audited and certified by independent public accountants of nationally
recognized standing selected by the Company;
(b) so long as such Investor holds at least 100,000 shares of
Registrable Securities (as adjusted for stock splits, recombinations or
reclassifications), as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited income statement, a statement of cash flows
for such fiscal quarter and an unaudited balance sheet as of the end of such
fiscal quarter;
(c) so long as such Investor holds at least 100,000 shares of
Registrable Securities (as adjusted for stock splits, recombinations or
reclassifications), within thirty (30) days of the end of each month, an
unaudited income statement and
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a statement of cash flows and balance sheet for and as of the end of such month
(including year-to-date totals for such statements), in reasonable detail,
comparing results to the annual plan and to the prior year comparable period;
(d) so long as such Investor holds at least 100,000 shares of
Registrable Securities (as adjusted for stock splits, recombinations or
reclassifications), as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including balance sheets, income
statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for in
subsection (b) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with gaap consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by gaap) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time reasonably request; PROVIDED,
HOWEVER, that the Company shall not be obligated under this subsection (f) or
any other subsection of Section 2.1 to provide information which it deems in
good faith to be a trade secret or similar confidential information unless the
Investor agrees in writing to hold such information in confidence.
2.2 INSPECTION. The Company shall permit each Investor who then
holds at least 100,000 shares of Registrable Securities, at such Investor's
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by the
Investor; PROVIDED, HOWEVER, that the Company shall not be obligated pursuant to
this Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information unless the
Investor agrees in writing to hold such information in confidence.
2.3 TRANSACTIONS WITH AFFILIATES. The Company shall not, without the
approval of a disinterested majority of the Company's Board of Directors, engage
in any loans, leases, contracts or other transactions with any director,
officer, key employee or greater than ten percent (10%) stockholder of the
Company, or any member of any such person's immediate family, including the
parents, spouse, children and other relatives of any such person, on terms less
favorable than the
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Company would obtain in a transaction with an unrelated party, as determined in
good faith by the Board of Directors.
2.4 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS AND MARKET
STAND-OFF. The Company will cause each person now or hereafter employed by it or
any subsidiary with access to confidential information to enter into a
proprietary information and inventions agreement substantially in the form
approved by the Board of Directors. The Company will use its best efforts to
cause all holders of its common stock who are not parties hereto to be bound by
a market stand-off provision in substantially the form set forth in Section 1.15
hereof
2.5 INSURANCE.
(a) Except as otherwise decided in accordance with policies
adopted by the Company's Board of Directors, the Company will use its best
efforts to maintain from financially sound and reputable insurers, (i) insurance
on its assets and those of its subsidiaries that are of an insurable character
against loss or damage by fire, explosion and other risks customarily insured
against by companies in the Company's line of business, and (ii) insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated. The Company does not now have products liability insurance but may in
the future in the judgment of the Board of Directors obtain such insurance in
amounts customary for companies similarly situated.
(b) The Company covenants that it will use its best efforts to
obtain promptly directors' and officers' liability insurance in the minimum
amount of $1,000,000, and the Company covenants further that so long as a
representative of Aetna Life Insurance Company, Menlo Ventures VI, L.P. or Axiom
Venture Partners, L.P. serves on the Company's Board of Directors, it will use
its best efforts to maintain such insurance, provided that such insurance is
available at commercially reasonable rates as determined by the Company's Board
of Directors.
2.6 QUALIFIED SMALL BUSINESS STOCK. The Company covenants that so
long as the Series A-1, Series A-2, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, or the Common Stock, into which it is
converted, is held by an Investor (or a transferee in whose hands the Series
A-1, Series A-2, Series B, Series C and Series D Preferred Stock or the Common
Stock into which it is converted, is eligible to qualify as Qualified Small
Business Stock as defined in Section 1202(c) of the Internal Revenue Code of
1986, as amended), it will use its reasonable efforts to cause the Series A-1,
Series A-2, Series B, Series C and Series E Preferred Stock or the Common Stock
into which it is converted, to qualify as Qualified Small Business Stock. The
Company will seek in good faith to qualify as a "Qualified Small
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Business" as defined in Section 1202(d) of the Internal Revenue Code of 1986, as
amended (the "Code") but no assurance is given that the Company will so qualify.
2.7 INDEMNIFICATION. The Company covenants that so long as a
representative of The BISYS Group, Inc., Aetna Life Insurance Company, Menlo
Ventures VI, L.P. or Axiom Venture Partners, L.P. serves on the Company's Board
of Directors, its Restated Certificate will provide for the indemnification of
the Company's officers and directors to the fullest extent permitted by law.
2.8 TERMINATION OF COVENANTS. Except for those contained in Section
2.5(b), Section 2.7 and Section 2.11, the covenants set forth in this Section 2
shall terminate as to Investors and be of no further force or effect (i) when
the sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with the firm commitment underwritten offering of
its securities to the general public is consummated or when the Company is
subject to the requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur or (ii) as to any Investor, or transferee or
assignee of such Investor, who holds less than 100,000 shares of Registrable
Securities (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations).
2.9 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 2.9, the Company hereby grants to each Major Investor
(as hereinafter defined) a right of first offer with respect to future sales by
the Company of its Shares (as hereinafter defined). For purposes of this Section
2.9, a Major Investor shall mean any Investor who holds 100,000 shares of
Registrable Securities. For purposes of this Section 2.9, Investor includes any
general partners and affiliates of an Investor. An Investor shall be entitled to
apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by nationally recognized
overnight courier ("Notice") to the Major Investors stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms, if any, upon which it proposes to offer such
Shares.
(b) Within twenty (20) calendar days after giving of the
Notice, a Major Investor may elect to purchase or obtain, at the price and on
the terms specified in the Notice, up to that portion of such Shares which
equals the proportion that the number of shares of common stock issued and held,
or issuable upon
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conversion and/or exercise of the Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or any other securities of the Company then held, by such Major
Investor bears to the total number of shares of common stock of the Company
(assuming full conversion and exercise of all outstanding convertible or
exercisable securities, options or warrants) then issued and held, or issuable
upon conversion of the Series A-1 Preferred Stock, Series A-2 Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
any other securities of the Company then held, by the Major Investors. The
Company shall promptly, in writing, inform each Major Investor that purchases
all the shares available to it (a "Fully-Exercising Investor") of any other
Major Investor's failure to do likewise. During the ten (10) day period
commencing after such information is given, each Fully-Exercising Investor shall
be entitled to obtain that portion of the Shares for which Major Investors were
entitled to subscribe but which were not subscribed for by the Major Investors
which is equal to the proportion that the number of shares of common stock
issued and held, or issuable upon conversion and/or exercise of Preferred Stock
or any other securities of the Company then held, by such Fully-Exercising
Investor bears to the total number of shares of common stock issued and held, or
issuable upon conversion and/or exercise of the Preferred Stock or any other
securities of the Company then held, by all Fully-Exercising Investors who wish
to purchase some of the unsubscribed shares.
(c) If all Shares referred to in the Notice which Investors are
entitled to obtain pursuant to subsection 2.9(b) are not elected to be obtained
as provided in subsection 2.9(b) hereof, the Company may, during the 60-day
period following the expiration of the period provided in subsection 2.9(b)
hereof, offer the remaining unsubscribed portion of such Shares to any person or
persons at a price not less than, and upon terms no more favorable to the
offeree than those specified in the Notice. If the Company does not enter into
an agreement for the sale of the Shares within such period, or if such agreement
is not consummated within 60 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this Section 2.9 shall not be
applicable (i) to the issuance or sale of 1,610,000 shares of common stock (or
options therefor) to employees or consultants for the primary purpose of
soliciting or retaining their employment or to the issuance of any additional
shares of common stock (or options therefor) to such persons for such purposes
which shares (or options) are approved for issuance by the holders of a majority
of the outstanding Series B Preferred Stock, the Series C Preferred Stock and
Series D Preferred Stock, voting together as a single class; (ii) to or after
consummation of a bona fide, firmly underwritten public offering of shares of
common stock, registered under the Act pursuant to a registration statement on
Form S-1; (iii) to the issuance of securities pursuant to the conversion or
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exercise of convertible or exercisable securities; (iv) to the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise; or (v) to the issuance of stock, warrants or other
securities or rights to persons or entities with which the Company has business
relationships provided such issuances are for other than primarily equity
financing purposes.
(e) The right of first offer set forth in this Section 2.9 may
not be assigned or transferred, except that (i) such right is assignable by each
Holder to any wholly owned subsidiary or parent of; or to any corporation or
entity that is, within the meaning of the Act, controlling, controlled by or
under common control with, any such Holder, and (ii) such right is assignable
between and among any of the Holders.
2.10 RIGHT OF REPURCHASE. The Company covenants that to the extent it
has the right to repurchase shares of its Common Stock held by employees,
consultants and directors or former employees, consultants and directors at the
price such persons paid for such Common Stock, and the Company fails to exercise
such right, it will assign such right to the Investors, Graham Gurney, Clifford
I. Waggoner, Glenn A. Field, Arnold Pelligrinelli, and Paul Rothstein, on a pro
rata basis according to the number of shares of Common Stock held by each such
person on an as-converted basis. The Company covenants further that it will
either exercise such right or make such assignment no later than ten (10) days
before its right to repurchase such shares terminates.
2.11 BOARD MEMBERS; ELECTION OF DIRECTORS.
(a) The Company will promptly reimburse members of the
Company's Board of Directors (the "Board of Directors") for the reasonable
expenses, including airfare, incurred by such Board members when acting on
behalf of the Company including attendance at Board of Director meetings.
(b) So long as the Investor named below shall continue to hold
no less than thirty-five percent (35%) of the shares of Series B Preferred Stock
originally acquired by it, such Investor shall be entitled, but shall be under
no obligation, to designate one nominee for election to the Board of Directors
by the Investors:
Axiom Venture Partners, L.P.
Menlo Ventures VI, L.P.
In the event a designation is not made by an Investor named above in accordance
with this Section 2.11(b), unless otherwise agreed by such Investor, the
Investors will use their best efforts to ensure that such position on the Board
of Directors shall be left vacant until a nominee is so designated.
-19-
<PAGE> 20
(c) So long as the Aetna Life Insurance Company shall continue
to hold no less than thirty-five percent (35%) of the shares of Series C
Preferred Stock originally acquired by it, Aetna Life Insurance Company shall be
entitled, but shall be under no obligation, to designate one nominee for
election to the Board of Directors by the Investors. In the event a designation
is not made by Aetna Life Insurance Company in accordance with this Section
2.11(c), unless otherwise agreed by it, the Investors will use their best
efforts to ensure that such position on the Board of Directors shall be left
vacant until a nominee is so designated.
(d) So long as The BISYS Group, Inc. shall continue to hold no
less than thirty-five percent (35%) of the shares of Series D Preferred Stock
originally acquired by it, The BISYS Group, Inc. shall be entitled, but shall be
under no obligation, to designate one nominee for election to the Board of
Directors by the Investors. In the event a designation is not made by The BISYS
Group, Inc. in accordance with this Section 2.11(d), unless otherwise agreed by
it, the Investors will use their best efforts to ensure that such position on
the Board of Directors shall be left vacant until a nominee is so designated.
(e) The nominees selected in accordance with Sections 2.11(b),
(c) and (d) on the one hand, and the nominees selected by the holders of a
majority of the outstanding Common Stock in accordance with the Restated
Certificate of Incorporation of the Company, on the other hand, shall consult in
good faith and use their best efforts to mutually agree as to the designation of
an additional nominee or nominees for election to the Board of Directors by the
holders of the outstanding Common Stock and Preferred Stock voting together as a
class, as provided in the Restated Certificate of Incorporation of the Company.
In the event that an agreement is not reached in accordance with this Section
2.11(e) as to such nominee or nominees, the Investors will use their best
efforts to cause such position or positions to remain vacant.
(f) Each Investor agrees to vote the Series A-1, Series A-2,
Series B, Series C and Series D Preferred Stock, or the Common Stock into which
it is converted, held by it from time to time for the nominees so designated in
accordance with Sections 2.11(b), (c), (d) and (e) at each annual meeting of
shareholders of the Company, and at any special meeting of shareholders of the
Company called for the election of directors, in such manner as may be required
to elect such nominees.
(g) The Company agrees to use its best efforts to cause the
nominees so designated in accordance with Section 2.11(b), (c), (d) and (e) to
be included in part of the slate of directors and to be recommended to, and
elected by shareholders, at each annual meeting of shareholders of the Company,
and at any special meeting of shareholders of the Company called for the
election of directors.
-20-
<PAGE> 21
(h) If (i) the Company receives a written notice from an
Investor named in Section 2.11(b), (c) or (d) that such Investor wishes to
remove a director designated by it and elected pursuant to Section 2.11(b), (c)
or (d), as the case may be, or (ii) such director shall have resigned or shall
be unable to serve, then, in any such case, the Company and the Investors agree
to take such action as may be necessary to call a special meeting of the
stockholders of the Company for the purpose of effecting any such removal or
filling such vacancy, as the case may be, and at such meeting each Investor
shall vote to accomplish said result.
(i) If any Investor shall refuse to vote the Series A-1,
Series A-2, Series B, Series C or Series D Preferred Stock, or the Common Stock
into which it is converted, held by it as provided in any of the foregoing
subsections of this Section 2.11 at any meeting of shareholders of the Company,
or shall refuse to give its written consent in lieu of a meeting, thereupon,
without further action by such Investor, the President or any Vice President of
the Company shall be, and hereby is, irrevocably constituted the
attorney-in-fact and proxy of such Investor for the purpose of voting, and shall
vote such shares at such meeting as provided in the foregoing subsections of
this Section 2.11 or give such consent, as the case may be.
(j) For such period as Connecticut Innovations, Incorporated
("CII") holds Series A-2 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, the Warrants or Common Stock into which any of the foregoing
has been converted, and provided the Company is not a public company, the
Company hereby agrees that it shall not hold any meetings of its Directors on
less than ten (10) days written notice and will permit CII to send a
representative (without voting rights) to each meeting of the Company's Board of
Directors and all committees of such Board. For such period as CII holds Series
A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, the
Warrants or Common Stock into which any of the foregoing has been converted, and
provided the Company is not a public company, the Company shall give CII notice
of each such meeting in the form and manner such notice is given to the
Company's Directors. The Company hereby agrees that it will not permit its
Directors or Shareholders to conduct any corporate action or business by written
consent without giving at least ten (10) days' prior written notice to CII,
which notice shall contain an exact copy of the consent resolution proposed to
be adopted, except, however, under exceptional circumstances when such written
notice cannot be delivered, at which time telephonic notice shall be permitted.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective
-21-
<PAGE> 22
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Connecticut.
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery, delivery by nationally recognized
overnight courier or five days after deposit in the U.S. mail, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days advance written notice to
the other parties. A copy of any such notice to the Company shall be similarly
delivered to counsel for the Company as specified by the Company.
3.6 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements (by
application to the court in which the action was conducted and as determined by
such court) in addition to any other relief to which such party may be entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
3.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
-22-
<PAGE> 23
3.9 AGGREGATION OF STOCK. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
3.10 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including
the Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof
3.11 WAIVER OF RIGHTS UNDER AND TERMINATION OF PRIOR INVESTORS'
RIGHTS AGREEMENT. Each of the parties to that certain Amended and Restated
Investors' Rights Agreement dated as of November 26, 1996 and among the Company
and the investors identified therein (the "Amended and Restated Investors'
Rights Agreement"), hereby (i) waives all rights to notice of, and to purchase,
the Series D Preferred Stock pursuant to Section 2.9 of such Amended and
Restated Investors' Rights Agreement, and (ii) agrees that upon execution and
delivery of this Agreement by each of the parties hereto, such Amended and
Restated Investors' Rights Agreement shall be superseded, amended and restated
in its entirety by this Agreement.
[Intentionally Left Blank]
-23-
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Investors' Rights Agreement as of the date first above written.
OPEN SOLUTIONS INC.
By: /s/ Clifford I. Waggoner
-------------------------------
Name: Clifford I. Waggoner
Title: Sr. V. P.
THE BISYS GROUP INC.
By: /s/ Lynn J. Mangum
-------------------------------
Name: Lynn J. Mangum
Title: Chairman & CEO
AETNA LIFE INSURANCE COMPANY
By: /s/ Allan J. Vartelas
-------------------------------
Name: Allan J. Vartelas
Title: Assistant Vice President
AXIOM VENTURE PARTNERS
LIMITED PARTNERSHIP
By: /s/ Samuel F. Mckay
-------------------------------
Name: Samuel F. McKay
Title: General Partner
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: /s/ Doug Carlisle
-------------------------------
Name: Doug Carlisle
Title: General Partner
-24-
<PAGE> 25
MENLO ENTREPRENEURS FUND VI, L.P.
By its General Partner:
MV Management VI, L.P.
By: /s/ Doug Carlisle
-------------------------------
Name: Douglas C. Carlisle
Title: General Partner
CONNECTICUT INNOVATIONS,
INCORPORATED
By: /s/ Victor R. Budnick
-------------------------------
Name:
Title:
BANKING SPECTRUM SERVICES, INC.
By: /s/ Carlos P. Naudon
-------------------------------
Name: Carlos P. Naudon
Title: President
/s/ MARK HELLER
-----------------------------------
MARK HELLER
/s/ Barry M. Bloom
-----------------------------------
BARRY M. BLOOM
ZACHS CMP
By: /s/ Henry M. Zachs
-------------------------------
Name: Henry M. Zachs
Title: Partner
-25-
<PAGE> 26
-----------------------------------
GLENN A. FIELD
/s/ Allan J. Amer
-----------------------------------
ALLAN J. AMER
/s/ Mark L. Villamar
-----------------------------------
MARK L. VILLAMAR
ALLISTER & NAUDON P/S, RAYMOND
JAMES & ASSOCIATES, INC. CSDN FBO,
JEFFREY W. ALLISTER
By: /s/Jeffrey W. Allister
-------------------------------
Its: Beneficiary
-26-
<PAGE> 27
Schedule A
----------
Schedule of Series A-1 and Series A-2 Investors
-----------------------------------------------
Banking Spectrum Services, Inc.
57 West 38th Street
New York, NY 10018
Axiom Venture Partners L.P.
242 Trumbull Street
Hartford, CT 06103
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Connecticut Innovations, Inc.
865 Brook Street
Rocky Hill, CT 06067
<PAGE> 28
SCHEDULE B
SCHEDULE OF SERIES B INVESTORS
Axiom Venture Partners L.P.
242 Trumbull Street
Hartford, CT 06103
Menlo Ventures VI, L.P.
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Connecticut Innovations, Inc.
865 Brook Street
Rocky Hill, CT 06067
Barry M. Bloom
43 Mackintosh Road
Lyme, CT 06731
Mark Heller
11727 Split Tree Circle
Potomac, MD 20854
Zachs CMP
40 Woodland Street
Hartford, CT 06105
-27-
<PAGE> 29
SCHEDULE C
SCHEDULE OF SERIES C INVESTORS
Aetna Life Insurance Company
151 Farmington Avenue
Hartford, CT 06156
Axiom Venture Partners L.P.
242 Trumbull Street
Hartford, CT 06103
Menlo Ventures VI, L.P.
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Connecticut Innovations, Inc.
865 Brook Street
Rocky Hill, CT 06067
-28-
<PAGE> 30
SCHEDULE D
SCHEDULE OF SERIES D INVESTOR
The BISYS Group, Inc.
[add address from distr. list]
-29-
<PAGE> 31
AMENDMENT
TO
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Agreement (the "Agreement") is entered into as of June 9, 1998 by
and among Open Solutions Inc., a Delaware corporation (the "Company"), and the
persons whose names are set forth below.
WHEREAS, the Company entered into a certain Amended and Restated
Investors' Rights Agreement, dated as of August 22, 1997 (the "Investors' Rights
Agreement"), with the Investors (as defined therein); and
WHEREAS, the parties to the Investors' Rights Agreement wish to amend
the Investors' Rights Agreement to delete Section 2.10 thereof in its entirety.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
with each other as follows:
1. Amendment to Investors' Rights Agreement.
Section 2.10 of the Investors' Rights Agreement is hereby
deleted in its entirety.
2. Miscellaneous.
Except as expressly modified pursuant to this Agreement, the
terms of the Investors' Rights Agreement shall remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY: INVESTORS:
OPEN SOLUTIONS INC. AETNA LIFE INSURANCE COMPANY
ALLAN J. AMER
ALLISTER & NAUDON P/S
By: /s/ Richard J. Willemin AXIOM VENTURE PARTNERS
----------------------------- LIMITED PARTNERSHIP
Richard J. Willemin BARRY M. BLOOM
Senior Vice President and CONNECTICUT INNOVATIONS,
Chief Financial Officer INCORPORATED
MARK HELLER
MENLO ENTREPRENEURS FUND VI, L.P.
MENLO VENTURES VI, L.P.
CARLOS P. NAUDON
THE BISYS GROUP, INC.
MARK L. VILLAMAR
ZACHS CMP
By: /s/ Richard J. Willemin
------------------------------
Richard J. Willemin
Attorney-in-Fact
<PAGE> 1
Exhibit 10.5
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
NO.
STOCK SUBSCRIPTION WARRANT
TO PURCHASE SERIES B PREFERRED STOCK OF
OPEN SOLUTIONS INC., A DELAWARE CORPORATION (THE "COMPANY")
DATE OF INITIAL ISSUANCE: DECEMBER 27, 1995
THIS CERTIFIES THAT, for value received, ____________________________
or registered assigns (hereinafter called the "Holder") is entitled to purchase
from the Company, at any time during the Term of this Warrant,
________________________ shares (subject to adjustment as hereinafter provided)
of Series B Preferred Stock, par value $.01 per share, of the Company (the
"Preferred Stock"), at the Warrant Price, payable in lawful money of the United
States of America to be paid upon the exercise hereof. The exercise of this
Warrant shall be subject to the provisions, limitations and restrictions herein
contained and may be exercised in whole or in part.
SECTION 1. DEFINITIONS.
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
PREFERRED STOCK - shall mean the Company's authorized Series B
Preferred Stock, par value $.01 per share, as constituted at the date hereof.
SECURITIES ACT - the Securities Act of 1933, as amended.
TERM OF THIS WARRANT - shall mean the period beginning on the date of
initial issuance hereof and ending on the date five (5) years from the date of
initial issuance hereof.
WARRANT PRICE - $4.00 per share, subject to adjustment in accordance
with Section 5 hereof.
<PAGE> 2
WARRANTS - this Warrant and any other Warrant or Warrants issued
pursuant to the Series B Preferred Stock and Warrant Purchase Agreement between
the Company and the Investors listed on Schedule A thereto, dated as of
December 27, 1995, to the original holder of this Warrant and the other warrants
issued pursuant thereto, or any transferees from such original holder or
holders.
WARRANT SHARES - shares of Preferred Stock purchased or purchasable by
the Holder of this Warrant upon the exercise hereof.
SECTION 2. EXERCISE OF WARRANT.
2.1 PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant in
whole or in part (but not as to any fractional share of Preferred Stock), the
Holder shall deliver to the Company at its office referred to in Section 12
hereof at any time and from time to time during the Term of this Warrant: (i)
the Notice of Exercise in the form attached hereto, (ii) cash, certified or
official bank check payable to the order of the Company or indebtedness of the
Company to the Holder for cancellation, in each case in the amount of the
Warrant Price for each share being purchased, and (iii) this Warrant. In the
event of any exercise of the rights represented by this Warrant, a certificate
or certificates for the shares of Preferred Stock so purchased, registered in
the name of the Holder or such other name or names as may be designated by the
Holder, shall be delivered to the Holder hereof within a reasonable time, not
exceeding fifteen (15) days, after the rights represented by this Warrant shall
have been so exercised; and, unless this Warrant has expired, a new Warrant
representing the number of shares (except a remaining fractional share), if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the Holder hereof within such time. The person in whose name any
certificate for shares of Preferred Stock is issued upon exercise of this
Warrant shall for all purposes be deemed to have become the holder of record of
such shares on the date on which the Warrant was surrendered and payment of the
Warrant Price and any applicable taxes was made, irrespective of the date of
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
2.2 TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated
in the absence
-2-
<PAGE> 3
of a registration statement as to the securities under such Act or an
opinion of counsel satisfactory to the Company that such registration
is not required or unless sold pursuant to Rule 144 of such Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. COVENANTS AS TO PREFERRED STOCK. The Company covenants and
agrees that all shares of Preferred Stock that may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable, and free from all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
it will pay when due and payable any and all federal and state taxes which may
be payable in respect of the issue of this Warrant, or any Preferred Stock or
certificates therefor issuable upon the exercise of this Warrant. The Company
further covenants and agrees that the Company will at all times have authorized
and reserved, free from preemptive rights, a sufficient number of shares of
Preferred Stock to provide for the exercise of the rights represented by this
Warrant. The Company further covenants and agrees that if any shares of capital
stock to be reserved for the purpose of the issuance of shares upon the exercise
of this Warrant require registration with or approval of any governmental
authority under any federal or state law before such shares may be validly
issued or delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Preferred Stock issuable upon the
exercise of this Warrant is listed on any national securities exchange, the
Company will, if permitted by the rules of such exchange, list and keep listed
on such exchange, upon official notice of issuance, all shares of such Preferred
Stock issuable upon exercise of this Warrant.
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the
Warrant Price as provided in Section 5, the Holder shall thereafter be entitled
to purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
-3-
<PAGE> 4
SECTION 5. ADJUSTMENT OF WARRANT PRICE. The Warrant Price shall be
subject to adjustment from time to time as follows:
(i) If, at any time during the Term of this Warrant, the number of
shares of Preferred Stock outstanding is increased by a stock dividend payable
in shares of Preferred Stock or by a subdivision or split-up of shares of
Preferred Stock, then, following the record date fixed for the determination of
holders of Preferred Stock entitled to receive such stock dividend, subdivision
or split-up, the Warrant Price shall be appropriately decreased so that the
number of shares of Preferred Stock issuable upon the exercise hereof shall be
increased in proportion to such increase in outstanding shares.
(ii) If, at any time during the Term of this Warrant, the number of
shares of Preferred Stock outstanding is decreased by a combination of the
outstanding shares of Preferred Stock, then, following the record date for such
combination, the Warrant Price shall appropriately increase so that the number
of shares of Preferred Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
(iii) All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(iv) Whenever the Warrant Price shall be adjusted as provided in
Section 5, the Company shall prepare a statement showing the facts requiring
such adjustment and the Warrant Price that shall be in effect after such
adjustment. The Company shall cause a copy of such statement to be sent by mail,
first class postage prepaid, to each Holder of this Warrant at his address
appearing on the Company's records. Where appropriate, such copy may be given in
advance and may be included as part of the notice required to be mailed under
the provisions of subsection (x) of this Section 5.
(v) In any case in which the provisions of this Section 5 shall
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event
issuing to the Holder of all or any part of this Warrant which is exercised
after such record date and before the occurrence of such event the additional
shares of capital stock issuable upon such exercise by reason of the adjustment
required by such event over and above the shares of capital stock issuable upon
such exercise before giving effect to such adjustment exercise; provided,
however, that the Company shall deliver to such Holder a due bill or other
appropriate instrument evidencing such Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
-4-
<PAGE> 5
SECTION 6. OWNERSHIP.
6.1 OWNERSHIP OF THIS WARRANT. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2 TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder are
transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 12
hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder an irrevocable agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 6, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay all
expenses, taxes and other charges payable in connection with any transfer or
replacement of this Warrant, other than stock transfer taxes (if any) payable in
connection with a transfer of this Warrant, which shall be payable by the
Holder.
SECTION 7. MERGERS, CONSOLIDATION, SALES. In the case of any proposed
consolidation or merger of the Company with another corporation, or the proposed
sale of all or substantially all of its assets to another corporation, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein in lieu of the shares of the
Preferred Stock of the Company immediately theretofore purchasable hereunder,
such shares of stock, securities or assets as may (by virtue of such
consolidation, merger, sale, reorganization or reclassification) be issued or
payable with respect to or in exchange for the number of shares of such
Preferred Stock purchasable hereunder immediately before such consolidation,
merger, sale, reorganization or reclassification. In any such case appropriate
provision shall be made with respect to the rights and interests of the
-5-
<PAGE> 6
Holder of this Warrant to the end that the provisions hereof shall thereafter be
applicable as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of this Warrant. The Company
shall not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor corporation or
purchaser, as the case may be, shall assume by written instrument the obligation
to deliver to the Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Holder is entitled to receive.
SECTION 8. NOTICE OF DISSOLUTION OR LIQUIDATION. In case of any
distribution of the assets of the Company in dissolution or liquidation (except
under circumstances when the foregoing Section 7 shall be applicable), the
Company shall give notice thereof to the Holder hereof and shall make no
distribution to shareholders until the expiration of thirty (30) days from the
date of mailing of the aforesaid notice and, in any case, the Holder hereof may
exercise this Warrant within thirty (30) days from the date of the giving of
such notice, and all rights herein granted not so exercised within such
thirty-day period shall thereafter become null and void.
SECTION 9. NOTICE OF EXTRAORDINARY DIVIDENDS. Subject to further
compliance with Section 11.2 hereof, if the Board of Directors of the Company
shall declare any dividend or other distribution on its Preferred Stock except
out of earned surplus or by way of a stock dividend payable in shares of its
Preferred Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. FRACTIONAL SHARES. Fractional shares shall not be issued
upon the exercise of this Warrant but in any case where the Holder would, except
for the provisions of this Section 10, be entitled under the terms hereof to
receive a fractional share upon the complete exercise of this Warrant, the
Company shall, upon the exercise of this Warrant for the largest number of whole
shares then called for, pay a sum in cash equal to the excess of the value of
such fractional share (determined in such reasonable manner as may be prescribed
in good faith by the Board of Directors of the Company).
SECTION 11. SPECIAL ARRANGEMENTS OF THE COMPANY. The Company covenants
and agrees that during the Term of this Warrant, unless otherwise approved by
the Holder of this Warrant:
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<PAGE> 7
11.1 WILL RESERVE SHARES. The Company will reserve and set apart and
have at all times, free from preemptive rights, the number of shares of
authorized but unissued Preferred Stock deliverable upon the exercise of this
Warrant.
11.2 WILL BIND SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding to the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets.
SECTION 12. NOTICES. Any notice or other document required or permitted
to be given or delivered to the Holder shall be delivered at, or sent by
certified or registered mail to, the Holder at _________________________________
or to such other address as shall have been furnished to the Company in writing
by the Holder. Any notice or other document required or permitted to be given or
delivered to the Company shall be delivered at, or sent by certified or
registered mail to, the Company at 49 Welles Street, Suite 212, Glastonbury,
Connecticut 06033 or to such other address as shall have been furnished in
writing to the Holder by the Company. Any notice so addressed and mailed by
registered or certified mail shall be deemed to be given when so mailed. Any
notice so addressed and otherwise delivered shall be deemed to be given when
actually received by the addressee.
SECTION 13. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Preferred Stock, and no mere enumeration herein of
the rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
SECTION 14. LAW GOVERNING. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of Connecticut.
SECTION 15. MISCELLANEOUS.
(a) This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the Company
and the holders of two-thirds (2/3) of the Warrant Shares purchasable by the
Holder and holder or holders of all the Warrants then outstanding, provided that
(i) the same change, waiver, discharge or termination is applicable to all
holders of Warrants, (ii) this Section may not be amended without the consent of
the Holder, and (iii) the obligations of the Holder may not be increased without
the consent of the Holder. The headings in this Warrant are for purposes of
reference only and shall not affect the meaning or construction of any of the
provisions hereof.
-7-
<PAGE> 8
(b) All capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Series B Preferred Stock and
Warrant Purchase Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this _____ day of December, 1995
OPEN SOLUTIONS, INC.
By: ______________________________
Title: ___________________________
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<PAGE> 9
FORM OF NOTICE OF EXERCISE
[TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase ___ shares of
Series B Preferred Stock which the undersigned is entitled to purchase by the
terms of the within Warrant according to the conditions thereof, and herewith
makes payment of the Warrant Price of such shares in full. All shares to be
issued pursuant hereto shall be issued in the name of______________ and the
initial address of such person to be entered on the books of the Company shall
be: ____________. The shares are to be issued in certificates of the following
denominations:
[TYPE NAME OF HOLDER]
By: _______________________________
Title: ____________________________
Dated:
-9-
<PAGE> 10
FORM OF ASSIGNMENT
[TO BE SIGNED ONLY UPON TRANSFER OF WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ________________________ hereby sells, assigns and
transfers unto ___________________ all rights of the undersigned under and
pursuant to the within Warrant, and the undersigned does hereby irrevocably
constitute and appoint ________________________, Attorney to transfer the said
Warrant on the books of the Company, with full power of substitution.
[TYPE NAME OF HOLDER]
By: _______________________________
Title: ____________________________
Dated:____________________
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
-10-
<PAGE> 11
Amendment to each of the outstanding
Stock Subscription Warrants to Purchase Series B Preferred Stock,
dated December 27, 1995
SECTION 16. EFFECT OF INITIAL PUBLIC OFFERING. Upon the closing of the
Company's initial public offering of shares of Common Stock, par value $.01 per
share (the "Common Stock"), pursuant to an effective registration statement
under the Securities Act, all references in this Warrant to "Preferred Stock"
shall be deemed to be references to Common Stock and, thereafter, this Warrant
shall be exercisable for shares of Common Stock in lieu of shares of Preferred
Stock.
<PAGE> 1
Exhibit 10.6
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
NO.
STOCK SUBSCRIPTION WARRANT
TO PURCHASE SERIES C PREFERRED STOCK OF
OPEN SOLUTIONS INC., A DELAWARE CORPORATION (THE "COMPANY")
DATE OF INITIAL ISSUANCE: OCTOBER 23, 1996
THIS CERTIFIES THAT, for value received, __________________________ or
registered assigns (hereinafter called the "Holder") is entitled to purchase
from the Company, at any time during the Term of this Warrant
_____________________ shares (subject to adjustment as hereinafter provided) of
Series C Preferred Stock, par value $.01 per share, of the Company (the
"Preferred Stock"), at the Warrant Price, payable in lawful money of the United
States of America to be paid upon the exercise hereof. The exercise of this
Warrant shall be subject to the provisions, limitations and restrictions herein
contained and may be exercised in whole or in part.
SECTION 1. DEFINITIONS.
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
PREFERRED STOCK - shall mean the Company's authorized Series C
Preferred Stock, par value $.01 per share, as constituted at the date hereof.
SECURITIES ACT - the Securities Act of 1933, as amended.
TERM OF THIS WARRANT - shall mean the period beginning on the date of
initial issuance hereof and ending on the date five (5) years from the date of
initial issuance hereof.
WARRANT PRICE - $6.00 per share, subject to adjustment in accordance
with Section 5 hereof.
<PAGE> 2
WARRANTS - this Warrant and any other Warrant or Warrants issued
pursuant to the Series C Preferred Stock and Warrant Purchase Agreement between
the Company and the Investors listed on Schedule A thereto, dated as of
October 23, 1996, to the original holder of this Warrant and the other warrants
issued pursuant thereto, or any transferees from such original holder or
holders.
WARRANT SHARES - shares of Preferred Stock purchased or purchasable by
the Holder of this Warrant upon the exercise hereof
SECTION 2. EXERCISE OF WARRANT.
2.1 PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant in
whole or in part (but not as to any fractional share of Preferred Stock), the
Holder shall deliver to the Company at its office referred to in Section 12
hereof at any time and from time to time during the Term of this Warrant: (i)
the Notice of Exercise in the form attached hereto, (ii) cash, certified or
official bank check payable to the order of the Company or indebtedness of the
Company to the Holder for cancellation, in each case in the amount of the
Warrant Price for each share being purchased, and (iii) this Warrant. In the
event of any exercise of the rights represented by this Warrant, a certificate
or certificates for the shares of Preferred Stock so purchased, registered in
the name of the Holder or such other name or names as may be designated by the
Holder, shall be delivered to the Holder hereof within a reasonable time, not
exceeding fifteen (15) days, after the rights represented by this Warrant shall
have been so exercised; and, unless this Warrant has expired, a new Warrant
representing the number of shares (except a remaining fractional share), if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the Holder hereof within such time. The person in whose name any
certificate for shares of Preferred Stock is issued upon exercise of this
Warrant shall for all purposes be deemed to have become the holder of record of
such shares on the date on which the Warrant was surrendered and payment of the
Warrant Price and any applicable taxes was made, irrespective of the date of
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
2.2 TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated
in the absence
-2-
<PAGE> 3
of a registration statement as to the securities under such Act or an
opinion of counsel satisfactory to the Company that such registration
is not required or unless sold pursuant to Rule 144 of such Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. COVENANTS AS TO PREFERRED STOCK. The Company covenants and
agrees that all shares of Preferred Stock that may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable, and free from all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
it will pay when due and payable any and all federal and state taxes which may
be payable in respect of the issue of this Warrant, or any Preferred Stock or
certificates therefor issuable upon the exercise of this Warrant. The Company
further covenants and agrees that the Company will at all times have authorized
and reserved, free from preemptive rights, a sufficient number of shares of
Preferred Stock to provide for the exercise of the rights represented by this
Warrant. The Company further covenants and agrees that if any shares of capital
stock to be reserved for the purpose of the issuance of shares upon the exercise
of this Warrant require registration with or approval of any governmental
authority under any federal or state law before such shares may be validly
issued or delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Preferred Stock issuable upon the
exercise of this Warrant is listed on any national securities exchange, the
Company will, if permitted by the rules of such exchange, list and keep listed
on such exchange, upon official notice of issuance, all shares of such Preferred
Stock issuable upon exercise of this Warrant.
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the
Warrant Price as provided in Section 5, the Holder shall thereafter be entitled
to purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
-3-
<PAGE> 4
SECTION 5. ADJUSTMENT OF WARRANT PRICE. The Warrant Price shall be
subject to adjustment from time to time as follows:
(i) If, at any time during the Term of this Warrant, the number of
shares of Preferred Stock outstanding is increased by a stock dividend payable
in shares of Preferred Stock or by a subdivision or split-up of shares of
Preferred Stock, then, following the record date fixed for the determination of
holders of Preferred Stock entitled to receive such stock dividend, subdivision
or split-up, the Warrant Price shall be appropriately decreased so that the
number of shares of Preferred Stock issuable upon the exercise hereof shall be
increased in proportion to such increase in outstanding shares.
(ii) If, at any time during the Term of this Warrant, the number of
shares of Preferred Stock outstanding is decreased by a combination of the
outstanding shares of Preferred Stock, then, following the record date for such
combination, the Warrant Price shall appropriately increase so that the number
of shares of Preferred Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
(iii) All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(iv) Whenever the Warrant Price shall be adjusted as provided in
this Section 5, the Company shall prepare a statement showing the facts
requiring such adjustment and the Warrant Price that shall be in effect after
such adjustment. The Company shall cause a copy of such statement to be sent by
mail, first class postage prepaid, to each Holder of this Warrant at his address
appearing on the Company's records. Where appropriate, such copy may be given in
advance and may be included as part of the notice required to be mailed under
the provisions of subsection (vi) of this Section 5.
(v) In any case in which the provisions of this Section 5 shall
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event
issuing to the Holder of all or any part of this Warrant which is exercised
after such record date and before the occurrence of such event the additional
shares of capital stock issuable upon such exercise by reason of the adjustment
required by such event over and above the shares of capital stock issuable upon
such exercise before giving effect to such adjustment exercise; provided,
however, that the Company shall deliver to such Holder a due bill or other
appropriate instrument evidencing such Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
-4-
<PAGE> 5
(vi) In the event the Company shall propose to take any action of the
types described in subsections (i) or (ii) of this Section 5, the Company shall
forward, at the same time and in the same manner, to the Holder of this Warrant
such notice, if any, which the Company shall give to the holders of capital
stock of the Company.
SECTION 6. OWNERSHIP.
6.1 OWNERSHIP OF THIS WARRANT. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2 TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder are
transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 12
hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder an irrevocable agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 6, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay all
expenses, taxes and other charges payable in connection with any transfer or
replacement of this Warrant, other than stock transfer taxes (if any) payable in
connection with a transfer of this Warrant, which shall be payable by the
Holder.
SECTION 7. MERGERS, CONSOLIDATION, SALES. In the case of any proposed
consolidation or merger of the Company with another corporation, or the proposed
sale of all or substantially all of its assets to another corporation, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Preferred Stock of the Company immediately theretofore purchasable hereunder,
such shares of stock, securities or
-5-
<PAGE> 6
assets as may (by virtue of such consolidation, merger, sale, reorganization or
reclassification) be issued or payable with respect to or in exchange for the
number of shares of such Preferred Stock purchasable hereunder immediately
before such consolidation, merger, sale, reorganization or reclassification. In
any such case appropriate provision shall be made with respect to the rights and
interests of the Holder of this Warrant to the end that the provisions hereof
shall thereafter be applicable as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of this
Warrant. The Company shall not effect any such consolidation, merger or sale
unless prior to or simultaneously with the consummation thereof the successor
corporation or purchaser, as the case may be, shall assume by written instrument
the obligation to deliver to the Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, the Holder is entitled
to receive.
SECTION 8. NOTICE OF DISSOLUTION OR LIQUIDATION. In case of any
distribution of the assets of the Company in dissolution or liquidation (except
under circumstances when the foregoing Section 7 shall be applicable), the
Company shall give notice thereof to the Holder hereof and shall make no
distribution to shareholders until the expiration of thirty (30) days from the
date of mailing of the aforesaid notice and, in any case, the Holder hereof may
exercise this Warrant within thirty (30) days from the date of the giving of
such notice, and all rights herein granted not so exercised within such
thirty-day period shall thereafter become null and void.
SECTION 9. NOTICE OF EXTRAORDINARY DIVIDENDS. Subject to further
compliance with Section 11.2 hereof, if the Board of Directors of the Company
shall declare any dividend or other distribution on its Preferred Stock except
out of earned surplus or by way of a stock dividend payable in shares of its
Preferred Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. FRACTIONAL SHARES. Fractional shares shall not be issued
upon the exercise of this Warrant but in any case where the Holder would, except
for the provisions of this Section 10, be entitled under the terms hereof to
receive a fractional share upon the complete exercise of this Warrant, the
Company shall, upon the exercise of this Warrant for the largest number of whole
shares then called for, pay a sum in cash equal to the excess of the value of
such fractional share (determined in such reasonable manner as may be prescribed
in good faith by the Board of Directors of the Company).
-6-
<PAGE> 7
SECTION 11. SPECIAL ARRANGEMENTS OF THE COMPANY. The Company covenants
and agrees that during the Term of this Warrant, unless otherwise approved by
the Holder of this Warrant:
11.1 WILL RESERVE SHARES. The Company will reserve and set apart and
have at all times, free from preemptive rights, the number of shares of
authorized but unissued Preferred Stock deliverable upon the exercise of this
Warrant.
11.2 WILL BIND SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding to the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets.
SECTION 12. NOTICES. Any notice or other document required or permitted
to be given or delivered to the Holder shall be delivered at, or sent by
certified or registered mail to, the Holder at ________________________________,
or to such other address as shall have been furnished to the Company in writing
by the Holder. Any notice or other document required or permitted to be given or
delivered to the Company shall be delivered at, or sent by certified or
registered mail to, the Company at 300 Winding Brook Drive, Glastonbury,
Connecticut 06033 or to such other address as shall have been furnished in
writing to the Holder by the Company. Any notice so addressed and mailed by
registered or certified mail shall be deemed to be given when so mailed. Any
notice so addressed and otherwise delivered shall be deemed to be given when
actually received by the addressee.
SECTION 13. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Preferred Stock, and no mere enumeration herein of
the rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
SECTION 14. LAW GOVERNING. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of Connecticut.
SECTION 15. MISCELLANEOUS.
(a) This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the Company
and the holders of two-thirds (2/3) of the Warrant Shares purchasable by the
Holder and holder or holders of all the Warrants then outstanding, provided that
(i) the same change, waiver, discharge or termination is applicable to all
holders of Warrants, (ii) this Section may not be amended without the consent of
the Holder, and (iii) the obligations of the Holder may not be increased without
the consent of
-7-
<PAGE> 8
the Holder. The headings in this Warrant are for purposes of reference only and
shall not affect the meaning or construction of any of the provisions hereof
(b) All capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Series C Preferred Stock and
Warrant Purchase Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this 23rd day of October, 1996.
OPEN SOLUTIONS INC.
By: _______________________________
Title: ____________________________
-8-
<PAGE> 9
FORM OF NOTICE OF EXERCISE
[TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase ____ shares of
Series C Preferred Stock which the undersigned is entitled to purchase by the
terms of the within Warrant according to the conditions thereof, and herewith
makes payment of the Warrant Price of such shares in full. All shares to be
issued pursuant hereto shall be issued in the name of ______________ and the
initial address of such person to be entered on the books of the Company shall
be: ___________________. The shares are to be issued in certificates of the
following denominations:
[TYPE NAME OF HOLDER]
By:
Title:
Dated:
-9-
<PAGE> 10
FORM OF ASSIGNMENT
[TO BE SIGNED ONLY UPON TRANSFER OF WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto ______________________ all rights of the undersigned under
and pursuant to the within Warrant, and the undersigned does hereby irrevocably
constitute and appoint ____________________, Attorney to transfer the said
Warrant on the books of the Company, with full power of substitution.
[TYPE NAME OF HOLDER]
By:
Title:
Dated: ________________
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
-10-
<PAGE> 11
Amendment to each of the outstanding
Stock Subscription Warrants to Purchase Series C Preferred Stock,
dated October 23, 1996
SECTION 16. EFFECT OF INITIAL PUBLIC OFFERING. Upon the closing of the
Company's initial public offering of shares of Common Stock, par value $.01 per
share (the "Common Stock"), pursuant to an effective registration statement
under the Securities Act, all references in this Warrant to "Preferred Stock"
shall be deemed to be references to Common Stock and, thereafter, this Warrant
shall be exercisable for shares of Common Stock in lieu of shares of Preferred
Stock.
<PAGE> 1
Exhibit 10.7
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
NO.
STOCK SUBSCRIPTION WARRANT
TO PURCHASE SERIES D PREFERRED STOCK OF
OPEN SOLUTIONS INC., A DELAWARE CORPORATION (THE "COMPANY")
DATE OF INITIAL ISSUANCE: AUGUST 22, 1997
THIS CERTIFIES THAT, for value received, The Bysis Group, Inc. or
registered assigns (hereinafter called the "Holder") is entitled to purchase
from the Company, at any time during the Term of this Warrant Four Hundred
Sixteen Thousand Six Hundred Sixty-Seven (416,667) shares (subject to
adjustment as hereinafter provided) of Series D Preferred Stock, par value $.01
per share, of the Company (the "Preferred Stock"), at the Warrant Price,
payable in lawful money of the United States of America to be paid upon the
exercise hereof. The exercise of this Warrant shall be subject to the
provisions, limitations and restrictions herein contained and may be exercised
in whole or in part.
SECTION 1. DEFINITIONS.
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
PREFERRED STOCK - shall mean the Company's authorized Series D
Preferred Stock, par value $.01 per share, as constituted at the date hereof.
SECURITIES ACT - the Securities Act of 1933, as amended.
TERM OF THIS WARRANT - shall mean the period beginning on the date of
initial issuance hereof and ending on the date five (5) years from the date of
initial issuance hereof.
WARRANT PRICE - $6.00 per share, subject to adjustment in accordance
with Section 5 hereof.
<PAGE> 2
WARRANTS - this Warrant issued pursuant to that certain Series D
Preferred Stock and Warrant Purchase Agreement between the Company and the
Investor listed on Schedule A thereto, dated as of August 22, 1997, to the
original holder of this Warrant, or any transferees from such original holder.
WARRANT SHARES - shares of Preferred Stock purchased or purchasable by
the Holder of this Warrant upon the exercise hereof.
SECTION 2. EXERCISE OF WARRANT
2.1 PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant in
whole or in part (but not as to any fractional share of Preferred Stock), the
Holder shall deliver to the Company at its office referred to in Section 12
hereof at any time and from time to time during the Term of this Warrant: (i)
the Notice of Exercise in the form attached hereto, (ii) cash, certified or
official bank check payable to the order of the Company or indebtedness of the
Company to the Holder for cancellation, in each case in the amount of the
Warrant Price for each share being purchased, and (iii) this Warrant. In the
event of any exercise of the rights represented by this Warrant, a certificate
or certificates for the shares of Preferred Stock so purchased, registered in
the name of the Holder or such other name or names as may be designated by the
Holder, shall be delivered to the Holder hereof within a reasonable time, not
exceeding fifteen (15) days, after the rights represented by this Warrant shall
have been so exercised; and, unless this Warrant has expired, a new Warrant
representing the number of shares (except a remaining fractional share), if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the Holder hereof within such time. The person in whose name any
certificate for shares of Preferred Stock is issued upon exercise of this
Warrant shall for all purposes be deemed to have become the holder of record of
such shares on the date on which the Warrant was surrendered and payment of the
Warrant Price and any applicable taxes was made, irrespective of the date of
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
2.2 TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated
in the absence of a registration statement as to the securities under
such Act or an opinion of
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<PAGE> 3
counsel satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. COVENANTS AS TO PREFERRED STOCK. The Company covenants and
agrees that all shares of Preferred Stock that may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable, and free from all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
it will pay when due and payable any and all federal and state taxes which may
be payable in respect of the issue of this Warrant, or any Preferred Stock or
certificates therefor issuable upon the exercise of this Warrant. The Company
further covenants and agrees that the Company will at all times have authorized
and reserved, free from preemptive rights, a sufficient number of shares of
Preferred Stock to provide for the exercise of the rights represented by this
Warrant. The Company further covenants and agrees that if any shares of capital
stock to be reserved for the purpose of the issuance of shares upon the exercise
of this Warrant require registration with or approval of any governmental
authority under any federal or state law before such shares may be validly
issued or delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Preferred Stock issuable upon the
exercise of this Warrant is listed on any national securities exchange, the
Company will, if permitted by the rules of such exchange, list and keep listed
on such exchange, upon official notice of issuance, all shares of such Preferred
Stock issuable upon exercise of this Warrant.
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the
Warrant Price as provided in Section 5, the Holder shall thereafter be entitled
to purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
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<PAGE> 4
SECTION 5. ADJUSTMENT OF WARRANT PRICE. The Warrant Price shall be
subject to adjustment from time to time as follows:
(i) If, at any time during the Term of this Warrant, the number of
shares of Preferred Stock outstanding is increased by a stock dividend payable
in shares of Preferred Stock or by a subdivision or split-up of shares of
Preferred Stock, then, following the record date fixed for the determination of
holders of Preferred Stock entitled to receive such stock dividend, subdivision
or split-up, the Warrant Price shall be appropriately decreased so that the
number of shares of Preferred Stock issuable upon the exercise hereof shall be
increased in proportion to such increase in outstanding shares.
(ii) If, at any time during the Term of this Warrant, the number of
shares of Preferred Stock outstanding is decreased by a combination of the
outstanding shares of Preferred Stock, then, following the record date for such
combination, the Warrant Price shall appropriately increase so that the number
of shares of Preferred Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
(iii) All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(iv) Whenever the Warrant Price shall be adjusted as provided in
this Section 5, the Company shall prepare a statement showing the facts
requiring such adjustment and the Warrant Price that shall be in effect after
such adjustment. The Company shall cause a copy of such statement to be sent by
mail, first class postage prepaid, to each Holder of this Warrant at his address
appearing on the Company's records. Where appropriate, such copy may be given in
advance and may be included as part of the notice required to be mailed under
the provisions of subsection (vi) of this Section 5.
(v) In any case in which the provisions of this Section 5 shall
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event
issuing to the Holder of all or any part of this Warrant which is exercised
after such record date and before the occurrence of such event the additional
shares of capital stock issuable upon such exercise by reason of the adjustment
required by such event over and above the shares of capital stock issuable upon
such exercise before giving effect to such adjustment exercise; provided,
however, that the Company shall deliver to such Holder a due bill or other
appropriate instrument evidencing such Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
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<PAGE> 5
(vi) In the event the Company shall propose to take any action of
the types described in subsections (i) or (ii) of this Section 5, the Company
shall forward, at the same time and in the same manner, to the Holder of this
Warrant such notice, if any, which the Company shall give to the holders of
capital stock of the Company.
SECTION 6. OWNERSHIP.
6.1 OWNERSHIP OF THIS WARRANT. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2 TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder are
transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 12
hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder an irrevocable agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 6, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay all
expenses, taxes and other charges payable in connection with any transfer or
replacement of this Warrant, other than stock transfer taxes (if any) payable in
connection with a transfer of this Warrant, which shall be payable by the
Holder.
SECTION 7. MERGERS, CONSOLIDATION, SALES. In the case of any proposed
consolidation or merger of the Company with another corporation, or the proposed
sale of all or substantially all of its assets to another corporation, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Preferred Stock of the Company immediately theretofore purchasable hereunder,
such shares of stock, securities or
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<PAGE> 6
assets as may (by virtue of such consolidation, merger, sale, reorganization or
reclassification) be issued or payable with respect to or in exchange for the
number of shares of such Preferred Stock purchasable hereunder immediately
before such consolidation, merger, sale, reorganization or reclassification. In
any such case appropriate provision shall be made with respect to the rights and
interests of the Holder of this Warrant to the end that the provisions hereof
shall thereafter be applicable as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of this
Warrant. The Company shall not effect any such consolidation, merger or sale
unless prior to or simultaneously with the consummation thereof the successor
corporation or purchaser, as the case may be, shall assume by written instrument
the obligation to deliver to the Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, the Holder is entitled
to receive.
SECTION 8. NOTICE OF DISSOLUTION OR LIQUIDATION. In case of any
distribution of the assets of the Company in dissolution or liquidation (except
under circumstances when the foregoing Section 7 shall be applicable), the
Company shall give notice thereof to the Holder hereof and shall make no
distribution to shareholders until the expiration of thirty (30) days from the
date of mailing of the aforesaid notice and, in any case, the Holder hereof may
exercise this Warrant within thirty (30) days from the date of the giving of
such notice, and all rights herein granted not so exercised within such
thirty-day period shall thereafter become null and void.
SECTION 9. NOTICE OF EXTRAORDINARY DIVIDENDS. Subject to further
compliance with Section 11.2 hereof, if the Board of Directors of the Company
shall declare any dividend or other distribution on its Preferred Stock except
out of earned surplus or by way of a stock dividend payable in shares of its
Preferred Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. FRACTIONAL SHARES. Fractional shares shall not be issued
upon the exercise of this Warrant but in any case where the Holder would, except
for the provisions of this Section 10, be entitled under the terms hereof to
receive a fractional share upon the complete exercise of this Warrant, the
Company shall, upon the exercise of this Warrant for the largest number of whole
shares then called for, pay a sum in cash equal to the excess of the value of
such fractional share (determined in such reasonable manner as may be prescribed
in good faith by the Board of Directors of the Company).
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<PAGE> 7
SECTION 11. SPECIAL ARRANGEMENTS OF THE COMPANY. The Company covenants
and agrees that during the Term of this Warrant, unless otherwise approved by
the Holder of this Warrant:
11.1 WILL RESERVE SHARES. The Company will reserve and set apart and
have at all times, free from preemptive rights, the number of shares of
authorized but unissued Preferred Stock deliverable upon the exercise of this
Warrant.
11.2 WILL BIND SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding to the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets.
SECTION 12. NOTICES. Any notice or other document required or permitted
to be given or delivered to the Holder shall be delivered at, or sent by
certified or registered mail to, the Holder at BYSIS Group, Inc., Overlook At
Great Notch, 150 Clove Road, Littlefalls, N.J. 07424, or to such other address
as shall have been furnished to the Company in writing by the Holder. Any
notice or other document required or permitted to be given or delivered to the
Company shall be delivered at, or sent by certified or registered mail to, the
Company at 300 Winding Brook Drive, Glastonbury, Connecticut 06033 or to such
other address as shall have been furnished in writing to the Holder by the
Company. Any notice so addressed and mailed by registered or certified mail
shall be deemed to be given when so mailed. Any notice so addressed and
otherwise delivered shall be deemed to be given when actually received by the
addressee.
SECTION 13. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Preferred Stock, and no mere enumeration herein of
the rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
SECTION 14. LAW GOVERNING. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of Connecticut.
SECTION 15. MISCELLANEOUS.
(a) This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the Company
and the holders of two-thirds (2/3) of the Warrant Shares purchasable by the
Holder and holder or holders of all the Warrants then outstanding, provided that
(i) the same change, waiver, discharge or termination is applicable to all
holders of Warrants, (ii) this Section may not be amended without the consent of
the Holder, and (iii) the obligations of the Holder may not be increased without
the consent of
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<PAGE> 8
the Holder. The headings in this Warrant are for purposes of reference only and
shall not affect the meaning or construction of any of the provisions hereof.
(b) All capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Series D Preferred Stock and
Warrant Purchase Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this August 22, 1997.
OPEN SOLUTIONS INC.
By: /s/ Clifford I. Waggoner
-----------------------------
Clifford I. Waggoner
Title: Senior Vice President
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<PAGE> 9
FORM OF NOTICE OF EXERCISE
[TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase ____ shares of
Series C Preferred Stock which the undersigned is entitled to purchase by the
terms of the within Warrant according to the conditions thereof, and herewith
makes payment of the Warrant Price of such shares in full. All shares to be
issued pursuant hereto shall be issued in the name of ______________ and the
initial address of such person to be entered on the books of the Company shall
be: ___________________. The shares are to be issued in certificates of the
following denominations:
[TYPE NAME OF HOLDER]
By: _______________________________
Title: ____________________________
Dated:
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<PAGE> 10
FORM OF ASSIGNMENT
[TO BE SIGNED ONLY UPON TRANSFER OF WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto ______________________ all rights of the undersigned under
and pursuant to the within Warrant, and the undersigned does hereby irrevocably
constitute and appoint ____________________, Attorney to transfer the said
Warrant on the books of the Company, with full power of substitution.
[TYPE NAME OF HOLDER]
By: _______________________________
Title: ____________________________
Dated: ________________
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE> 11
Amendment to the outstanding
Stock Subscription Warrant to Purchase Series D Preferred Stock,
dated August 22, 1997, issued to The BISYS Group, Inc.
SECTION 16. EFFECT OF INITIAL PUBLIC OFFERING. Upon the closing of the
Company's initial public offering of shares of Common Stock, par value $.01 per
share (the "Common Stock"), pursuant to an effective registration statement
under the Securities Act, all references in this Warrant to "Preferred Stock"
shall be deemed to be references to Common Stock and, thereafter, this Warrant
shall be exercisable for shares of Common Stock in lieu of shares of Preferred
Stock.
<PAGE> 1
Exhibit 10.8
OPEN SOLUTIONS, INC.
KEY EMPLOYEE AGREEMENT
September ___, 1995
Name and address of employee:
Mr. Douglas Anderson
960 Main Street
South Windsor, CT 06074
Open Solutions, Inc., a Delaware corporation (the "Company"), agrees
with you as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 You shall serve in an executive capacity as President
and Chief Executive Officer of the Company.
1.2 You will, to the best of your ability, devote your
full business time and efforts to the performance of your job hereunder and to
the business and affairs of the Company. You agree to serve as a director,
officer or both of the Company, if elected by the shareholders or the Company's
Board of Directors ("Board").
2. TERM OF EMPLOYMENT.
2.1 The term of your employment shall be three (3) years,
unless extended, commencing with October 1995, provided your employment may be
terminated at any time as provided in Section 2.2.
2.2 Your employment may be terminated as follows.
(a) The Company shall have the right, by giving you
written notice, to terminate your employment:
(i) immediately for cause, or
(ii) at any time without cause (as hereinafter
defined).
<PAGE> 2
(b) You shall have the right, on written notice to the
Company, to terminate your employment for Good Reason (as hereinafter
defined).
2.3 If your employment is terminated (a) by the Company
without cause or (b) by you with Good Reason, the Company shall be obligated to
pay you severance pay at a rate of $10,000 per month, less applicable taxes and
other required withholdings and any amount you may owe to the Company, payable
on the first day of each month commencing the first day of the month next
following the date of termination ("Severance Payments"). Severance Payments
shall be made until the earlier of (i) August 31, 1998 or (ii) the first day of
your employment with another employer, provided that in no event will Severance
Payments under (i) be made for less than twelve (12) months. If total cash
compensation by payments from a subsequent employer pursuant to (ii) above are
not at least equal to the Severance Payments, the Company will pay you the
difference between such payments for the period during which Severance Payments
are due. Notwithstanding the foregoing, if the Company has ceased operations or
has had a petition in bankruptcy filed for or against it, the Company shall be
relieved of its obligations under this Section 2.3 and you shall only be
entitled to payments pursuant to this Section 2.3 as and when payments are made
to other unsecured creditors of the Company.
2.4 For purposes of Section 2 hereof, the term "cause"
shall mean your conviction of a felony (or a plea of guilty thereto).
2.5 The term "Good Reason" shall mean, without your
consent: (a) your removal from, or the failure to elect or re-elect you to, the
Board, except when such removal or failure to elect or re-elect relates to your
termination by the Company for cause; (b) a significant reduction in the nature
or scope of the authorities, powers, functions or duties attached to your
position with the Company ("Reduction in Duties"); (c) the Company relocates its
operations such that your job duties must be performed at a location outside of
Hartford County, Connecticut; (d) the failure of the Company to maintain its
Incentive Compensation Plan, or its equivalent; or (3) a Change in Control (as
hereinafter defined) as a result of which (i) you are in any way constrained in
carrying out the authorities, powers, functions or duties attached to the
position stated in Section 1.1 hereof or (ii) there is a Reduction in Duties
and, in either case, if after reasonable negotiation with the new control group,
the situation is not remedied. For purposes hereof, a Change in Control shall
mean when: (a) the Company sells all or substantially all of its assets; or (b)
any person (as such term is defined in Sections 3 (a) (9) and 13 (d) (3) of the
Securities Exchange Act of 1934, each a "person"), other than (x) the current
shareholders of the Company, (y) one or more venture capital investors or (z) in
connection with an underwritten registered public offering of the securities of
the Company, any person or persons, becomes a beneficial owner, directly or
indirectly, of securities of the Company representing sufficient votes to elect
a majority of the Board.
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<PAGE> 3
3. COMPENSATION. The Company shall pay to you for the service to
be rendered hereunder compensation as set forth on Schedule 1 hereto. You shall
also be entitled to all rights and benefits for which you shall be eligible
under pension, group insurance, or other company benefits which may be in force
from time to time and provided to you or for the Company's employees generally.
The Company will reimburse you for all customary, ordinary and necessary
business expenses incurred by you in the performance of your duties hereunder in
accordance with Company policies and procedures.
4. STOCK GRANT.
4.1 In addition to the compensation set forth on Schedule
1, on the date of execution of this Agreement, the Company shall issue to you
350,000 shares of Common Stock of the Company, par value $.01 (the "Shares").
4.2 In the event your employment is terminated: (a) by
the Company with cause, as defined in Section 4.4 below, or (b) by you without
Good Reason, as defined in Section 2.5 hereof, the Company shall have the right,
at any time within thirty (30) days after the date your services cease, to
purchase (the "Purchase Option") from you and your personal representatives, as
the case may be, all or any part of the "Unvested Shares" (as hereinafter
defined), at a price of $.30 per share (the "Universal Share Purchase Price").
4.3 The term "Unvested Shares" shall mean 175,000 Shares
owned by you upon the issuance of the Shares pursuant to Section 4.1 less (i)
50,000 Shares on August 31, 1996, and (ii) 1/36 of such Shares for each and
every full month which has elapsed between September 1, 1996, and August 31,
1999.
4.4 For purposes of Section 4.2 hereof the term "cause"
shall include: (a) conviction of a felony (or a plea of guilty thereto) and (b)
material failure or inability to perform your agreements, duties or obligations
as an employee of the Company or under this Agreement, including, without
limitation your voluntary termination of employment other than for Good Reason.
4.5 The following additional terms shall apply:
(a) The Purchase Option shall be exercised by written
notice signed by an officer of the Company. The Unvested Share Purchase
Price shall be payable, at the option of the Company, in cancellation
of all or a portion of any outstanding indebtedness owed by you to the
Company or in cash (by check) or both.
(b) The Company may assign its rights under this
Section 4.
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<PAGE> 4
(c) You may not sell or transfer any Unvested Shares, and
any purported sale or transfer shall be null and void.
(d) Subject to the other provisions of this Agreement,
you shall, during the term of this Agreement, exercise all rights and
privileges of a shareholder of the Company with respect to the Unvested
Shares.
(e) The Company will extend to you any tax opinion that
it receives regarding the fair market value of the Shares at the time
of grant.
5. THE ESCROW AGENT. As security for your faithful performance of
the terms of this Agreement and to insure that your Shares will be available for
delivery upon exercise of the Purchase Option as herein provided, you agree to
deliver to and deposit with counsel to the Company ("Escrow Agent"), as Escrow
Agent, four (4) Stock Assignments duly endorsed (with date and number of shares
blank) in the form attached hereto as Schedule 2, together with the certificate
or certificates evidencing the Unvested Shares on the date hereof. Said
documents are to be held by the Escrow Agent and delivered by said Escrow Agent
pursuant to the Joint Escrow Instructions of the Company and you as set forth in
Schedule 3 attached hereto.
6. OTHER ACTIVITIES DURING EMPLOYMENT.
6.1 Except with the prior written consent of the
Company's Board of Directors or as described on Exhibit A hereto, you will not
during the term of this Agreement undertake or engage in any other employment,
occupation or business enterprise other than one in which you are an inactive
investor. This provision shall not be deemed to preclude membership in
professional societies, lecturing or the acceptance of honorary positions, that
are in any case incidental to your employment by the Company and which are not
adverse or in conflict with the interests of the Company, its business or
prospects, financial or otherwise.
6.2 Except as permitted by Section 6.3, you will not
acquire, assume or participate in, directly or indirectly, any position,
investment or interest adverse or in conflict with the interests of the Company,
its business or prospects, financial or otherwise, or take any action towards
any of the foregoing.
6.3 During the term of your employment by the Company,
except on behalf of the Company or its subsidiaries, you will not, directly or
indirectly, whether as an officer, director, employee, stockholder, partner,
proprietor, associate, representative, or otherwise, become or be interested in
any other person, corporation, firm, partnership or other entity whatsoever
which directly competes with the Company, in any part of the world, in any line
of business engaged in (or which the Company has made plans to be engaged in) by
the Company; provided,
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<PAGE> 5
however, that anything above to the contrary notwithstanding, you may own, as an
inactive investor, securities of any competitor corporation, so long as your
holdings in any one such corporation shall not in the aggregate constitute more
than one percent (1%) of the voting stock of such corporation.
7. EMPLOYEE INVENTION AND PROPRIETARY INFORMATION.
All material and information of the Company shall remain property of
the Company. You hereby irrevocably and unconditionally transfer and assign to
the Company, and the Company shall retain, all right, title and interest in
material and information, including software and all code and documentation
relating thereto, generated or provided to the Company by you, either jointly or
separately with the Company, whether heretofore or hereafter generated,
including all copyrightable works and patentable inventions. You agree not to
use (except for the benefit of the Company) or disclose, publish, release,
transfer, or otherwise make available to any third party, any proprietary or
non-public material or information of the Company including, without limitation,
any trade secret, non-public know-how or proprietary work created by the
Company, and you acknowledge that all such material and information constitute a
valuable asset of the Company. You agree not to remove any property from the
Company's premises without the express prior written consent of the Company.
This provision shall not be construed as restricting you from engaging
in other creative activities, such as the writing of a magazine article,
provided you otherwise honor the provisions of this Agreement.
In consideration for the Company agreeing to enter into this Agreement
with you, you agree to execute and deliver any additional proprietary
information agreement developed by the Company for execution by its officers
and/or employees during the six (6) month period from the date hereof.
8. RESTRICTIONS ON EMPLOYMENT ACTIVITIES.
Due to the special nature of the contribution, of you to the Company,
you agree that you shall not, as a current or former employee of the Company,
for a period of one (1) year from the date such employee status ends for any
reason, directly compete with the Company in the business of developing and/or
marketing of a client server banking package (the "Business"). Furthermore,
during this period of time you agree not to, directly or indirectly, engage in
any other business venture, as an employee, a proprietor or otherwise an
interested party, which directly competes with the Business, or develop or
market a competitive or like product or service to any product or service
offered by the Company in the Business and shall not, directly or indirectly,
take any action which directs from the Company any business opportunity within
the scope of the Business, or cause or influence any
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<PAGE> 6
employee, client, supplier, agent, consultant or advisor of the Company to cease
or diminish such party's dealings with the Company. In the event that you
terminate your employment for other than Good Reason, as defined in Section 2.5
hereof, and, as a result, are not entitled to Severance Payments under Section
2.3 hereof, then you shall be bound by the terms of this Section 8 only for the
period of time (not to exceed one year from the date of such termination of
employment) during which the Company pays to you alternative severance pay at a
rate of $5,000 per month, less applicable taxes and other required withholdings
and any amount you may owe to the Company, payable on the first day of each
month commencing the first day of the month next following the date of
termination.
9. REMEDIES. Your duties under Sections 7 and 8 shall survive
termination of your employment with the Company. You acknowledge that a remedy
at law for any breach or threatened breach by you of the provisions of Sections
7 and 8 would be inadequate and you therefore agree that the Company shall be
entitled to injunctive relief in case of any such breach or threatened breach.
10. ASSIGNMENT. This Agreement and the rights and obligations of
the parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or you.
11. INTERPRETATION. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. If moreover, any one or more of the
provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, geographical scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be enforceable to the
extent compatible with the applicable law as it shall then appear.
12. NOTICES. Any notice which the Company is required or may
desire to give to you shall be given to you by personal delivery or registered
or certified mail, return receipt requested, addressed to you at the address of
record with the Company, or at such other place as you may from time to time
designate in writing. Any notice which you are required or may desire to give to
the Company hereunder shall be given by personal delivery or by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing. The date of personal delivery or the dates of mailing any
such notice shall be deemed to be the date of delivery thereof.
-6-
<PAGE> 7
13. WAIVERS. If either party shall waive any breach of any
provision of this Agreement, he or it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.
14. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning hereof.
15. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of Connecticut.
16. COMPLETE AGREEMENT; AMENDMENTS; PRIOR AGREEMENTS. The
foregoing is the entire agreement of the parties with respect to the subject
matter hereof and may not be amended, supplemented, cancelled or discharged
except by written instrument executed by both parties hereto. This Agreement
supersedes any and all prior agreements between the Company and you with respect
to the matters covered hereby.
17. EMPLOYMENT AT WILL STATUS. Nothing contained in this Agreement
shall affect in any manner whatsoever the right or power of the Company, or a
parent or subsidiary of the Company, to terminate your employment, for any
reason, with or without cause.
18. LEGAL FEES. The Company shall pay reasonable legal fees
necessarily incurred by you in connection with the negotiation and execution of
this Agreement up to an amount of $3,000. Such legal fees shall be documented to
the reasonable satisfaction of the Company.
If you are in agreement with the forgoing, please so indicate by
signing and returning the enclosed copy of this letter.
OPEN SOLUTIONS, INC.
By: /s/ Carlos P. Naudon
--------------------------------
Title: Chairman
Accepted and agreed:
/s/ Douglas Anderson
- -------------------------------
Douglas Anderson
-7-
<PAGE> 8
EXHIBIT A
Describe other employment, occupations or business enterprises, in
accordance with paragraph 6.1 of the Agreement to which this Exhibit A is
attached.
[ ] None
[X] See Below
MANAGEMENT OF RENTAL REAL ESTATE
CONSULTING FOR SAVINGS BANK OF MANCHESTER
MEETINGS AS A DIRECTOR OF OUTSIDE COMPANIES
Very truly yours,
/s/ Douglas Anderson
-----------------------------------
Douglas Anderson
/s/ Carlos Naudon
-8-
<PAGE> 9
SCHEDULE 1
COMPENSATION
1. BASE SALARY. The Company shall pay to you for the services to be
rendered under this Agreement a base salary ("Base Salary") at an annual rate of
$120,000 during calendar year 1995. Effective January 1, 1996, your Base Salary
shall increase to an annual rate of $156,000.
2. COMPENSATION REVIEW. Your Base Salary shall be payable in installments
in conformity with the Company's prevailing practice for executives'
compensation as such practice shall be established or modified from time to
time, with such Base Salary to be reviewed annually by the Management Evaluation
Committee of the Board of Directors for years subsequent to calendar year 1996,
and set as deemed appropriate by the Board on a basis consistent with the
Company's prevailing salary review policy, provided, however, that your Base
Salary shall not be less than $156,000 annually subsequent to January 1, 1996.
3. BONUS.
(a) Prior to January 15, 1996, the Company shall pay to you a
$35,000 cash bonus. Such bonus shall be subject to mutually agreed upon
adjustment.
(b) During calendar year 1995, you will be eligible for a $30,000
cash bonus to be paid upon the closing of a financing in which gross proceeds
received by the Company are $3 million or more (the "Financing Bonus"). The
Financing Bonus shall not be increased in the event any such financing or
financings exceed $3 million. The Financing Bonus shall not be payable if the
gross proceeds received by the Company for the financing during calendar year
1995 are less than $3 million.
(c) Beginning on January 1, 1996, you will be eligible to
participate in the Company's Incentive Compensation Plan, as may be amended by
the Board from time to time, targeted at $50,000 annually.
4. VACATION. You shall be entitled to four (4) weeks of vacation per
calendar year of employment covered by the Agreement.
5. LIFE INSURANCE. The Company shall maintain a policy on your life with a
death benefit of at least $300,000, payable to a beneficiary to be named by you.
-9-
<PAGE> 10
SCHEDULE 2
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _______________ hereby sells, assigns and transfers
unto ________________, __________________ (_____) shares of Common Stock of OPEN
SOLUTIONS INC., a Delaware corporation, standing in the undersigned's name on
the books of said corporation represented by Certificate Nos. ____________ and
do hereby irrevocably constitute and appoint ____________ attorney to transfer
the said stock on the books of the said corporation with full power of
substitution in the premises.
Dated: ________________, 19__
Signature: ___________________
-10-
<PAGE> 11
SCHEDULE 3
JOINT ESCROW INSTRUCTIONS
_______________, 19___
Shipman & Goodwin
One American Row
Hartford, CT 06103-2819
ATTN: Frank J. Marco
Dear Sirs:
As Escrow Agent for both Open Solutions Inc., a Delaware corporation,
(the "Company") and Douglas Anderson ("Holder"), you are hereby authorized and
directed to hold the documents delivered to you pursuant to the terms of that
certain Key Employee Agreement ("Agreement"), dated as of _________________,
1995 to which a copy of these Joint Escrow Instructions is attached as Schedule
3, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the "Purchaser") shall
exercise the Purchase Option set forth in the Agreement, the Purchase shall give
to Holder and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing thereunder at the
principal office of the Purchaser. Holder and the Purchaser hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with certificate evidencing
the shares of stock to be transferred, to the Company against the simultaneous
delivery to you of the purchase price (by check) for the number of shares of
stock being purchased pursuant to the exercise of the Purchase Option.
3. Holder irrevocable authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as referred to in the Agreement.
Holder does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and complete any transaction herein
-11-
<PAGE> 12
contemplated, including but not limited to any appropriate filing with state
securities officials. Subject to the provisions of this paragraph 3, Holder
shall exercise all rights and privileges of a shareholder of the Company while
the stock is held by you.
4. This escrow shall terminate on September 30, 1999.
5. If at the time of termination of this escrow you should have
in your possession any documents, securities, or other property belonging to
Holder, you shall deliver all of same to Holder and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties
as are specifically set forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed by you
to be genuine and to have been signed or presented by the proper party or
parties. You shall not be liable to any party by reason of any error of judgment
or for any act done or step taken or omitted by you or for any mistake of fact
or law, or for anything which you may do or refrain from doing in connection
herewith, unless caused by or arising from your own gross negligence or willful
misconduct.
8. You are hereby expressly authorized to disregard any and all
warnings given by either of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court, you shall not be liable to either of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under
the Statute of Limitations with respect to these Joint Escrow Instructions on
any documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall
terminate if you shall cease to be counsel to the Company or if you shall resign
by written notice to each party.
-12-
<PAGE> 13
In the event of any such termination, the Company shall appoint your successor
as counsel to the Company as successor Escrow Agent.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings. At your option, you shall have the right in the event of
any claim against you arising out of this Agreement to deposit all of the
securities, funds and other documents held by you pursuant hereto in any court
and to institute an inter-pleader proceeding, whereupon you shall be relieved of
all liabilities and obligations hereunder.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses, or at such other addresses as a party may
designate by ten (10) days' advance written notice to each of the other parties
hereto.
COMPANY: OPEN SOLUTIONS INC.
49 Welles Street, Suite 212
Glastonbury, CT 06033
HOLDER: To the address set forth in the Key Employee
Agreement or any other address for notices
pursuant thereto
-13-
<PAGE> 14
ESCROW AGENT: Shipman & Goodwin
One American Row
Hartford, CT 06103-2819
Attn: Frank J. Marco, Esq.
(203) 251-5939
15. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
16. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder; you may rely upon the advice of such counsel, and you may
pay such counsel reasonable compensation therefor. The Company will pay all fees
(at your standard hourly rates) and reasonable out-of-pocket expenses under
these Joint Escrow Instructions.
17. This instrument shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
Very truly yours,
OPEN SOLUTIONS INC.
By: /s/ Carlos P. Naudon
-------------------------------------
/s/ Carlos P. Naudon
Title: Chairman
HOLDER:
/s/ Douglas Anderson
-------------------------------------
Douglas Anderson
ESCROW AGENT
Shipman & Goodwin
By:
-------------------------------------
-14-
<PAGE> 15
OPEN SOLUTIONS, INC.
AMENDMENT
TO
KEY EMPLOYEE AGREEMENT
THIS AMENDMENT to that certain Key Employee Agreement entered into by
and between Douglas Anderson ("Employee") and Open Solutions, Inc., a Delaware
corporation (the "Company") on October 2, 1995 (the "Employment Agreement") is
made this 21st day of July, 1997.
In consideration of the mutual promises and agreements contained
herein, the parties agree as follows:
1. All terms not defined herein shall have the meanings ascribed
to them in the Employment Agreement.
2. Item 1 of Schedule 1 to the Employment Agreement is amended by
adding the following: "Effective January 1, 1997, your Base Salary shall
increase to an annual rate of $175,000."
3. New Item 1A is hereby added to Schedule 1 to the Employment
Agreement as follows:
1A. SUPPLEMENTAL COMPENSATION. The Company shall pay to you for
the services to be rendered under this Agreement supplemental
compensation ("Supplemental Compensation") of $40,000 in 1997 and
$60,000 in 1998.
4. Item 2 of Schedule 1 to the Employment Agreement is amended to
read in its entirety as follows:
2. COMPENSATION REVIEW. Your Base Salary shall be payable in
installments in conformity with the Company's prevailing practice for
executives' compensation as such practice shall be established or
modified from time to time, with such Base Salary to be reviewed
annually by the Management Evaluation Committee of the Board of
Directors for years subsequent to calendar year 1997, and set as deemed
appropriate by the Board on a basis consistent with the Company's
prevailing salary review policy; provided, however, that your Base
Salary shall not be less than $175,000 annually subsequent to January
1, 1997.
<PAGE> 16
5. Item 3 of Schedule 1 to the Employment Agreement is amended to
add the following new subsections (d) and (e):
(d) You will receive a bonus under the Company's Incentive
Compensation Plan of $50,000 upon achievement of performance at 100% of
targets, with a maximum of $75,000 for performance above targets.
(e) You are eligible to participate in the Company's Incentive
Compensation Plan Net Income Bonus.
6. New Item 6 is hereby added to Schedule 1 to the Employment
Agreement as follows:
6. PREPARATION OF TAX RETURNS. The Company's accountants shall
prepare, at Company expense, your federal and state personal income tax
returns that become due during the term of this Agreement.
7. Section 4.1 of the Employment Agreement is amended to
substitute "175,000 shares" for "350,000 shares."
8. Section 4.2 of the Employment Agreement is amended to read in
its entirety as follows:
In addition to the compensation set forth on Schedule 1, on
the date of execution of this Amendment, the Company shall issue to you
an Incentive Stock Option under the Company's 1994 Stock Option Plan to
purchase 175,000 shares of the Common Stock of the Company, par value
$.01 per share, at an exercise price of $.45 per share (the "Option").
The Option shall be subject to vesting as follows: (i) 84,722 shares
immediately and (ii) 1/26 of the remaining 90,278 shares for each and
every full month that has elapsed between July 1, 1997 and August 31,
1999.
9. Section 4.3 of the Employment Agreement is amended to read in
its entirety as follows:
In addition to the compensation set forth on Schedule 1, on
the date of execution of this Amendment, the Company shall issue to you
an Incentive Stock Option under the Company's 1994 Stock Option Plan to
purchase 20,000 shares of the Common Stock of the Company, par value
$.01 per share, at an exercise price of $.45 per share, subject to
vesting in accordance with the Company's customary vesting schedule.
-2-
<PAGE> 17
10. Sections 4.4, 4.5 and 5 of the Employment Agreement are
deleted in their entirety.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
amendment as of the date first written above.
OPEN SOLUTIONS, INC.
By: /s/ Carlos P. Naudon
----------------------------------
Carlos P. Naudon
Its: Chairman
/s/ Douglas Anderson
----------------------------------
Douglas Anderson
-3-
<PAGE> 1
Exhibit 10.12
EMPLOYMENT AGREEMENT
AGREEMENT dated and effective the 2nd day of January 1993, between Open
Solutions Inc., a Delaware corporation, with a place of business at 330 Merline
Road, Vernon, Connecticut 06066 ("Employer") and Graham Gurney, individually,
with a residence at 64 Davids Way, Bedford Hills, New York ("Employee").
WHEREAS, the Employee has various business skills, including skills
relating to the development of data processing software and Employee desires to
apply such skills for the benefit of Employer; and
NOW, THEREFORE, base upon the mutual covenants contained herein and
other good and valuable consideration, intending to be legally bound, the
parties hereto agree as follows:
SECTION I SCOPE OF AGREEMENT & TERM
Employer hereby employs Employee and Employee hereby accepts such
employment on the terms and conditions set forth in this AGREEMENT beginning
January 2, 1993 and continuing thereafter on a month to month basis unless
terminated or cancelled as provided for in this AGREEMENT.
SECTION II DUTIES OF EMPLOYEE
Employee shall perform services for Employer as requested by Employer
and will diligently perform such services rendering Employee's best efforts in
the performance of such services.
SECTION III DUTIES OF EMPLOYER
Employer shall compensate Employee, reimburse Employee's expenses, and
provide such other benefits to Employee as may be stipulated in Schedule A to
this AGREEMENT. All applicable laws, rules and regulations shall be adhered to
by Employer and Employee.
SECTION IV RESTRICTIONS ON EMPLOYEE
Due to the special nature of the contribution, of Employee to Employer,
Employee agrees that Employee shall not, directly or indirectly, as a current or
former employee of Employer, for a period of two (2) years from the date such
employee status ends for any reason, directly or indirectly, compete with
Employer in the business which Employer is engaged, that being the development
and marketing of a client server banking package. Furthermore, during this
period of time Employee agrees not to, directly or indirectly, engage in any
other business venture,
<PAGE> 2
as an employee, a proprietor or otherwise an interested party, which competes
with the business which Employer is engaged, in or develop or market a
competitive or like product or service to any product or service offered by
Employer in such business and shall not, directly or indirectly, take any action
which directs from Employer any business opportunity within the scope of such
business of Employer nor cause or influence any employee, client, supplier,
agent, consultant or advisor of Employer to cease or diminish such party's
dealings with Employer. The AGREEMENT and all information regarding the
AGREEMENT, including, the terms and content thereof and the negotiation
therefore, shall not be disclosed by Employee or Employer except to the extent
required by law.
SECTION V PROPRIETARY INFORMATION &
CONFIDENTIALITY & PROTECTION OF PROPERTY
All material and information of Employer shall remain property of
Employer. Employee hereby irrevocably and unconditionally transfers and assigns
to Employer and Employer shall retain, all right, title and interest in material
or information, including software and all code and documentation relating
thereto, generated or provided to Employer by Employee, either jointly or
separately with Employer, whether heretofore or hereafter generated, including
all copyrightable and patentable works. Employee agrees not to use or disclose,
publish, release, transfer, or otherwise make available to any third party, any
material or information of the Employer including, any work created by Employer,
and Employee acknowledges that such material and information constitute a
valuable asset of Employer. Employee agrees not to remove any property from
Employer's premises without the express prior written consent of Employer.
This provision shall not be construed as restricting Employee from
engaging in other creative activities, such as the writing of a magazine
article, provided Employee otherwise honors the provisions of this AGREEMENT.
SECTION VI EMPLOYER'S RIGHTS
Employee acknowledges that the restrictions and limitations imposed
hereby upon Employee are reasonable in light of the opportunity presented by
this AGREEMENT and the express benefits conferred upon Employee by this
AGREEMENT. Employee agrees that Employer has a legitimate interest in fully
protecting: (i) Employer's proprietary material and information, (ii) Employer's
relationships with Employer's clients and suppliers and other parties, and (iii)
Employer's position in the marketplace.
-2-
<PAGE> 3
SECTION VII TERMINATION AND CANCELLATION
This Agreement is subject to termination by either party for
convenience upon fifteen (15) days prior written notice from one party to the
other party. This AGREEMENT is subject to cancellation by either party upon
prior written notice to the other party in the event the other party has
breached a material provision of this AGREEMENT. THE PAYMENT, NON-COMPETITION,
CONFIDENTIALITY AND PROPRIETARY RIGHTS PROVISIONS OF THIS AGREEMENT SHALL
SURVIVE THE TERMINATION OR CANCELLATION OF THIS AGREEMENT.
SECTION VIII GENERAL PROVISIONS
Neither party may assign, subcontract, delegate, or otherwise transfer
any part of this AGREEMENT without the express written consent of the other
party.
This AGREEMENT constitutes the entire understanding and AGREEMENT
between the parties with respect to its subject matter, all agreements,
understandings, representations, proposals, course of dealing, course of
performance or usage of trade, statements and negotiations to the contrary
notwithstanding.
No amendment to this AGREEMENT shall be effective unless it is in
writing and signed by Employer and Employee. All notices shall be in writing and
addressed to the parties at the addresses set forth above. No term hereof shall
be deemed waived and no breach excused unless such waiver or consent shall be in
writing and signed by the party against whom waiver or consent is claimed The
terms and conditions hereof supplement and do not replace or modify all laws,
regulations and rules otherwise applicable to employment.
This AGREEMENT shall be deemed to have been made in the State of New
Jersey and shall be governed and construed in accordance with the local laws of
the State of New Jersey. The sole and exclusive forum for the determination of
any claims asserted or causes of action based on or arising out of this
AGREEMENT shall be the state and federal courts located in the State of New
Jersey and the parties expressly submit to the jurisdiction thereof.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereby execute this AGREEMENT.
Accepted and Agreed: Accepted and Agreed:
OPEN SOLUTIONS INC. GRAHAM GURNEY
By: /s/ Clifford I. Waggoner By: /s/ Graham Gurney
------------------------------ ------------------------------
Name: Clifford I. Waggoner Name: Graham Gurney
Title: President
Date: January 2, 1993 Date: January 2, 1993
The AGREEMENT is hereby unanimously ratified and approved by the members of the
Board of Directors and shareholders of Employer as set forth herein.
-4-
<PAGE> 5
OPEN SOLUTIONS INC.
UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS
DATE: JANUARY 2, 1993
RESOLVED, The employment AGREEMENT between OPEN SOLUTIONS
INC. and Graham Gurney is hereby unanimously ratified and approved by all
members of the Employer's Board of Directors.
By: /s/ Clifford I. Waggoner
------------------------------------
Clifford I. Waggoner, Chairman
Board of Directors
By: /s/ Arnold Pelligrinelli
------------------------------------
Arnold Pelligrinelli, Member
Board of Directors
By: /s/ Paul Rothstein
------------------------------------
Paul Rothstein, Member
Board of Directors
By: /s/ Glenn A. Field
------------------------------------
Glenn A. Field, Member
Board of Directors
By: /s/ Graham Gurney
------------------------------------
Graham Gurney, Member
Board of Directors
<PAGE> 6
OPEN SOLUTIONS INC.
UNANIMOUS CONSENT OF SHAREHOLDERS
DATE: JANUARY 2, 1993
RESOLVED, The employment AGREEMENT between OPEN SOLUTIONS
INC. and Graham Gurney is hereby unanimously ratified and approved by all the
shareholders of Employer.
By: /s/ Graham Gurney
------------------------------------
Graham Gurney
By: /s/ Arnold Pelligrinelli
------------------------------------
Arnold Pelligrinelli
By: /s/ Paul Rothstein
------------------------------------
Paul Rothstein
By: /s/ Clifford Waggoner
------------------------------------
Clifford Waggoner
By: /s/ Glenn A. Field
------------------------------------
Glenn A. Field
<PAGE> 7
SCHEDULE A
SALARY. All services rendered by Employee pursuant to this AGREEMENT,
both during and outside of normal working hours, shall be without compensation.
EXPENSES. An expense account will be maintained by Employer for
Employee, pursuant to which, Employee shall be reimbursed by Employer for all
reasonable and customary out of pocket expenses, actually incurred by Employee
in the conduct of Employer's business, based upon full and complete itemized
vouchers, submitted promptly in accordance with Employer's procedures.
OTHER BENEFITS. At Employer's sole expense, (except as to any benefits
for which an Employee contribution is standard policy of Employer) Employee will
receive health insurance, and other benefits regularly offered by Employer to
all other employees of Employer.
BONUS PROVISION. This bonus provision applies only in the event
Employer pays, in whole or in part, a certain deferred payment obligation to
Prince-Roth Information Systems Management, Inc. ("PRISM") pursuant to a certain
Professional Services AGREEMENT between Employer and PRISM of the 1st day of
July 1992, in which event Employee shall receive, one third (1/3) of the amount
paid by Employer to PRISM for each such payment, as a bonus payment, payable in
the calendar year in which the deferred payment obligation of Employer to PRISM
is paid.
<PAGE> 8
EMPLOYMENT AGREEMENT MODIFICATION #1
The AGREEMENT dated and effective the 2nd day of January 1993, between
Open Solutions Inc., a Delaware corporation, with a place of business at 330
Merline Road, Vernon, Connecticut 06066 ("Employer") and Graham Gurney,
individually, with a residence at 64 Davids Way, Bedford Hills, New York
("Employee") is modified as follows:
Schedule A is modified such that the reference to one third (1/3) in
the Bonus Provision thereof shall read one half (1/2).
IN WITNESS WHEREOF, the parties hereby execute this AGREEMENT.
Accepted and Agreed: Accepted and Agreed:
OPEN SOLUTIONS INC. GRAHAM GURNEY
By: /s/ Clifford I. Waggoner By: /s/ Graham Gurney
------------------------------ ------------------------------
Name: Clifford I. Waggoner Name: Graham Gurney
Title: President
Date: January 15, 1993 Date: January 15, 1993
<PAGE> 9
OPEN SOLUTIONS INC.
UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS
DATE: JANUARY 15, 1993
RESOLVED, The employment AGREEMENT between OPEN SOLUTIONS INC. and
Graham Gurney is hereby unanimously ratified and approved by all members of
Employer's Board of Directors as modified:
By: /s/ Clifford I. Waggoner
------------------------------------
Clifford I. Waggoner, Chairman
Board of Directors
By: /s/ Arnold Pelligrinelli
------------------------------------
Arnold Pelligrinelli, Member
Board of Directors
By: /s/ Paul Rothstein
------------------------------------
Paul Rothstein, Member
Board of Directors
By: /s/ Glenn A. Field
------------------------------------
Glenn A. Field, Member
Board of Directors
By: /s/ Graham Gurney
------------------------------------
Graham Gurney, Member
Board of Directors
<PAGE> 10
OPEN SOLUTIONS INC.
UNANIMOUS CONSENT OF SHAREHOLDERS
DATE: JANUARY 15, 1993
RESOLVED, The employment AGREEMENT between OPEN SOLUTIONS INC. and
Graham Gurney is hereby unanimously ratified and approved by all the
shareholders of Employer as modified.
By: /s/ Graham Gurney
------------------------------------
Graham Gurney
By: /s/ Arnold Pelligrinelli
------------------------------------
Arnold Pelligrinelli
By: /s/ Paul Rothstein
------------------------------------
Paul Rothstein
By: /s/ Clifford Waggoner
------------------------------------
Clifford Waggoner
By: /s/ Glenn A. Field
------------------------------------
Glenn A. Field
<PAGE> 11
EMPLOYMENT AGREEMENT MODIFICATION #2
The AGREEMENT dated and effective the 2nd day of January 1994, between Open
Solutions Inc., a Delaware Corporation, with a place of business at 330 Merline
Road, Vernon, Connecticut 06066 ("Employer") and Graham Gurney,
individually, with a residence at 64 Davids Way, Bedford Hills ("Employee") is
modified as follows:
Schedule A is modified such that the bonus provisional thereof is
permanently deleted as of the original effective date of the AGREEMENT and
Employee shall not be entitled to and OSI shall not be required to pay any bonus
payment of other bonus compensation thereunder, notwithstanding any payment by
Employer to Prince-Roth Information Systems, Management, Inc., T/A "PRISM".
Schedule A is modified such that the annual salary to by paid by Employer
to Employee shall be increased to $100,000.00.
IN WITNESS WHEREOF, the parties hereby execute this AGREEMENT.
Accepted and Agreed: Accepted and Agreed:
OPEN SOLUTIONS INC. GRAHAM GURNEY
By: /s/ Clifford I. Waggoner By: /s/ Graham Gurney
------------------------ ------------------------
Name: Clifford I. Waggoner Name: Graham Gurney
---------------------- ----------------------
Title: President January 27, 1994
---------------------- Date: ----------------------
Date: January 27, 1994
----------------------
<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT
AGREEMENT dated and effective the 2nd day of January 1993, between Open
Solutions Inc., a Delaware Corporation, with a place of business at 330 Merline
Road, Vernon, Connecticut 06066 ("Employer") and Clifford I. Waggoner,
individually, with a residence at 19 Horseshoe Drive, East Granby, Connecticut
06026 ("Employee").
WHEREAS, the Employee has various business skills, including skills
relating to the development of data processing software and Employee desires to
apply such skills for the benefit of Employer; and
NOW, THEREFORE, based upon the mutual covenants contained herein and
other good and valuable consideration, intending to be legally bound, the
parties hereto agree as follows:
SECTION I SCOPE OF AGREEMENT & TERM
Employer hereby employs Employee and Employee hereby accepts such
employment on the terms and conditions set forth in this AGREEMENT beginning
January 2, 1993 and continuing thereafter on a month to month basis where
terminated or cancelled as provided for in this AGREEMENT.
SECTION II DUTIES OF EMPLOYEE
Employee shall perform services for Employer as requested by Employer
and will diligently perform such services rendering Employee's best efforts in
the performance of such services.
SECTION III DUTIES OF EMPLOYER
Employer shall compensate Employee, reimburse Employee's expenses, and
provide such other benefits to Employee as may be stipulated in Schedule A to
this AGREEMENT. All applicable laws, rules and regulations shall be adhered to
by Employer and Employee.
SECTION IV RESTRICTIONS ON EMPLOYEE
Due to the special nature of the contribution, of Employee to Employer,
Employee agrees that Employee shall not, directly or indirectly, as a current or
former employee of Employer, for a period of two (2) years from the date such
employee status ends for any reason, directly or indirectly, compete with
Employer in the business which Employer is engaged, that being the development
and marketing of a client server banking package. Furthermore, during this
period of time Employee agrees not to, directly or indirectly, engage in any
other business venture,
<PAGE> 2
as an employee, a proprietor or otherwise an interested party, which competes
with the business which Employer is engaged, in or develop or market a
competitive or like product or service to any product or service offered by
Employer in such business and shall not, directly or indirectly, take any action
which directs from Employer any business opportunity within the scope of such
business of Employer nor cause or influence any employee, client, supplier,
agent, consultant or advisor of Employer to cease or diminish such party's
dealings with Employer. The AGREEMENT and all information regarding the
AGREEMENT, including, the terms and content thereof and the negotiation
therefore, shall not be disclosed by Employee or Employer except to the extent
required by law.
SECTION V PROPRIETARY INFORMATION &
CONFIDENTIALITY & PROTECTION OF PROPERTY
All material and information of Employer shall remain property of
Employer. Employee hereby irrevocably and unconditionally transfers and assigns
to Employer and Employer shall retain, all right, title and interest in material
or information, including software and all code and documentation relating
thereto, generated or provided to Employer by Employee, either jointly or
separately with Employer, whether heretofore or hereafter generated, including
all copyrightable and patentable works. Employee agrees not to use or disclose,
publish, release, transfer, or otherwise make available to any third party, any
material or information of the Employer including, any work created by Employer,
and Employee acknowledges that such material and information constitute a
valuable asset of Employer. Employee agrees not to remove any property from
Employer's premises without the express prior written consent of Employer.
This provision shall not be construed as restricting Employee from
engaging in other creative activities, such as the writing of a magazine
article, provided Employee otherwise honors the provisions of this AGREEMENT.
SECTION VI EMPLOYER'S RIGHTS
Employee acknowledges that the restrictions and limitations imposed
hereby upon Employee are reasonable in light of the opportunity presented by
this AGREEMENT and the express benefits conferred upon Employee by this
AGREEMENT. Employee agrees that Employer has a legitimate interest in fully
protecting: (i) Employer's proprietary material and information, (ii) Employer's
relationships with Employer's clients and suppliers and other parties, and (iii)
Employer's position in the marketplace.
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SECTION VII TERMINATION AND CANCELLATION
This Agreement is subject to termination by either party for
convenience upon fifteen (15) days prior written notice from one party to the
other party. This AGREEMENT is subject to cancellation by either party upon
prior written notice to the other party in the event the other party has
breached a material provision of this AGREEMENT. THE PAYMENT, NON-COMPETITION,
CONFIDENTIALITY AND PROPRIETARY RIGHTS PROVISIONS OF THIS AGREEMENT SHALL
SURVIVE THE TERMINATION OR CANCELLATION OF THIS AGREEMENT.
SECTION VIII GENERAL PROVISIONS
Neither party may assign, subcontract, delegate, or otherwise transfer
any part of this AGREEMENT without the express written consent of the other
party.
This AGREEMENT constitutes the entire understanding and AGREEMENT
between the parties with respect to its subject matter, all agreements,
understandings, representations, proposals, course of dealing, course of
performance or usage of trade, statements and negotiations to the contrary
notwithstanding.
No amendment to this AGREEMENT shall be effective unless it is in
writing and signed by Employer and Employee. All notices shall be in writing and
addressed to the parties at the addresses set forth above. No term hereof shall
be deemed waived and no breach excused unless such waiver or consent shall be in
writing and signed by the party against whom waiver or consent is claimed. The
terms and conditions hereof supplement and do not replace or modify all laws,
regulations and rules otherwise applicable to employment.
This AGREEMENT shall be deemed to have been made in the State of New
Jersey and shall be governed and construed in accordance with the local laws of
the State of New Jersey. The sole and exclusive forum for the determination of
any claims asserted or causes of action based on or arising out of this
AGREEMENT shall be the state and federal courts located in the State of New
Jersey and the parties expressly submit to the jurisdiction thereof.
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereby execute this AGREEMENT.
Accepted and Agreed: Accepted and Agreed:
OPEN SOLUTIONS INC. CLIFFORD I. WAGGONER
By: /s/ Clifford I. Waggoner By: /s/ Clifford I. Waggoner
------------------------------ -------------------------------
Name: Clifford I. Waggoner Name: Clifford I. Waggoner
Title: President
Date: January 2, 1992 Date: January 2, 1992
/s/ Paul Rothstein, Director
The AGREEMENT is hereby unanimously ratified and approved by the members of the
Board of Directors and shareholders of Employer as set forth herein.
<PAGE> 5
OPEN SOLUTIONS INC.
UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS
DATE: JANUARY 2, 1993
RESOLVED, The employment AGREEMENT between OPEN SOLUTIONS INC. and
Clifford I. Waggoner is hereby unanimously ratified and approved by all members
of Employer's Board of Directors.
By: /s/ Clifford I. Waggoner
------------------------------------
Clifford I. Waggoner, Chairman
Board of Directors
By: /s/ Arnold Pelligrinelli
------------------------------------
Arnold Pelligrinelli, Member
Board of Directors
By: /s/ Paul Rothstein
------------------------------------
Paul Rothstein, Member
Board of Directors
By: /s/ Glenn A. Field
------------------------------------
Glenn A. Field, Member
Board of Directors
By: /s/ Graham Gurney
------------------------------------
Graham Gurney, Member
Board of Directors
<PAGE> 6
OPEN SOLUTIONS INC.
UNANIMOUS CONSENT OF SHAREHOLDERS
DATE: JANUARY 2, 1993
RESOLVED, The employment AGREEMENT between OPEN SOLUTIONS INC. and
Clifford I. Waggoner is hereby unanimously ratified and approved by all
shareholders of Employer.
By: /s/ Graham Gurney
------------------------------
Graham Gurney
By: /s/ Arnold Pelligrinelli
------------------------------
Arnold Pelligrinelli
By: /s/ Paul Rothstein
------------------------------
Paul Rothstein
By: /s/ Clifford I. Waggoner
------------------------------
Clifford I. Waggoner
By: /s/ Glenn A. Field
------------------------------
Glenn A. Field
<PAGE> 7
SCHEDULE A
SALARY. For all services rendered by Employee pursuant to this
AGREEMENT, both during and outside of normal working hours, Employer will pay to
the Employee annual salary of $60,000.00. Salary shall be paid in arrears at
regular bi-weekly intervals.
EXPENSES. An expense account will be maintained by Employer for
Employee, pursuant to which, Employee shall be reimbursed by Employer for all
reasonable and customary out of pocket expenses, actually incurred by Employee
in the conduct of Employer's business, based upon full and complete itemized
vouchers, submitted promptly in accordance with Employer's procedures.
OTHER BENEFITS. At Employer's sole expense, (except as to any benefits
for which an Employee contribution is standard policy of Employer) Employee will
receive health insurance, and other benefits regularly offered by Employer to
all other employees of Employer.
BONUS PROVISION. This bonus provision applies only in the event
Employer pays, in whole or in part, a certain deferred payment obligation to
Prince-Roth Information Systems Management, Inc. ("PRISM") pursuant to a certain
Professional Services AGREEMENT between Employer and PRISM of the 1st day of
July 1992, in which event Employee shall receive, one third (1/3) of the amount
paid by Employer to PRISM for each such payment, as a bonus payment, payable in
the calendar year in which the deferred payment obligation of Employer to PRISM
is paid.
<PAGE> 8
EMPLOYMENT AGREEMENT MODIFICATION #1
The AGREEMENT dated and effective the 2nd day of January 1993, between
Open Solutions Inc., a Delaware Corporation, with a place of business at 330
Merline Road, Vernon, Connecticut 06066 ("Employer") and Clifford I. Waggoner
individually, with a residence at 19 Horseshoe Drive, East Granby, Connecticut
06026 ("Employee") is modified as follows:
Schedule A is modified such that the reference to one third (1/3) in
the Bonus Provision thereof shall read one half (1/2).
IN WITNESS WHEREOF, the parties hereby execute this AGREEMENT.
Accepted and Agreed: Accepted and Agreed:
OPEN SOLUTIONS INC. CLIFFORD I. WAGGONER
By: /s/ Clifford I. Waggoner By: /s/ Clifford I. Waggoner
------------------------------ -------------------------------
Name: Clifford I. Waggoner Name: Clifford I. Waggoner
Title: President
Date: January 15, 1992 Date: January 15, 1992
<PAGE> 9
OPEN SOLUTIONS INC.
UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS
DATE: JANUARY 15, 1993
RESOLVED, The employment AGREEMENT between OPEN SOLUTIONS INC. and
Clifford I. Waggoner is hereby unanimously ratified and approved by all members
of Employer's Board of Directors as modified.
By: /s/ Clifford I. Waggoner
------------------------------------
Clifford I. Waggoner, Chairman
Board of Directors
By: /s/ Arnold Pelligrinelli
------------------------------------
Arnold Pelligrinelli, Member
Board of Directors
By: /s/ Paul Rothstein
------------------------------------
Paul Rothstein, Member
Board of Directors
By: /s/ Glenn A. Field
------------------------------------
Glenn A. Field, Member
Board of Directors
By: /s/ Graham Gurney
------------------------------------
Graham Gurney, Member
Board of Directors
<PAGE> 10
OPEN SOLUTIONS INC.
UNANIMOUS CONSENT OF SHAREHOLDERS
DATE: JANUARY 15, 1993
RESOLVED, The employment AGREEMENT between OPEN SOLUTIONS INC. and
Clifford I. Waggoner is hereby unanimously ratified and approved by all the
shareholders of Employer as modified.
By: /s/ Graham Gurney
------------------------------------
Graham Gurney
By: /s/ Arnold Pelligrinelli
------------------------------------
Arnold Pelligrinelli
By: /s/ Paul Rothstein
------------------------------------
Paul Rothstein
By: /s/ Clifford I. Waggoner
------------------------------------
Clifford I. Waggoner
By: /s/ Glenn A. Field
------------------------------------
Glenn A. Field
<PAGE> 11
EMPLOYMENT AGREEMENT MODIFICATION #2
The AGREEMENT dated and effective the 2nd day of January 1994, between Open
Solutions Inc., a Delaware Corporation, with a place of business at 330 Merline
Road, Vernon, Connecticut 06066 ("Employer") and Clifford I. Waggoner,
individually, with a residence at 19 Horseshore Drive, East Granby, Connecticut
06026 ("Employee") is modified as follows:
Schedule A is modified such that the bonus provisional thereof is
permanently deleted as of the original effective date of the AGREEMENT and
Employee shall not be entitled to and OSI shall not be required to pay any bonus
payment of other bonus compensation thereunder, notwithstanding any payment by
Employer to Prince-Roth Information Systems, Management, Inc., T/A "PRISM".
Schedule A is modified such that the annual salary to by paid by Employer
to Employee shall be increased to $100,000.00.
IN WITNESS WHEREOF, the parties hereby execute this AGREEMENT.
Accepted and Agreed: Accepted and Agreed:
OPEN SOLUTIONS INC. CLIFFORD I. WAGGONER
By: /s/ Clifford I. Waggoner By: /s/ Clifford I. Waggoner
------------------------ ------------------------
Name: Clifford I. Waggoner Name: Clifford I. Waggoner
---------------------- ----------------------
Title: President Date: January 27, 1994
---------------------- ----------------------
Date: January 27, 1994
----------------------
<PAGE> 1
Exhibit 10.18
AGREEMENT
WHEREAS, Open Solutions Inc., a corporation formed under the laws of
the State of Delaware with its principal place of business at 300 Winding Brook
Drive, Glastonbury, Connecticut ("OSI"); and
WHEREAS, Banking Spectrum, Inc., along with its affiliated corporation
Banking Spectrum Services, Inc., are corporations formed under the laws of the
State of New York each having a principal place of business at 57 West 38th
Street, New York, NY 10018, hereinafter jointly ("BS"); and
WHEREAS, OSI and BS entered into a Support & Services Agreement
originally dated January 21, 1994 and Amendment No. 1 dated August 29, 1995
(together the "SSA"); and
WHEREAS, pursuant to the SSA, BS was to provide OSI banking regulatory
information and services including The Gold Book in computerized format to be
offered with OSI's The Complete Banking Solution and related Add-On Banking
Modules; and
WHEREAS, pursuant to the SSA, OSI was to pay certain royalties and fees
to BS for consulting, licenses and support services; and
WHEREAS, certain issues have arisen regarding OSI's and BS's
respective rights and obligations under the SSA which issues OSI and BS have
mutually agreed to resolve by entering into this agreement (the "Agreement") and
the Distribution Agreement and Non-Statutory Stock Option Agreement attached
hereto; and
WHEREAS, the parties now desire that the SSA be terminated and that
this Agreement and the Distribution Agreement and the Non-Statutory Stock Option
Agreement, to be executed simultaneously herewith, shall govern the parties'
business relationship and dealings from the date of this Agreement forward.
NOW, THEREFORE, in consideration of the simultaneous, mutual and
reciprocal releases exchanged by the parties hereto, the mutual promises and
covenants of the parties hereto contained in this Agreement, and in resolving
the issues relating to the SSA, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Upon execution of this Agreement, OSI will pay BS the sum of One
Hundred Thousand Dollars ($100,000.00) as payment in full for any and all
consulting services provided by BS to OSI, at any time prior hereto, and any
royalties claimed to be due to BS pursuant to the SSA or for any other reason;
and
<PAGE> 2
2. OSI and BS will simultaneously with the execution of this
Agreement execute a Non-Statutory Stock Option Agreement in a form identical to
the Non-Statutory Stock Option Agreement attached hereto as Exhibit A; and
3. Simultaneously with the execution of this Agreement, BS will
execute a Distribution Agreement in a form identical to the Distribution
Agreement attached hereto as Exhibit B; and
4. Notwithstanding any provision in the SSA to the contrary,
including without limitation any provisions that survive termination or
cancellation of the SSA, except those provisions of the SSA regarding both OSI's
and BS's obligations to protect the confidentiality of OSI's and BS's
confidential, proprietary and/or trade secret information, the parties hereto
agree that the parties' rights, obligations and liabilities pursuant to the SSA
are hereby extinguished and the SSA is terminated by the execution of this
Agreement; and
5. The parties acknowledge and agree that the terms of this
Agreement and the Distribution Agreement and Non-Statutory Stock Option
Agreement shall govern the business dealings between the parties from the date
of this Agreement forward; and
6. Banking Spectrum, Inc. does hereby remise, release and forever
discharge and by these presents does for its parents, subsidiaries, affiliates,
divisions, subdivisions and any and all related entities, heirs, executors,
administrators, successors and assigns, remise, release and forever discharge,
OSI and any of its heirs, executives, administrators, predecessors, successors,
assigns, parents, subsidiaries, subdivisions, affiliated or related entities,
past, present or future officers, directors, shareholders, agents, servants,
employees, attorneys or representatives from any and all action or actions,
cause and causes of action, suits, debts, dues, sums of money, accounts
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims or demands whatsoever in law or in equity, under federal and
state constitutions, statutes, laws, ordinances or regulations, or under common
law, whether known or unknown, foreseen or unforeseen, which Banking Spectrum,
Inc. ever had, now has, or, with regard to the SSA shall hereafter have or
discover, including but not limited to any such claims in connection with or in
any way relating to or arising out of the SSA; and
7. Banking Spectrum Services, Inc. does hereby remise, release and
forever discharge and by these presents does for its parents, subsidiaries,
affiliates, divisions, subdivisions and any and all related entities, heirs,
executors, administrators, successors and assigns, remise, release and forever
discharge, OSI and any of its heirs, executives, administrators, predecessors,
successors, assigns, parents, subsidiaries, subdivisions, affiliated or related
entities, past, present or future officers,
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<PAGE> 3
directors, shareholders, agents, servants, employees, attorneys or
representatives from any and all action or actions, cause and causes of action,
suits, debts, dues, sums of money, accounts reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims or
demands whatsoever in law or in equity, under federal and state constitutions,
statutes, laws, ordinances or regulations, or under common law, whether known or
unknown, foreseen or unforeseen, which Banking Spectrum Services, Inc. ever had,
now has, or, with regard to the SSA shall hereafter have or discover, including
but not limited to any such claims in connection with or in any way relating to
or arising out of the SSA; and
8. OSI does hereby remise, release and forever discharge and by
these presents does for its heirs, executors, administrators, successors and
assigns, remise, release and forever discharge BS, and each of them, and any of
their heirs, executors, administrators, predecessors, successors, assigns,
parents, subsidiaries, subdivisions, affiliated or related entities, past,
present or future officers, directors, shareholders, agents, servants,
employees, attorneys or representatives, from any and all action or actions,
cause and causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims and demands whatsoever in law or in equity, under federal and
state constitutions, statutes, laws, ordinances or regulations, or under common
law, whether known or unknown, foreseen or unforeseen, which OSI ever had, now
has, or, with regard to the SSA shall hereafter have or discover, including but
not limited to any such claims in connection with or in any way relating to or
arising out of the SSA; and
9. The parties expressly acknowledge that this Agreement is being
made as a compromising settlement of disputed claims; that the execution of and
compliance with this Agreement including any consideration paid in furtherance
of the releases is not and shall not be construed to be an admission by any
party of any liability or obligation whatsoever; and that the parties to this
Agreement expressly deny any fault or liability on their part; that the parties
hereto shall not seek to utilize or assert this Agreement or any consideration
paid in furtherance of this Agreement as an admission in connection with any
proceeding, action or claim; and
10. The parties hereto enter into this Agreement solely to avoid the
time, burden and expense of a protracted dispute; and
11. The parties hereto affirmatively state that they have carefully
read this entire Agreement, including the Non-Statutory Stock Option Agreement
attached hereto as Exhibit A and the Distribution Agreement attached hereto as
Exhibit B, that their attorneys have reviewed this Agreement and the
Non-Statutory Stock Option Agreement and the Distribution Agreement with them
and have fully explained its contents to them; and that the parties hereto have
a full understanding of the
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<PAGE> 4
contents of this Agreement and the Non-Statutory Stock Option Agreement and the
Distribution Agreement and the effects thereof and that they did not rely and
have not relied upon any written or oral representation or statement not set
forth herein by any of the parties hereto or by any of their agents, servants,
employees, representatives or attorneys with regard to the subject matter, basis
or effect of this Agreement and Distribution Agreement or otherwise; and that
they have executed this release voluntarily without coercion from anyone. This
Agreement and the enforceability therefore shall be governed by and construed in
accordance with the laws of the State of Connecticut.
12. If any party to this Agreement shall waive any breach of any
provision of this Agreement, no party shall be deemed to have waived any
preceding or succeeding breach of the same or any other provisions of the
Agreement. If any party to this Agreement breaches any terms of this Agreement,
then that party shall pay to the non-defaulting party all of the non-defaulting
party's costs and expenses including attorneys' fees incurred by that party in
enforcing the terms of this Agreement.
13. This Agreement may be executed in counterparts, each of which,
when so executed and delivered, shall constitute a complete and original
instrument, but all of which together shall constitute one and the same
Agreement, and it shall not be necessary when making proof of this Agreement or
any counterpart thereof to account for any other counterpart.
14. OSI and BS acknowledge and agree that by virtue of having entered
into the SSA, they have had access to confidential, proprietary and trade secret
information of each other. OSI and BS agree not to in any way use, reveal or
disclose any confidential, proprietary or trade secret information belonging to
the other without written authority from the party to whom such information
belongs. In addition, OSI and BS agree to take all necessary and reasonable
steps to protect the confidentiality of all such information.
15. (a) Any controversy or claim arising out of or relating to this
Agreement or the breach thereof will be settled by arbitration, before one
arbitrator, in accordance with the rules of the American Arbitration Association
then in effect, or by the American Arbitration Association in the event the
parties are unable to agree upon a selection of an arbitrator. Judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction. The arbitrator will be selected by the parties from a panel of
arbitrators/attorneys having experience with the data processing business. The
parties agree that any arbitration shall be held in Hartford, Connecticut. The
arbitrator will have no authority to award damages not measured by the
prevailing party's actual damages and may not, in any event, make any relief,
finding or award that does not conform to the terms and conditions of this
Agreement. Neither party, nor the arbitrator, may disclose the existence or
results of
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<PAGE> 5
any arbitration hereunder without the express prior written consent of both
parties. Prior to initiation of arbitration, the aggrieved party will give the
other party written notice, in accordance with this Agreement, describing the
claim and amount as to which it intends to initiate arbitration.
(b) Notwithstanding the foregoing agreement regarding arbitration,
if either party, individually or in concert with any other person, breaches, or
threatens to commit a breach of any of the provisions of this Agreement, the
other party shall have the right and remedy to have this Agreement specifically
enforced by any court of competent jurisdiction by seeking and receiving
temporary and/or preliminary injunctive relief, specific performance or other
appropriate relief. The parties agree that any court granting any equitable
relief shall maintain jurisdiction to modify or enforce any equitable issued by
the court.
IN WITNESS WHEREOF, the parties have signed this instrument dated as of
this 26th day of March, 1998.
BANKING SPECTRUM, INC.
By: /s/ Carlos P. Naudon
--------------------------------
Name: Carlos P. Naudon
Title: President
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this the 26th day of March, 1998, before me personally appeared
Carlos P. Naudon, the President of BANKING SPECTRUM, INC., Signer of the
foregoing instrument and acknowledged the same to be his/her free act and deed,
before me.
/s/ Jeffrey W. Allister
------------------------------------
Notary Public
My Commission Expires: June 30, 1999
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<PAGE> 6
BANKING SPECTRUM SERVICES, INC.
By: /s/ Carlos P. Naudon
--------------------------------
Name: Carlos P. Naudon
Title: President
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this the 26th day of March, 1998, before me personally appeared
Carlos P. Naudon, the President of BANKING SPECTRUM SERVICES, INC., Signer of
the foregoing instrument and acknowledged the same to be his/her free act and
deed, before me.
/s/ Jeffrey W. Allister
------------------------------------
Notary Public
My Commission Expires: June 30, 1999
OPEN SOLUTIONS INC.
By: /s/ Douglas Anderson
--------------------------------
Name: Douglas Anderson
Title: Chairman/CEO
STATE OF CONNECTICUT )
) ss.:
COUNTY OF HARTFORD )
On this the 30th day of March, 1998, before me personally appeared
Douglas Anderson, the Chairman and CEO of BANKING SPECTRUM, INC., Signer of the
foregoing instrument and acknowledged the same to be his/her free act and deed,
before me.
/s/ Carol B. Carstens
------------------------------------
Notary Public
My Commission Expires: Sep. 30, 2001
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<PAGE> 7
EXHIBIT A
OPEN SOLUTIONS INC.
NON-STATUTORY STOCK OPTION AGREEMENT
------------------------------------
1. GRANT OF OPTION. OPEN SOLUTIONS INC., a Delaware corporation (the
"Company"), hereby grants to _____________________ (the "Optionee") an option,
pursuant to the Company's 1994 Stock Option Plan (the "Plan"), to purchase an
aggregate of _______ shares of Common Stock ("Common Stock") of the Company at a
price of $0.45 per share, purchasable as set forth in and subject to the terms
and conditions of this option and the Plan. Except where the context otherwise
requires, the term "Company" shall include the parent and all present and future
subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the
Internal Revenue Code of 1986, as amended or replaced from time to time (the
"Code").
2. NON-STATUTORY STOCK OPTION. This option is not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
3. EXERCISE OF OPTION AND PROVISIONS FOR TERMINATION.
(a) VESTING SCHEDULE. Except as otherwise provided in this
Agreement, this option may be exercised prior to the 10th anniversary of the
date of grant (hereinafter the "Expiration Date") as to an aggregate of _______
shares of Common Stock of the Company. The option shall be exercisable, in whole
or in part, with respect to all shares covered by this option not yet purchased
at any time prior to the Expiration Date or the earlier termination of this
option. This option may not be exercised at any time on or after the Expiration
Date.
(b) EXERCISE PROCEDURE. Subject to the conditions set forth in this
Agreement, this option shall be exercised by the Optionee's delivery of written
notice of exercise to the Treasurer of the Company, specifying the number of
shares to be purchased and the purchase price to be paid therefor and
accompanied by payment in full in accordance with Section 4. Such exercise shall
be effective upon receipt by the Treasurer of the Company of such written notice
together with the required payment. The Optionee may purchase less than the
number of shares covered hereby, provided that no partial exercise of this
option may be for any fractional share or for fewer than 10 whole shares.
(c) EFFECT OF TERMINATION OF RELATIONSHIP WITH THE COMPANY. In the
event that the Optionee ceases to be a consultant or advisor to the Company
prior to the Expiration Date, this option may be exercised at any time prior to
the Expiration Date, subject to the terms and conditions set forth in this
Agreement.
<PAGE> 8
4. PAYMENT OF PURCHASE PRICE.
(a) METHOD OF PAYMENT. Payment of the purchase price for shares
purchased upon exercise of this option shall be made (i) by delivery to the
Company of cash or a check to the order of the Company in an amount equal to the
purchase price of such shares, (ii) subject to the consent of the Company, by
delivery to the Company of shares of Common Stock of the Company then owned by
the Optionee having a fair market value equal in amount to the purchase price of
such shares, (iii) by any other means which the Board of Directors determines
are consistent with the purpose of the Plan and with applicable laws and
regulations (including, without limitation, the provisions of Rule 16b-3 under
the Securities Exchange Act of 1934 and Regulation T promulgated by the Federal
Reserve Board), or (iv) by any combination of such methods of payment.
(b) VALUATION OF SHARES OR OTHER NON-CASH CONSIDERATION TENDERED IN
PAYMENT OF PURCHASE PRICE. For the purposes hereof, the fair market value of any
share of the Company's Common Stock or other non-cash consideration which may be
delivered to the Company in exercise of this option shall be determined in good
faith by the Board of Directors of the Company.
(c) DELIVERY OF SHARES TENDERED IN PAYMENT OF PURCHASE PRICE. If
the Optionee exercises this option by delivery of shares of Common Stock of the
Company, the certificate or certificates representing the shares of Common Stock
of the Company to be delivered shall be duly executed in blank by the Optionee
or shall be accompanied by a stock power duly executed in blank suitable for
purposes of transferring such shares to the Company. Fractional shares of Common
Stock of the Company will not be accepted in payment of the purchase price of
shares acquired upon exercise of this option.
(d) RESTRICTIONS ON USE OF OPTION STOCK. Notwithstanding the
foregoing, no shares of Common Stock of the Company may be tendered in payment
of the purchase price of shares purchased upon exercise of this option if the
shares to be so tendered were acquired within twelve (12) months before the date
of such tender, through the exercise of an option granted under the Plan or any
other stock option or restricted stock plan of the Company.
5. DELIVERY OF SHARES; COMPLIANCE WITH SECURITIES LAWS, ETC.
(a) GENERAL. Subject to the Company's right of first refusal under
Section 12, the Company shall, upon payment of the option price for the number
of shares purchased and paid for, make prompt delivery of such shares to the
Optionee, provided that if any law or regulation requires the Company to take
any action with respect to such shares before the issuance thereof, then the
date of delivery of such shares shall be extended for the period necessary to
complete such action.
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(b) LISTING, QUALIFICATION, ETC. This option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject hereto
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
hereunder, this option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, disclosure or
satisfaction of such other condition shall have been effected or obtained on
terms acceptable to the Board of Directors. Nothing herein shall be deemed to
require the Company to apply for, effect or obtain such listing, registration,
qualification or disclosure, or to satisfy such other condition.
6. NONTRANSFERABILITY OF OPTION. This option is personal and no rights
granted hereunder may be transferred, assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) nor shall any such rights be
subject to execution, attachment or similar process, except that this option may
be transferred (i) by will or the laws of descent and distribution or (ii)
pursuant to a qualified domestic relations order as defined in Section 414(p) of
the Code. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of this option or of such rights contrary to the provisions hereof, or
upon the levy of any attachment or similar process upon this option or such
rights, this option and such rights shall, at the election of the Company,
become null and void.
7. NO SPECIAL EMPLOYMENT OR SIMILAR RIGHTS. Nothing contained in the
Plan or this option shall be construed or deemed by any person under any
circumstances to bind the Company to continue the employment or other
relationship of the Optionee with the Company for the period within which this
option may be exercised.
8. RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any shares which may be purchased by exercise of
this option (including, without limitation, any rights to receive dividends or
non-cash distributions with respect to such shares) unless and until a
certificate representing such shares is duly issued and delivered to the
Optionee. No adjustment shall be made for dividends or other rights for which
the record date is prior to the date such stock certificate is issued.
9. ADJUSTMENT PROVISIONS.
(a) GENERAL. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased
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<PAGE> 10
or decreased or are exchanged for a different number or kind of shares or other
securities of the Company, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock or other securities, the Optionee shall,
with respect to this option or any unexercised portion hereof, be entitled to
the rights and benefits, and be subject to the limitations, set forth in
Section 16(a) of the Plan.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under
this Section 9 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued pursuant to this
option on account of any such adjustments.
10. MERGERS, CONSOLIDATION, DISTRIBUTIONS, LIQUIDATIONS, ETC. In the
event of a merger or consolidation or sale of all or substantially all of the
assets of the Company in which outstanding shares of Common Stock are exchanged
for securities, cash or other property of any other corporation or business
entity, or in the event of a liquidation of the Company, prior to the Expiration
Date or termination of this option, the Optionee shall, with respect to this
option or any unexercised portion hereof, be entitled to the rights and
benefits, and be subject to the limitations, set forth in Section 17(a) of the
Plan.
11. WITHHOLDING TAXES. The Company's obligation to deliver shares upon
the exercise of this option shall be subject to the Optionee's satisfaction of
all applicable federal, state and local income and employment tax withholding
requirements.
12. RIGHT OF FIRST REFUSAL.
(a) GRANT. The Company is hereby granted the right of first refusal
(the "Right of First Refusal"), exercisable in connection with any proposed
transfer of any Shares purchased in accordance with this Agreement. For purposes
of this Section 12, the term "transfer" shall include any sale, assignment,
pledge, encumbrance or other disposition for value of the Shares intended to be
made by the Optionee, but shall not include any of the permitted transfers under
paragraph (e) of Section 3 and the term "Optionee" includes any successor in
interest by reason of purchase, gift or other transfer.
(b) NOTICE OF INTENDED DISPOSITION. In the event the Optionee
desires to accept a bona fide third-party offer for the transfer of any or all
of the Shares (the shares subject to such offer to be hereinafter called the
"Target Shares"), the Optionee shall promptly (i) deliver to the Company written
notice as specified in Section 14 (the "Disposition Notice") of the terms and
conditions of the offer, including the purchase price and the identity of the
third-party offeror, and (ii) provide satisfactory
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<PAGE> 11
proof that the disposition of Target Shares to such third-party offeror would
not be in contravention of any other provision set forth in this Agreement.
(c) EXERCISE OF RIGHT. The Company (or its assignees) shall, for a
period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares specified in the
Disposition Notice upon the same terms and conditions specified therein, subject
to the immediately following paragraph. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to the Optionee prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares specified in the Disposition
Notice, then the Company (or its assignees) shall effect the repurchase of the
Target Shares, including payment of the purchase price, not more than five (5)
business days after delivery of the Exercise Notice; and at such time the
Optionee shall deliver to the Company the certificates representing the Target
Shares to be repurchased, each certificate to be properly endorsed for transfer.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the Company
(or its assignees) shall have the right to pay the purchase price in the form of
cash equal in amount to the value of such property. If the Optionee and the
Company (or its assignees) cannot agree on such cash value within ten (10) days
after the Company's receipt of the Disposition Notice, the valuation shall be
made by an appraiser of recognized standing selected by the Optionee and the
Company (or its assignees) or, if they cannot agree on an appraiser within
twenty (20) days after the Company's receipt of the Disposition Notice, each
shall select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of such value. The cost of such appraisal shall be shared equally
by the Optionee and the Company. The closing shall then be held on the LATER of
(i) the fifth business day following delivery of the Exercise Notice or (ii) the
fifth business day after such cash valuation shall have been made.
(d) NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to the Optionee within twenty-five (25) days following the date of the
Company's receipt of the Disposition Notice, the Optionee shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; PROVIDED,
however, that any such sale or disposition must not be effected in contravention
of the other provisions of this Agreement. The third-party offeror shall acquire
the Target Shares free and clear of the Company's Right of First Refusal
hereunder, but the acquired shares shall remain subject to the securities law
restrictions of this Agreement. In the event Optionee does not effect such sale
or disposition of the Target Shares within the specified thirty (30)-day period,
the Company's Right of First Refusal shall continue
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<PAGE> 12
to be applicable to any subsequent disposition of the Target Shares by Optionee
until such right lapses in accordance with paragraph (f) below.
(e) PARTIAL EXERCISE OF RIGHT. In the event the Company (or its
assignees) makes a timely exercise of the Right of First Refusal with respect to
a portion, but not all, of the Target Shares specified in the Disposition
Notice, Optionee shall have the option, exercisable by written notice to the
Company delivered within thirty (30) days after the date of the Disposition
Notice, to effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) sale or other disposition of all the Target
Shares to the third-party offeror identified in the Disposition
Notice, but in full compliance with the requirements of
paragraph (d), as if the Company did not exercise the Right of
First Refusal hereunder; or
(ii) sale to the Company (or its assignees) of the
portion of the Target Shares which the Company (or its
assignees) has elected to purchase, such sale to be effected in
substantial conformity with the provisions of paragraph (c)
above.
Failure of Optionee to deliver timely notification to the
Company under this paragraph (e) shall be deemed to be an election by Optionee
to sell the Target Shares pursuant to alternative (i) above.
(f) LAPSE. The Right of First Refusal under this
Section 12 shall lapse and cease to have effect upon the sale of securities
pursuant to a registration statement filed by the Company under the Securities
Act in connection with the firm commitment underwritten offering of its
securities to the general public is consummated or when the Company is subject
to the requirements of Sections 12(g) or 15(d) of the Securities and Exchange
Act of 1934, whichever event shall first occur.
13. INVESTMENT REPRESENTATIONS; LEGENDS.
(a) REPRESENTATIONS. The Optionee represents, warrants
and covenants that:
(i) Any shares purchased upon exercise of this
option shall be acquired for the Optionee's account for
investment only, and not with a view to, or for sale in
connection with, any distribution of the shares in violation of
the Securities Act of 1933 (the "Securities Act"), or any rule
or regulation under the Securities Act.
(ii) The Optionee has had such opportunity as he, she
or it has deemed adequate to obtain from representatives of the
Company such
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<PAGE> 13
information as is necessary to permit the Optionee to evaluate
the merits and risks of his or her investment in the Company.
(iii) The Optionee is able to bear the economic risk
of holding such shares acquired pursuant to the exercise of
this option for an indefinite period.
(iv) The Optionee understands that (A) the shares
acquired pursuant to the exercise of this option will not be
registered under the Securities Act and are "restricted
securities" within the meaning of Rule 144 under the Securities
Act; (B) such shares cannot be sold, transferred or otherwise
disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then
available; (C) in any event, an exemption from registration
under Rule 144 or otherwise under the Securities Act not be
available for at least two years and even then will not be
available unless a public market then exists for the Common
Stock, adequate information concerning the Company is then
available to the public, and other terms and conditions of
Rule 144 are complied with; and (D) there is now no
registration statement on file with the Securities and
Exchange Commission with respect to any stock of the Company
and the Company has no obligation or current intention to
register any shares acquired pursuant to the exercise of this
option under the Securities Act.
(v) The Optionee agrees that, if the Company offers
any of its Common Stock for sale pursuant to a registration
statement under the Securities Act, the Optionee will not,
without the prior written consent of the Company, offer, sell,
contract to sell or otherwise dispose of, directly or
indirectly (a "Disposition"), any shares purchased upon
exercise of this option for a period of 90 days after the
effective date of such registration statement.
By making payment upon exercise of this option, the Optionee shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 13.
(b) LEGENDS ON STOCK CERTIFICATE. All stock certificates
representing shares of Common Stock issued to the Optionee upon exercise of this
option shall have affixed thereto legends substantially in the following forms,
in addition to any other legends required by applicable state law:
"The shares of stock represented by this certificate have not
been registered under the Securities Act of 1933 and may not be
transferred, sold or otherwise disposed of in the absence of an
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<PAGE> 14
effective registration statement with respect to the shares
evidenced by this certificate, filed and made effective under
the Securities Act of 1933, or an opinion of counsel
satisfactory to the Company to the effect that registration
under such Act is not required."
"The shares of stock represented by this certificate are
subject to certain restrictions on transfer and a right of
first refusal contained in an Option Agreement, a copy of which
will be furnished upon request by the issuer."
14. MISCELLANEOUS.
(a) Except as provided herein, this option may not be amended
or otherwise modified unless evidenced in writing and signed by the Company and
the Optionee.
(b) All notices under this option shall be mailed or delivered
by hand to the parties at their respective addresses set forth beneath their
names below or at such other address as may be designated in writing by either
of the parties to one another.
(c) This option shall be governed by and construed in
accordance with the laws of the State of Connecticut.
Date of Grant: OPEN SOLUTIONS INC.
____________, 19__ By:
_________________________
Title:
_________________________
Address:
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<PAGE> 15
OPTIONEE'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1994 Stock Option Plan.
[ ]
______________________________________
ADDRESS:
______________________________
______________________________
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EXHIBIT B
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (the "Distribution Agreement"), dated
March __, 1998 ("Effective Date"), is by and between Banking Spectrum, Inc.
("Banking Spectrum"), a New York corporation, with principal offices at
57 West 38th Street, New York, New York 10018, and Open Solutions Inc.
("OSI"), a Delaware corporation with principal offices at 300 Winding Brook
Drive, Glastonbury, Connecticut 06035.
RECITALS
A. This Distribution Agreement implements elements of that certain
Agreement, dated March ___, 1998 (the "Agreement"), between the parties in
connection with the termination of various matters in dispute that arose under
that certain Support and Services Agreement between the parties, dated
January 21, 1994.
B. This Distribution Agreement establishes a structure and process by
which OSI, upon request, will obtain certain digitized data and information, and
associated software, all as described herein, from Banking Spectrum, enabling
OSI to fulfill certain of its current contractual commitments with up to twenty
(20) Client Banks.
C. In satisfying its obligations to the Client Banks, OSI will function
only as an initial provider of the Banking Spectrum product, with Banking
Spectrum assuming any licensing, product delivery and any post-delivery product
support obligations under direct contractual relationships between Banking
Spectrum and those Client Banks.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
SECTION 1
DEFINITIONS
As used herein, the following words and phrases shall have the
following meanings:
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<PAGE> 17
1.1 "CLIENT BANKS OR CLIENT BANK." The financial institutions listed on
EXHIBIT A that, upon request to OSI, have the right to receive an initial copy
of the Product under existing agreements between OSI and the Client Banks.
1.2 "DIRECT END-USER SUPPORT." Telephone hotline consultation service
provided to End-Users by Banking Spectrum in accordance with the terms and
conditions of the agreement between an End-User and Banking Spectrum.
1.3 "END-USERS OR END-USER." Client Banks that, upon request to OSI,
receive the Product from Banking Spectrum, at OSI's direction.
1.4 "END-USER LICENSE." A software license by which Banking Spectrum
grants its customers certain rights to use the Gold Book, which license shall be
substantially the same as the form of license that is Exhibit B.
1.5 "GOLD BOOK." The Banking Spectrum product known as "The Electronic
Gold Book: The Manual of Bank Operations", which is the standard, off-the-shelf
machine readable version of the text files and accompanying software programs,
in object code only, that, at the time of any OSI request hereunder, is
routinely offered by Banking Spectrum to financial institutions in accordance
with its normal business practices, as such product is further described in
EXHIBIT C.
1.6 "PRODUCT." The Banking Spectrum deliverable to an End-User, which
is a package comprised of (i) the Gold Book, which resides on diskettes, (ii)
the instruction booklets and other information prepared for End-Users concerning
the use of the Gold Book; and (iii) a fully executed copy of End-User License.
As used in this Distribution Agreement, unless the content requires otherwise,
the term "Product" will be used interchangeably with the term "Gold Book".
1.7 "UPDATES." Periodic information updates to the Gold Book as
described in any documentation and marketing literature relating to the Product,
which Updates, if any, shall be provided directly to the End-Users by Banking
Spectrum pursuant to the End-User License and at such cost to each End-User as
therein provided.
SECTION 2
DISTRIBUTION APPOINTMENT; BANKING SPECTRUM SUPPORT
2.1 Banking Spectrum grants to OSI the nonexclusive right to market and
distribute an initial copy of the Product to End-Users in accordance with this
Distribution Agreement. As further described in SECTION 3, during the term of
this Distribution Agreement, Banking Spectrum agrees to promptly provide one (1)
initial copy of the Product to each Client Bank designated by OSI, which number
of initial
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copies of the Product in the aggregate shall not exceed twenty (20), or one (1)
copy per Client Bank. The version of the Gold Book to be supplied to each Client
Bank in response to any such request shall be the latest version or release of
the Gold Book that is being offered by Banking Spectrum to its customers
(including Updates to existing customers that have installed the latest version
or release of the Gold Book) at the time of the OSI request.
2.2 As requested by an End-User, Banking Spectrum shall make available
the Direct End-User Support at such fees and in accordance with such terms and
conditions as Banking Spectrum and each End-User shall mutually agree.
SECTION 3
PRODUCT ORDERS AND SHIPMENT
3.1 (A) From time to time, OSI shall prepare and submit to Banking
Spectrum purchase orders stating the number of Client Banks that are to receive
initial copies of the Product, along with shipping instructions, with shipment
by Banking Spectrum to each designated Client Bank expected to occur no later
than thirty (30) days thereafter.
(B) If at the time of OSI's request for a copy of the Product, the Gold
Book no longer is commercially offered, Banking Spectrum shall provide the
designated Client Bank with a copy of the last version of the Gold Book that was
made available in accordance with Banking Spectrum's then-existing commercial
practices.
3.2 Banking Spectrum shall use all reasonable efforts to ship the
Product to each Client Bank within ten (10) days of receipt of orders for the
Product. Packaging and means of shipment of Product shall be determined by
Banking Spectrum unless otherwise agreed. Risk of loss with respect to Product
shall pass from Banking Spectrum at the time Product is delivered to the
designated Client Bank. Product damaged in transit promptly shall be returned to
Banking Spectrum, accompanied by such documentation as may reasonably be
required to assert any claims that may lie against the carrier causing such
damage.
3.3 Banking Spectrum agrees that its failure to ship the Product to an
End-User in accordance with this Section 3 shall be deemed to be a material
default under this Distribution Agreement, subject to the procedures stated in
SECTION 9.2
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SECTION 4
PAYMENT
4.1 The per-copy compensation for up to twenty (20) initial copies of
the Gold Book, including up to twenty (20) End-User Licenses, has been paid in
advance to Banking Spectrum in accordance with the Agreement. The license fee
for the End-User's use of the initial copies of the Product shall be deemed to
be fully paid for the remaining term of the contract between OSI and each of the
Client Banks, not to exceed a period of five (5) years from the Effective Date.
4.2 To the extent that any fees other than the license fees for use of
the initial copy of the Gold Book are incurred by an End-User, E.G., fees for
Updates and the Direct End-User Support, those fees shall be paid to Banking
Spectrum under an agreement between Banking Spectrum and the End-User.
SECTION 5
PROPRIETARY PROTECTION OF PROGRAM
5.1 OSI is authorized to engage in the marketing and distribution of
the initial copies of the Product, in the form and packaging as delivered by
Banking Spectrum, in accordance with the terms of this Distribution Agreement.
This Distribution Agreement shall not be construed to grant to OSI any other
right, title, or interest in any intellectual property rights embodied in or
associated with the Product, or any right to copy, modify, loan, or lease any or
all portions of the Gold Book. All other OSI rights in respect of the Product
shall be subject to the terms and conditions of its own separately negotiated
End-User License with Banking Spectrum. Under no circumstances shall OSI
decompile the object code portion of the Gold Book to a source code version.
5.2 Except as provided in this Distribution Agreement, OSI agrees not
to loan, rent, sublicense or provide access to the Gold Book, for a fee or
otherwise, to any third party for the purpose of any execution, use, or copying
of the Gold Book not authorized by the End-User License included with each
Product.
SECTION 6
WARRANTIES AND LIMITATIONS OF LIABILITY
6.1 Banking Spectrum warrants to and for the benefit of OSI that
Banking Spectrum owns or has rights to the Gold Book and any associated
documentation, including any intellectual property rights associated therewith,
that are adequate to enable Banking Spectrum (i) to perform its obligations,
(ii) to authorize the
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<PAGE> 20
distribution of the Product by OSI, and (iii) to authorize the use of the Gold
Book by the End-Users in accordance with the terms and conditions of the
End-User License.
6.2 Banking Spectrum warrants to and for the benefit of OSI that the
Product and the distribution thereof do not infringe the trademarks, patents,
copyrights, or other proprietary rights of any third party.
6.3 Banking Spectrum warrants to and for the benefit of OSI and the
End-Users that the Gold Book will operate in substantial compliance with the
applicable functional description of the Gold Book provided to End-Users from
time to time.
6.4 Banking Spectrum agrees to copy the "Returns Form" attached hereto
as EXHIBIT D and to provide adequate quantities of such Returns Forms to all
End-Users. The End-Users may return unopened or opened packages of Product to
Banking Spectrum only when a Returns Form has been duly filled out and signed by
an End-User indicating one of the approved reasons for return.
6.5 OSI acknowledges that Banking Spectrum does not warrant to an
End-User that the content of the Gold Book is an accurate representation of, or
in compliance with, the applicable state and/or Federal laws and regulations.
SECTION 7
DISCLAIMER AND LIMITATIONS OF LIABILITY
7.1 THE WARRANTIES SET FORTH IN SECTION 6 ARE IN LIEU OF ALL OTHER
WARRANTIES, AND BANKING SPECTRUM DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7.2 Subject to SECTION 8.1, the liability of Banking Spectrum to OSI
for any claim whatsoever related to the Product or this Distribution Agreement,
including any cause of action sounding in contract, tort, or strict liability,
for each of the affected Client Banks that has obtained (or has requested and
not obtained) an initial copy of the Product shall not exceed the full costs
incurred by OSI with respect to any such Client Bank in replacing the Gold Book
with a third party product that OSI in its sole discretion deems to be a
reasonable and comparable equivalent of the Gold Book; PROVIDED further that
notwithstanding the foregoing, Banking Spectrum's liability under this
SECTION 7.2 (but excluding SECTION 8.1) shall not in the aggregate exceed the
sum of One Hundred Thousand Dollars ($100,000.00).
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<PAGE> 21
7.3 Neither party shall be liable to the other party (or any customer
of such other party) for any loss-of-profit, loss of data, down-time, indirect,
incidental, special or consequential damages arising out of or relating to its
performance or lack thereof under this Distribution Agreement or the use of the
Gold Book, whether or not such party has been advised of the possibility of such
claim, demand or action.
7.4 The foregoing limitations of liability shall not apply to damages
arising out of claims alleging infringement of any third-party proprietary
rights for which indemnification is made pursuant to SECTION 8.1 hereof.
SECTION 8
INDEMNIFICATION
8.1 Banking Spectrum hereby indemnifies and agrees to defend and hold
OSI harmless from and against any and all claims, demands or actions and costs,
liabilities, or losses arising out of any actual or alleged infringement of any
patent, trademark, or copyright or violation of any trade secret or other
intellectual property rights by any component of the Product furnished
hereunder, including, but not limited to, claims that arise from the End-User's
use of the Gold Book. Further, to the extent that a Client Bank makes a claim,
demand or brings an action against Banking Spectrum and/or OSI arising out of
any breach by Banking Spectrum of its obligations to that Client Bank under the
End-User License, Banking Spectrum hereby indemnifies and agrees to hold OSI
harmless from any and all such claims, demands or actions and costs, liabilities
or losses that arise therefrom. This duty to indemnify OSI shall be in addition
to the warranty obligations of Banking Spectrum.
8.2 OSI hereby indemnifies and agrees to hold Banking Spectrum harmless
from and against any and all claims, demands, or actions and any cost,
liabilities, or losses arising out of any statements or representations made by
OSI, employees, or agents with respect to the Gold Book, except for statements
that are direct quotations of the documentation and marketing materials provided
by Banking Spectrum to OSI for use in connection with the distribution of the
Product.
8.3 The foregoing indemnities are in addition to any rights otherwise
under this Distribution Agreement, but shall be expressly contingent on the
party seeking indemnity (i) notifying the indemnifying party in writing of any
such claim, demand, action, or liability; (ii) cooperating in the defense or
settlement thereof; and (iii) allowing the indemnifying party to control the
defense or settlement of the same.
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SECTION 9
TERM AND TERMINATION
9.1 The term of this Distribution Agreement shall be five (5) years
from the Effective Date, or the date that initial copy number twenty (20) of the
Product is delivered to an End-User, whichever first occurs.
9.2 Either party may terminate this Distribution Agreement if the other
party commits a material breach of any of the terms hereof and such breach
remains uncured thirty (30) days after written notice of such breach has been
furnished to the party in breach by the other party.
SECTION 10
MISCELLANEOUS
10.1 OSI is an independent contractor under this Distribution
Agreement, and nothing herein shall be construed to create a partnership, joint
venture, or agency relationship between the parties hereto.
10.2 Each party represents and warrants that it has full power and
authority to undertake the obligations set forth in this Distribution Agreement
and that it has not entered into any other agreement nor will it enter into any
other agreements that would render it incapable of satisfactorily performing its
obligations hereunder. This Distribution Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
representatives, successors and permitted assigns.
10.3 Each party agrees that it will comply with the material
requirements of all applicable laws and regulations of governmental bodies or
agencies in its performance with respect to the distribution and licensing of
the Product under this Distribution Agreement.
10.4 Each party represents that it is acting on its own behalf and is
not acting as an agent for or on behalf of any third party. Neither party may
assign its rights or obligations under this Distribution Agreement without the
prior written consent of the other party.
10.5 All notices and other communications required or permitted to be
given under this Distribution Agreement shall be in writing and shall be
considered effective when deposited in the U.S. mail, postage prepaid, and
addressed to the appropriate party at the address first stated above, unless by
such notice a different address shall have been designated.
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10.6 (A) All questions concerning the validity, operation,
interpretation, and construction of this Distribution Agreement will be governed
by and determined in accordance with the laws of the State of Connecticut, not
including the law of conflicts of laws.
(B) Any controversy or claim arising out of or relating to this
Distribution Agreement or the breach thereof, will be settled by arbitration,
before one arbitrator, in accordance with the rules of the American Arbitration
Association then in effect, or by the American Arbitration Association in the
event the parties are unable to agree upon a selection of an arbitrator.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction. The arbitrator will be selected by the parties from a panel
of arbitrators/attorneys having experience with the data processing business.
The parties agree that any arbitration shall be held in Hartford, Connecticut.
The arbitrator will have no authority to award damages not measured by the
prevailing party's actual damages and may not, in any event, make any relief,
finding or award that does not conform to the terms and conditions of this
Distribution Agreement. Neither party, nor the arbitrator, may disclose the
existence or results of any arbitration hereunder without the express prior
written consent of both parties. Prior to initiation of arbitration, the
aggrieved party will give the other party written notice, in accordance with
this Distribution Agreement, describing the claim and amount as to which it
intends to initiate arbitration.
(C) Notwithstanding the foregoing agreement regarding arbitration,
if either party, individually or in concert with any other person, breaches, or
threatens to commit a breach of any of the provisions of this Distribution
Agreement, the other party shall have the right and remedy to have this
Distribution Agreement specifically enforced by any court of competent
jurisdiction by seeking and receiving temporary and/or preliminary injunctive
relief, specific performance or other appropriate relief. The parties agree that
any court granting any equitable relief shall maintain jurisdiction to modify or
enforce any equitable relief issued by the court.
10.7 If any action in arbitration or at law or in equity is necessary
to enforce or interpret the terms of this Distribution Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements, in addition to any other relief to which such party may be
entitled.
10.8 Neither party shall by mere lapse of time, without giving notice
or taking other action hereunder, be deemed to have waived any breach by the
other party of any of the provisions of this Distribution Agreement. Further,
the waiver by either party of a particular breach of this Distribution Agreement
by the other shall not be construed as or constitute a continuing waiver of such
breach or of other breaches of the same or other provisions of this Distribution
Agreement.
-8-
<PAGE> 24
10.9 Except for the Agreement, the parties hereto acknowledge that this
Distribution Agreement is the complete and exclusive statement of agreement
respecting the subject matter hereto and supersedes all proposals (oral or
written), understandings, representations, conditions, and other communications
between the parties relating hereto. This Distribution Agreement may be amended
only by a subsequent writing that specifically refers to this Distribution
Agreement and is signed by both parties, and no other act, document, usage, or
custom shall be deemed to amend this Distribution Agreement.
WHEREBY, the parties hereto have caused this Distribution Agreement to
be executed in duplicate copies by their duly authorized representatives.
OPEN SOLUTIONS INC.
By:
_____________________________
Title:
_____________________________
Date: March __, 1998
BANKING SPECTRUM, INC.
By:
_____________________________
Title:
_____________________________
Date: March __, 1998
-9-
<PAGE> 25
EXHIBIT A
LIST OF CLIENT BANKS
The Simsbury Bank
Seneca Falls Savings Bank
Gloversville Federal
American Federal Bank
First Federal Savings of Warren
Patriot Bank
Dean Co-operative Bank
The Waldoboro Bank
Canadaiqua National Bank
First National of Ipswich
Claremont Savings Bank
American Bank of Lehigh Valley
First National of Suffield
South Valley State Bank
Albion Savings & Loan
Fairport Savings & Loan
Savings Bank of Utica
Savings Bank of Manchester
Savings Bank of The Finger Lakes
Middlesboro Federal Bank, FSB
<PAGE> 26
EXHIBIT B
FORM OF END-USER LICENSE
THIS LICENSE ("License") is by and between Banking Spectrum, Inc., with
an office at 57 West 38th Street, New York, New York 10018 ("Banking Spectrum")
and __________________ a _____________________ corporation with an office at____
______________________________________,_________________________________________
("You or "Your").
A. LICENSE
- --------------------------------------------------------------------------------
In consideration of the payment of the license fee stated in associated
documentation, You receive an unrestricted and nonexclusive License to use "The
Electronic Gold Book" for Your own internal business purposes, but not for
resale, relicensing, or other redistribution, subject to the terms and
conditions in this License. No terms, conditions or stipulations written on a
purchase order or similar document issued by You will affect these License
terms. The copyright and all other right, title and interest in The Electronic
Gold Book shall at all times remain with Banking Spectrum.
B. PERMITTED USES
- --------------------------------------------------------------------------------
YOU MAY:
- - Use The Electronic Gold Book on single workstations up to the number of
licenses purchased for that purpose or on a Local Area Network ("LAN")
server pursuant to payment of the applicable network fee. Separate fees
apply if You wish to install The Electronic Gold Book on more than one
network server.
- - Make one additional copy of The Electronic Gold Book in machine
readable form for backup purposes only.
- - Install the periodic updates (supplements) to The Electronic Gold Book
as provided by Banking Spectrum pursuant to payment of the appropriate
annual maintenance fee.
YOU MAY NOT:
- - Transfer Your rights to use The Electronic Gold Book to a third party
without the express written permission of Banking Spectrum.
- - Sublease, lease, sell, distribute, rent, permit concurrent use of, or
grant other rights in The Electronic Gold Book or its contents.
- - Make copies of The Electronic Gold Book or any part of its contents,
whether printed or in electronic format, or of any materials provided
except as permitted above.
<PAGE> 27
- - Translate, reverse engineer, decompile or disassemble any part of The
Electronic Gold Book.
- - Modify, adapt or create derivative works based on any part of the
Electronic Gold Book.
C. DISCLAIMERS AND LIMITATIONS OF LIABILITY
- --------------------------------------------------------------------------------
The Electronic Gold Book is a publication provided in electronic means. As such:
This publication is designed to provide accurate and
authoritative information in regard to the subject matter
covered. It is sold with the understanding that the publisher
is not engaged in rendering legal, accounting or other
professional service. If legal advice or other expert
assistance is required, the services of a competent
professional person should be sought. -- From a Declaration of
Principles jointly adopted by a Committee of the American Bar
Association and a Committee of Publishers and Associations.
EXCEPT AS OTHERWISE PROVIDED HEREIN, BANKING SPECTRUM DISCLAIMS ALL WARRANTIES
AS TO THE ELECTRONIC GOLD BOOK, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, (i) ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, OR (ii) ANY WARRANTIES OF FUNCTIONALITY, COMPLIANCE WITH
FEDERAL, STATE OR LOCAL LAWS AND REGULATIONS, OR DATA INTEGRITY OR PROTECTION.
THE WARRANTIES SET FORTH BELOW ARE IN LIEU OF ALL OTHER WARRANTIES.
For a period of thirty (30) days from the date of purchase, Banking Spectrum
solely warrants that:
- - The media on which Banking Spectrum has supplied The Electronic Gold
Book is not defective and The Electronic Gold Book is properly recorded
on such media.
- - The Electronic Gold Book functions substantially as described in this
documentation.
Your sole remedy under this limited warranty is to return any defective media
for replacement within the 30-day warranty period. If the defect persists
following the replacement, You shall be entitled to a full refund of the license
fees provided that You return to Banking Spectrum all copies of The Electronic
Gold Book and accompanying materials.
BANKING SPECTRUM SHALL NOT BE LIABLE TO YOU OR ANY OTHER PARTY
FOR ANY LOSS-OF-PROFIT, LOSS OF DATA, INDIRECT, INCIDENTAL, SPECIAL
<PAGE> 28
OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THE USE OF THE ELECTRONIC
GOLD BOOK.
D. TERM
- --------------------------------------------------------------------------------
The license granted under this License shall remain in effect until terminated
or expired. To receive updates (supplements) to The Electronic Gold Book, You
must pay the applicable annual maintenance fee.
E. MISCELLANEOUS
- --------------------------------------------------------------------------------
You understand and agree that The Gold Book is being provided by Banking
Spectrum via this License in lieu of, and in satisfaction of, an obligation of
Open Solutions Inc., if any, to provide The Electronic Gold Book to You under an
existing contract with You.
The provisions herein constitute the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements, oral or
written, and all other communications relating to the subject matter hereof. No
amendment or modification of any provision of this License shall be effective
unless set forth in a document that purports to amend this License and is
executed by both parties hereto.
IN WITNESS WHEREOF, the duly authorized representatives of parties have caused
this License to be executed in duplicate copies, effective as of the Effective
Date.
BANKING SPECTRUM, INC.
By:
____________________________
Name:
____________________________
(Print)
Title:
____________________________
Date:
____________________________
___________________________________
By:
____________________________
Name:
____________________________
(Print)
Title:
____________________________
Date:
____________________________
<PAGE> 29
EXHIBIT C
DESCRIPTION OF THE GOLD BOOK
The Gold Book's text incorporates current statutes, regulations and
court decisions and offers a compilation of the most efficient practices and
policies of banks. It is a functional guide to daily banking operations that is
organized to facilitate quick and easy reference, and the content also embraces
the needs of the depositor from a public relations standpoint.
<PAGE> 30
EXHIBIT D
PRODUCT RETURNS FORM
End-User's name: ____________________
Date of acquisition: _______________________
Product name: ________________________
Reason for return by End-User:
_____ License terms unacceptable (unopened packages only)
_____ Product will not operate on designated hardware and operating system
configuration
_____ Media defective
_____ Documentation defective in that (specify defect)__________________________
__________________________________________________________________________
_____ Product defective in that (specify failure to conform to specifications)
__________________________________________________________________________
_____ Other (specify): _________________________________________________________
Return accounted by: __________________________
Date: ___________________
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-1 of our report dated
April 6, 1998 relating to the financial statements of Open Solutions Inc., which
appears in such Prospectus. We also consent to the application of such report to
the Financial Statement Schedule for the three years ended December 31, 1997
listed under Item 16(b) of this Amendment No. 1 to the Registration Statement
when such schedule is read in conjunction with the financial statements referred
to in our report. The audits referred to in such report also included this
schedule. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Prospectus. However, it should be noted
that PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Financial Data."
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
July 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,332,616
<SECURITIES> 0
<RECEIVABLES> 3,369,943
<ALLOWANCES> 260,000
<INVENTORY> 0
<CURRENT-ASSETS> 10,393,986
<PP&E> 1,919,459
<DEPRECIATION> (547,135)
<TOTAL-ASSETS> 12,412,618
<CURRENT-LIABILITIES> 4,575,891
<BONDS> 0
16,139,549
14,167
<COMMON> 22,360
<OTHER-SE> (8,448,268)
<TOTAL-LIABILITY-AND-EQUITY> 12,412,618
<SALES> 0
<TOTAL-REVENUES> 5,768,593
<CGS> 0
<TOTAL-COSTS> 3,073,836
<OTHER-EXPENSES> 5,091,535
<LOSS-PROVISION> 175,000
<INTEREST-EXPENSE> (180,691)
<INCOME-PRETAX> (2,216,087)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (2,216,087)
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