<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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)
--------------------------
LOUIS HERNANDEZ, JR.
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>
BRIAN KEELER, ESQ. KATHRYN I. MURTAGH, ESQ.
JOHAN V. BRIGHAM, ESQ. GOODWIN, PROCTER & HOAR LLP
BINGHAM DANA LLP EXCHANGE PLACE
150 FEDERAL STREET BOSTON, MASSACHUSETTS 02109-2881
BOSTON, MASSACHUSETTS 02110-1726 TELEPHONE: (617) 570-1000
TELEPHONE: (617) 951-8000 TELECOPY: (617) 523-1231
TELECOPY: (617) 951-8736
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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>
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE(2)
<S> <C> <C>
Common Stock, $0.01 par value per share..................... $60,000,000 $15,840
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
maximum aggregate offering price.
--------------------------
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.
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<PAGE>
Subject to Completion, Dated , 2000
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any states where the offer or sale is not permitted.
<PAGE>
[LOGO]
Shares
Common Stock
This is the initial public offering of Open Solutions Inc. We are offering
shares of common stock.
Prior to this offering, there has been no public market for Open Solutions'
common stock. We currently estimate that the initial public offering price per
share will be between $ and $ . We have applied for a
quotation on the Nasdaq National Market under the symbol "OPEN."
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Open Solutions
<S> <C> <C> <C>
Per share public offering price $ $ $
Total $ $ $
</TABLE>
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from Open Solutions at the initial public offering price
less the underwriting discount.
The underwriters expect to deliver the shares against payment in Boston,
Massachusetts on , 2000.
Deutsche Banc Alex. Brown
J.P. Morgan & Co.
Prudential Volpe Technology
a unit of Prudential
Securities
The date of this Prospectus is , 2000.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY.
OPEN SOLUTIONS INC.
We provide a comprehensive system which integrates electronic commerce,
Internet banking and enterprise processing applications for small to
medium-sized commercial banks, thrifts and credit unions, which we refer to as
community banks. Through our Open Community Network, our clients can use
technology and the Internet to strengthen and better manage their customer
relationships and ultimately generate new profitable revenue streams. In
addition to providing integrated, real-time, Internet banking and back-end
processing capabilities, we promote electronic commerce transactions centered
around our community bank clients and the trust, affinity and frequent
interaction they have with their customers. Over 130 community banks have
purchased one or more components of the Open Community Network.
We target financial institutions with assets less than $3 billion, which
represent the largest segment of the financial services industry. At the end of
1999, there were approximately 20,000 such institutions in the United States
according to the Federal Deposit Insurance Corporation and the National Credit
Union Administration. We believe we have a significant market opportunity as
these community banks look to use technology and the Internet as a competitive
tool to respond to increasing customer demands, pressures from new market
entrants and shrinking margins on their traditional banking products and
relationships.
Our Open Community Network is designed to promote a community bank's unique
local identity and brand and consists of three primary components:
- ECOMMERCE MART--an electronic commerce platform which facilitates business
to business and business to consumer transactions between over 40
nationally recognized partner-suppliers and a community bank's customers;
- ECOMMERCE BANKER--a cost-effective and easy to use suite of Internet
banking products and services, which enables our clients' customers to
conduct their banking transactions online; and
- THE COMPLETE BANKING SOLUTION/THE COMPLETE CREDIT UNION SOLUTION--an open
architecture enterprise processing application, which uses a real-time
relational database and runs the core processing operations of a community
bank.
We provide our Open Community Network to community banks on a completely
outsourced and customized basis. Our Open Community Network is cost-effective
and easy to implement. Our application service provider model allows our clients
to benefit from our electronic commerce and Internet banking platforms without
large capital expenditures or the use of scarce management and technical
resources. Open Community Network enables national partner-suppliers to obtain
access to an otherwise fragmented small business market. According to the
American Bankers Association, the average community bank has approximately 950
small business checking accounts. Our business model entails revenue sharing
between Open Solutions and community banks such that a community bank has an
incentive to promote electronic commerce on our Open Community Network.
Community banks can join our Open Community Network and begin offering
electronic commerce and Internet banking services to their customers within
days.
Our proprietary technology uses a Microsoft Windows NT-based architecture
and an Oracle relational database. This architecture gives our clients
transaction processing capabilities with
1
<PAGE>
increased speed, ease of use, functionality and scalability. Our technology
platform also enables our clients to use advanced techniques such as data mining
and collaborative filtering, so that they may provide their customers with
better service and increase the effectiveness of a community bank's electronic
commerce related marketing efforts.
Since 1995, we have been a leading provider of enterprise processing
applications to community banks. Over the last twelve months, we have
strategically positioned our business to address the high growth markets of
electronic commerce and Internet banking. We have made significant investments
in product development and sales and marketing capabilities. In order to attain
a leadership position in these new growing markets, we intend to:
- Expand market share and increase penetration of our existing client base;
- Increase electronic commerce activity on our Open Community Network;
- Expand the features and functions of our Open Community Network;
- Expand our target markets; and
- Acquire complimentary products, services and businesses.
We primarily market our Open Community Network through a direct sales force.
We also have third-party software license and distribution agreements with
BISYS, Inc. and Connecticut On-Line Computer Center, Inc., both of which provide
outsourced enterprise processing solutions to community banks.
Open Solutions was organized as a Delaware corporation in May 1992. Our
principal executive office is located at 300 Winding Brook Drive, Glastonbury,
Connecticut 06033 and our telephone number is (860) 652-3155. Our corporate web
site address is http://www.opensolutions.com. Information contained on our web
site is not intended to be part of this prospectus.
Open Solutions Inc., The Complete Banking Solution and The Complete Credit
Union Solution are registered trademarks, and eCommerce Banker and eCommerce
Mart are trademarks of Open Solutions. All other trade names and trademarks
referred to in this prospectus are the property of their respective owners.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Open Solutions...................... shares
Common stock to be outstanding after the offering........... shares(1)
Use of proceeds............................................. Working capital and other general
corporate purposes
Proposed Nasdaq National Market symbol OPEN
</TABLE>
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(1) Based on the number of shares of common stock outstanding on .
It excludes any shares of common stock to be issued upon exercise of the
overallotment option granted to the underwriters. It also excludes an
aggregate of shares subject to options outstanding as of
at a weighted average exercise price of $ per share, of which options
to purchase shares of common stock are currently exercisable, and an
aggregate of shares of common stock issuable upon the exercise of
outstanding warrants as of at a weighted average exercise price
of $ per share, all of which are exercisable.
2
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license.................................. $ 213 $ 801 $ 4,314 $ 6,276 $ 5,347
Service and maintenance........................... 55 218 2,550 6,631 8,705
------- ------- ------- ------- -------
Total revenues...................................... 268 1,019 6,864 12,907 14,052
Cost of revenues.................................... 700 2,037 4,310 7,258 7,828
Operating expenses.................................. 1,458 2,756 5,818 11,776 11,259
Loss from operations................................ (1,890) (3,774) (3,264) (6,127) (5,035)
Net loss............................................ $(1,895) $(3,638) $(3,055) $(5,822) $(4,715)
======= ======= ======= ======= =======
Net loss per common share (basic and diluted).......
Weighted average common shares used to compute net
loss per common share.............................
Unaudited pro forma net loss per common share (basic
and diluted)......................................
Unaudited pro forma weighted average common shares
outstanding.......................................
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
PRO FORMA
AS
ACTUAL ADJUSTED(1)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 5,225 $
Working capital............................................. $ 3,008 $
Total assets................................................ $ 10,027 $
Mandatorily redeemable convertible preferred stock.......... $ 22,084 $
Stockholders' equity (deficit).............................. $(16,548) $
</TABLE>
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(1) Reflects conversion of all outstanding shares of convertible preferred stock
into an aggregate of shares of common stock upon the closing of this
offering, and the sale by us of shares of common stock offered
hereby at an assumed initial public offering price of $ per
share, the mid-point of the range set forth on the cover of this prospectus,
and after deducting the estimated underwriting discounts and commissions and
offering expenses payable by Open Solutions. See notes 5 and 6 of notes to
the financial statements and "Use of Proceeds."
3
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, OPERATING RESULTS AND FINANCIAL
CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE, AND YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT.
PLEASE ALSO SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."
RISKS RELATED TO OUR BUSINESS
WE HAVE RECENTLY CHANGED OUR BUSINESS MODEL AND HAVE NOT GENERATED SIGNIFICANT
REVENUES FROM OUR NEW SERVICE OFFERINGS.
We were formed in 1992 and released our first major product in 1995.
Recently, however, we have positioned our business to provide a complete
end-to-end integrated solution that, in addition to the enterprise processing
application, includes electronic commerce and Internet banking services. While
these additional services did not generate revenues prior to the first quarter
of 2000, we expect that they will comprise a significant portion of our business
in the future. We also expect that a significant portion of our operating
expenses for the near term will be directed towards the development, marketing
and deployment of these new services. Accordingly, there is only a limited basis
upon which you can evaluate our business and prospects. Because of the
significant changes in our business, a review of our historical operating and
financial data may not provide a meaningful means of evaluating our future
performance and an investment in our common stock.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.
As of December 31, 1999, we had an accumulated deficit of $21.1 million, and
we incurred operating losses of $3.3 million in 1997, $6.1 million in 1998 and
$5.0 million in 1999. We have not achieved profitability and we will continue to
incur net losses until we produce sufficient revenues to cover our costs, which
may not occur. Even if we do achieve profitability, we may be unable to sustain
or increase our profitability in the future because we intend to invest heavily
in marketing and promotion of our Open Community Network and further development
of our services, technology and operating infrastructure.
WE EXPECT TO CONTINUE TO HAVE NEGATIVE OPERATING CASH FLOWS WHICH WILL REQUIRE
US TO SEEK ADDITIONAL FINANCING THAT COULD BE DIFFICULT TO OBTAIN.
We expect to continue to experience significant negative operating cash
flows for the foreseeable future because we plan to increase expenditures for
our sales and marketing efforts, the enhancement of our technology, capital
improvements and improvement of our operational and financial systems. As a
result, we may need to raise additional capital in the future to meet our cash
requirements. We may not be able to find additional financing on favorable
terms, or at all. Furthermore, if we raise additional funds through the issuance
of equity or debt securities, these securities may have rights, preferences or
privileges senior to those of the rights of our common stock, and our
stockholders may experience additional dilution to their equity ownership.
WE WILL DEPEND ON THE WIDESPREAD ADOPTION OF ELECTRONIC COMMERCE AND INTERNET
BANKING SOLUTIONS BY COMMUNITY BANKS FOR A SIGNIFICANT PORTION OF OUR FUTURE
REVENUES.
We expect that Internet banking products, electronic commerce solutions and
related services will represent a significant portion of our revenues in the
foreseeable future. The markets for these products have developed slowly to date
within financial institutions, and financial institutions often delay purchasing
decisions for these products due to uncertainties relating to cost, return on
4
<PAGE>
investment and client acceptance. In particular, community banks have been
slower than larger banks to adopt Internet banking and have very little history
of providing electronic commerce services. Furthermore, telephone and personal
computer banking systems marketed in the past have not enjoyed widespread
consumer adoption. We can give no assurance that our electronic commerce and
Internet banking services will achieve widespread acceptance by community banks
or their customers. We cannot predict the size of the markets for electronic
commerce and Internet banking services among community banks and their
customers, the rate at which those markets will grow or whether there will be
widespread customer acceptance of our services.
We also depend on community banks to market and promote our products to
their customers. We and our community bank clients may not be successful in
marketing our current or future products and services. Moreover, our contracts
to provide products and services to community banks generally have terms from
one to five years. Upon expiration, a community bank may discontinue its
contracts. Unless our electronic commerce and Internet banking products and
related services are successfully deployed and marketed by a large number of
community banks and achieve widespread market acceptance by their customers for
a significant period of time, we will not be able to achieve our business
objectives and increase our revenues.
WE ARE DEPENDENT ON THE COMMUNITY BANKING INDUSTRY.
We expect to derive significantly all of our revenues for the foreseeable
future from products and services provided to community banks. Our future
success depends significantly upon the continued demand for our products and
services within this industry. In addition, changes in economic conditions and
unforeseen events, such as recession, inflation or other adverse occurrences,
may result in a significant decline in the use of community banks or demand for
our products and services. Any decreased use of community banks, increased
pressures on community banks to develop Internet banking systems and electronic
commerce applications in-house, or deferral by community banks of upgrades of
their enterprise processing applications, could have a material adverse effect
on our business financial condition and results of operations.
WE DEPEND ON THE WIDESPREAD ADOPTION OF ELECTRONIC COMMERCE PROCUREMENT
SOLUTIONS BY SMALL BUSINESSES FOR A SIGNIFICANT PART OF OUR GROWTH.
We anticipate that revenues generated from electronic commerce transactions
on the Open Community Network will comprise a significant portion of our future
revenues. In order for us to be successful, community banks' small business
customers must adopt our Open Community Network as a solution for the purchase
of much of their non-production goods and services. The adoption of our Open
Community Network as the vehicle for many of these purchasing transactions will
require broad acceptance of a new approach for these companies. In addition,
many of these small businesses may already have infrastructures that support
more traditional methods of procurement. These small businesses could be
resistant to adopt our Open Community Network.
WE MAY EXPERIENCE DELAYS IN DEVELOPING ENHANCEMENTS OF EXISTING PRODUCTS AND
SERVICES AND DEVELOPING NEW PRODUCTS AND SERVICES.
Our future success will depend on our ability to develop, test, sell and
support enhancements of current products and services and new products and
services on a timely basis in response to changing customer needs, competition,
technological developments and emerging industry standards. The market for our
products and services is characterized by rapidly changing technology, evolving
industry standards, emerging competition and frequent new product and service
introductions. These developments could limit the marketability of our products
and services. There can be no assurance that we can successfully identify new
product opportunities
5
<PAGE>
and develop and bring new products and services to market in a timely manner.
Our failure to successfully adapt to this rapidly changing market could
adversely affect our business.
OUR QUARTERLY RESULTS MAY FLUCTUATE, RESULTING IN A DECREASE IN OUR STOCK PRICE.
Our quarterly results may fluctuate as a result of a variety of factors,
many of which are outside our control, including the following:
- uneven demand for our products and services;
- the timing and market acceptance of new products or product enhancements
by us or our competitors;
- a change in the distribution channels through which our products are sold;
- the timing of hiring sales personnel and the speed at which such personnel
become productive;
- our inability to anticipate or adapt effectively to developing markets and
rapidly changing technologies; and
- our prices or the prices of our competitors' products may change.
If our quarterly revenues or operating results fall below the expectations
of investors or security analysts, the price of our common stock could decrease
significantly. Most of our expenses, such as employee compensation and rent, are
relatively fixed in the short term. Moreover, our expense levels are based in
part on our expectations regarding future revenue levels. As a result, if
revenues for a particular quarter are below our expectations, we may not be able
to reduce operating expenses proportionately for that quarter and therefore,
this revenue shortfall would have a disproportionately negative effect on our
operating results for that quarter.
WE HAVE LITTLE OR NO CONTROL OVER THE SALES CYCLE OF OUR PRODUCTS AND SERVICES.
Typically, senior management of a community bank makes the purchase decision
relating to our enterprise processing applications. Community banks tend to be
cautious in making significant purchase decisions like this because such
purchases involve a commitment of resources, recurring expense, and the
attendant delays frequently associated with approving capital expenditures and
reviewing new technologies that affect key operations. Our clients'
decision-making processes require us to provide a significant level of education
to prospective clients regarding the use and benefits of our enterprise
processing applications. We may expend significant funds and management
resources during the sales cycle and fail to make the sale. Accordingly, our
results of operations for a particular period may be adversely affected if the
sales forecasted for a particular period are delayed or do not otherwise occur.
Our sales cycle for our enterprise processing applications generally ranges
between six to nine months, as compared to a matter of weeks or days for the
other components of our Open Community Network. Our sales cycle for all of our
products and services is subject to significant risks and delays over which we
have little or no control, including:
- our clients' budgetary constraints;
- our clients' willingness to implement an electronic commerce and Internet
banking enabling processing environment;
- the success and continued support of our strategic marketing partners'
sales efforts; and
- timing and expiration of our clients' current license agreements for
similar services.
6
<PAGE>
WE RECEIVE A PORTION OF OUR REVENUES FROM OUR RELATIONSHIPS WITH OUR STRATEGIC
MARKETING PARTNERS.
We expect that revenues generated from the sale of our products and services
based on leads generated by our strategic marketing partners will account for a
portion of our revenues for the foreseeable future. In particular, we expect
that BISYS, Inc. and Connecticut On-Line Computer Center, Inc. will account for
a portion of our client leads and, therefore, revenues over time. We pay each
strategic marketing partner a commission based on the revenues generated by
their leads. If we lose one or more of our major strategic marketing partners,
we may be unable in a timely manner, or at all, to replace them with another
entity with comparable client bases and user demographics.
WE ARE CURRENTLY EXPERIENCING A PERIOD OF SIGNIFICANT GROWTH THAT IS PLACING A
STRAIN ON OUR RESOURCES.
We have experienced significant growth in our operations since January 1,
1999 and anticipate that additional expansion will be required to continue our
growth. Any expansion of our business would place additional demands on our
management, operational capacity and financial resources. Our failure to manage
growth effectively could have a material adverse effect on our business,
financial condition and results of operations. We anticipate that we will need
to recruit qualified personnel in all areas of our operations, including
management, sales, marketing, implementation and software development, to
effectively manage and control additional growth. There can be no assurance that
we will be effective in attracting and retaining additional qualified personnel,
expanding our operational capacity or otherwise managing growth. We have
increased our number of employees from 143 at December 31, 1999 to 174 at
February 29, 2000. In the last two quarters we have added a number of key
managerial, technical and operations personnel, including a new Chief Executive
Officer and Chief Financial Officer and we expect to add additional key
personnel in the near future. To manage the expected growth of our operations
and personnel, we must continue improving or replacing existing operational,
accounting and information systems, procedures and controls.
COMPETITION FOR PERSONNEL IN OUR INDUSTRY IS INTENSE.
Qualified personnel are in great demand throughout the computer software,
hardware and networking industries. The demand for qualified personnel is
particularly acute in the New England area due to the large number of software
and other high technology companies and low unemployment in the region. Our
success depends in large part upon our ability to attract, train, motivate and
retain highly-skilled employees, particularly sales and marketing personnel,
software engineers and technical support personnel. We have had difficulty
hiring these highly-skilled employees in the past. If we are unable to attract
and retain the highly-skilled technical personnel that are integral to our
sales, marketing, product development and client support teams, the rate at
which we can generate sales and develop new products or product enhancements may
be limited.
OUR BUSINESS IS DEPENDENT ON OUR KEY EXECUTIVES.
Our future success depends to a significant extent on the skills, experience
and efforts of our senior management. We also depend on the ability of our
executive officers and senior managers to work effectively as a team. We have
employment agreements with Louis Hernandez, Jr., John L. Person, Clifford I.
Waggoner and John S. Wieczorek. The loss of one or more of these individuals
could have a material adverse effect on our business.
7
<PAGE>
WE RELY ON INTERNALLY-DEVELOPED SOFTWARE AND SYSTEMS AS WELL AS THIRD-PARTY
PRODUCTS.
We have developed custom software for our systems. This software may contain
undetected errors, defects or bugs. Although we have not suffered significant
harm from any errors or defects to date, we may discover significant errors or
defects in the future that we may or may not be able to correct. We must expand
and upgrade our technology and network infrastructure if the volume of traffic
and transactions on our Open Community Network increases significantly. We could
experience periodic temporary capacity constraints, which may cause
unanticipated system disruptions, slower response times and lower levels of
client and customer service. We may be unable to accurately project the rate or
timing of increases, if any, in the use of our services or expand and upgrade
our systems and infrastructure to accommodate these increases in a timely
manner. Any inability to do so could harm our business. Our products involve
integration with products and systems developed by third parties. If any of
these third-party products should become unavailable for any reason, fail under
operation with our products or fail to be supported by their respective vendors,
it would be necessary for us to redesign our products. There can be no assurance
that any redesign could be accomplished in a cost-effective or timely manner. We
also may experience difficulties integrating our products with other hardware
and software. Furthermore, should new releases of products and systems occur
before we develop products compatible with these new releases, any resulting
decline in demand for our products could have a material adverse effect on our
business, financial condition and results of operations.
WE COULD BE SUED FOR PRODUCT LIABILITY CLAIMS.
Our agreements with our community banks typically contain provisions
designed to limit our exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in our
agreements may not be effective under the laws of all jurisdictions. Although we
have not experienced any product liability claims to date, the sale and support
of our products may entail the risk of these claims. A product liability claim
brought against us could have a material adverse effect on our business,
financial condition and results of operations.
WE ARE DEPENDENT ON OUR ELECTRONIC COMMERCE AND INTERNET BANKING HOSTING
FACILITY, AND IT COULD SUFFER TECHNICAL PROBLEMS AND SERVICE INTERRUPTIONS.
We expect to provide significantly all of our electronic commerce and
Internet banking services as an application service provider. As such, we are
dependent upon our hosting facility which could suffer technical problems and
service interruptions. Most of the communications and network equipment we use
to provide these services are located at our corporate headquarters in
Glastonbury, Connecticut. Any system failure at this location could lead to
interruptions, delays or termination of application services to our clients,
which could have a material adverse effect on our business, financial condition
and results of operations. Our application service provider operations are
dependent upon our ability to protect our systems against damage from fires,
hurricanes, earthquakes, as well as, power losses, telecommunications and
network failures, computer viruses, hacker attacks and other events beyond our
control. Although we will have an alternate site provided by an emergency
service provider and periodically verify the ability to use this alternate site,
we cannot assure that this data center will operate as anticipated during an
emergency. In the event of a disaster that impacts our application service
provider hosting facility, it may take several days for an off-site computer
system to become operational for all of our application service provider
services that we provide to community banks. The use of an alternative emergency
site would result in significant additional cost to us. In the event of an
extended outage, we could potentially lose many of our clients which could have
a material adverse effect on our business, financial condition and results of
operations.
8
<PAGE>
OUR BUSINESS IS HIGHLY COMPETITIVE.
The markets for electronic commerce, Internet banking services and
enterprise processing applications are highly competitive. We expect competition
in our markets to increase significantly as new companies enter our market and
current competitors expand their product lines and services. Community banks
could enter into strategic relationships with one or more of our competitors to
develop, market and sell competing services or products. We compete with a
variety of third parties that employ many different approaches to providing
electronic commerce, Internet banking and enterprise processing applications
services. In addition, we will compete with other providers of business to
business electronic commerce solutions on the basis of the breadth of our
available partner-suppliers. Many of our potential competitors are likely to
enjoy significant competitive advantages, including:
- greater development and sales and marketing resources;
- longer operating histories;
- greater financial, technical and managerial resources;
- greater name recognition;
- larger base of clients; and
- clients with larger customer bases.
Any pricing pressures, reduced margins or loss of market share resulting
from our failure to compete effectively with these or other parties would
materially adversely affect our financial condition and operating results.
GOVERNMENT REGULATION COULD INTERFERE WITH OUR BUSINESS.
The financial services industry is subject to extensive and complex federal
and state regulations. Financial institutions including commercial banks operate
under high levels of governmental supervision. We must ensure that our products
and services work within the extensive and evolving regulatory requirements
applicable to our clients.
We are not required to be licensed by the federal depository institution
regulators or other regulators of financial services. We are subject to
examination by the federal depository institution regulators under the Bank
Service Company Act and the Examination Parity and Year 2000 Readiness for
Financial Institutions Act. These regulators have broad supervisory authority to
remedy any shortcomings identified in any such examination. In addition, through
their ability to regulate our community banks customers' system requirements,
bank regulators can effectively regulate the required security systems,
communication technologies and other features of our products and services.
Federal, state or foreign authorities could adopt laws, rules or regulations
relating to the financial services industry that affect our business, such as
compliance with data, record keeping and processing and other requirements. It
is possible that laws and regulations may be enacted with respect to the
Internet, covering issues such as user privacy, pricing, content,
characteristics, taxation and quality of services and products. Existing
regulations may be modified. If enacted, modified or otherwise deemed applicable
to us, these laws, rules or regulations could render our business or operations
more costly, burdensome, less efficient or impossible, which may require us to
modify our current or future products or services.
A number of legislative and regulatory proposals relating to Internet
commerce are under consideration by federal, state, local and foreign
governments. As a result, a number of laws or regulations may be adopted with
respect to Internet user privacy, taxation, pricing, quality of
9
<PAGE>
products and services and intellectual property ownership. There is also
uncertainty as to how existing laws will be applied to the Internet in areas
such as property ownership, patent, copyright, trademark, trade secret,
obscenity and defamation.
WE COULD BE LIABLE FOR INFORMATION RETRIEVED FROM OUR WEB SITES.
We may be subject to third-party claims for defamation, negligence,
copyright or trademark infringement or other theories based on the nature and
content of information supplied on our web sites by us or third parties,
including our content providers and users. These types of claims have been
brought, sometimes successfully, against online services in the past. Even if
these claims do not result in liability to us, we could incur significant costs
in investigating and defending against these claims and in implementing measures
to reduce our exposure to this liability. Our insurance may not cover potential
claims of this type or may not be adequate to cover all costs incurred in
defense of potential claims or to indemnify us for all liability that we may
incur.
OUR LIMITED ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY AND OTHER RIGHTS MAY
ADVERSELY AFFECT OUR ABILITY TO COMPETE. WE MAY ALSO BE FOUND TO INFRINGE
PROPRIETARY RIGHTS OF OTHERS.
Our future success and ability to compete depends in part upon our
proprietary technology and other rights. None of our technology is currently
patented. Instead, we rely on a combination of contractual rights and copyright,
trademark and trade secret laws to establish and protect our proprietary
technology and trademarks. We cannot assure you that the steps taken by us to
protect our proprietary information will be adequate to prevent misappropriation
of our technology or trademarks or that our competitors will not independently
develop technologies that are substantially equivalent or superior to our
technology. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain or use our products or
technology. Monitoring unauthorized use of our products is difficult. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States.
We are also subject to the risk of claims and litigation alleging
infringement of the intellectual property rights of others. Third parties may
assert infringement claims in the future with respect to our current or future
products. Any assertion, regardless of its merit, could require us to pay
damages or settlement amounts and could require us to develop non-infringing
technology or pay for a license for the technology that is the subject of the
asserted infringement. Any litigation or potential litigation could result in
product delays, increased costs or both. In addition, the cost of litigation and
the resulting distraction of our management resources could adversely affect our
results of operations. We also cannot assure that any licenses for technology
necessary for our business can be obtained on commercially reasonable terms.
POTENTIAL ACQUISITIONS INVOLVE RISKS.
We may acquire complementary products, services and businesses in the
future. Future acquisitions may involve the issuance of stock that could be
potentially dilutive to our shareholders or may involve additional debt and
contingent liabilities or large one-time write-offs and amortization expenses
related to goodwill and other intangible assets. Any of these factors could
adversely affect our results of operations or our stock price. Acquisitions
involve numerous risks including:
- difficulties in assimilating the operations, products, technology,
information systems and personnel of the acquired company;
- diverting management's attention from other business concerns;
10
<PAGE>
- impairing relationships with our employees, affiliates, strategic
marketing partners and content providers;
- being unable to maintain uniform standards, controls, procedures and
policies;
- entering markets in which we have no direct prior experience; and
- losing key employees of the acquired company.
Some or all of these risks could result in a material adverse effect on our
business, financial condition and results of operations. In addition, we cannot
assure you that we will be able to identify suitable acquisition candidates that
are available for sale at reasonable prices. We may elect to finance future
acquisitions using some or all of the proceeds of this offering. There can be no
assurance that we will be able to arrange adequate financing for any
acquisitions on acceptable terms.
RISKS RELATED TO THE INTERNET, ELECTRONIC COMMERCE AND INTERNET BANKING
WE DEPEND ON THE EFFICIENT OPERATION OF THE INTERNET, OTHER NETWORKS AND SYSTEMS
OF THIRD PARTIES; IF THEY DO NOT OPERATE EFFICIENTLY, WE WILL NOT BE ABLE TO
EFFECTIVELY PROVIDE OUR PRODUCTS AND SERVICES.
We depend on the efficient operation of network connections from community
banks and partner-suppliers to our Open Community Network. Further, a
significant amount of our revenues will be dependent on continued usage by our
clients' customers of the electronic commerce and Internet banking services of
our Open Community Network and their connections to the Internet. Each of these
connections, in turn, depends on the efficient operation of web browsers,
Internet service providers and data network service providers, all of which have
had periodic operational problems or have experienced outages. In addition, the
majority of our services depend on real-time connections to the systems of
community banks. Any operational problems or outages in these systems would
cause us to be unable to provide a real-time connection to these systems and we
would be unable to process electronic commerce or Internet banking transactions
for customers. In addition, any system delays, failures or loss of data,
whatever the cause, could reduce client and customer satisfaction with our
products and services and harm our sales. Any development that significantly
impairs the growth of the Internet or its acceptance as a medium for transaction
processing could have a material adverse effect on our business, financial
condition and operating results.
THE IMPOSITION OF SALES TAX AND OTHER TAX OBLIGATIONS ON ELECTRONIC COMMERCE
COULD AFFECT OUR FINANCIAL PERFORMANCE AND LIMIT OUR GROWTH.
We do not currently intend to collect sales tax or other similar taxes with
respect to our marketing of products and services. If one or more states or any
foreign country were to require that we collect sales or other taxes on the sale
of products through our system, it could have a material adverse effect on our
future financial results.
A number of proposals have been made at the federal, state and local levels
that would impose taxes on the sale of goods and services through the Internet
in circumstances where no tax or tax collection responsibility is presently
thought to be imposed. Such proposals, if adopted, could significantly impair
the growth of electronic commerce and could adversely affect our future results
of operation and financial condition.
There is currently in effect in the United States a three-year moratorium
expiring on October 20, 2001 on new state and local taxes on Internet access and
"multiple or discriminatory" taxes on electronic commerce. Sales or use taxes
imposed on those buying or selling products or services
11
<PAGE>
over the Internet are not generally affected by this moratorium. The full effect
of this moratorium on our business is not clear. To the extent that the
moratorium provides a material benefit, its expiration on October 20, 2001 could
have a material adverse effect on our financial condition and results of
operations.
INTERNET SECURITY CONCERNS COULD HINDER ELECTRONIC COMMERCE AND INTERNET BANKING
SERVICES; WE COULD BE LIABLE FOR MISAPPROPRIATION OF OUR USERS' PERSONAL
INFORMATION.
Users of electronic commerce and Internet banking services are highly
concerned about the security of transmissions over public networks. Concerns
over security and the privacy of users may inhibit the growth of the Internet
and other online services generally especially as a means of conducting
commercial transactions. Any well publicized compromise of security could deter
people from using the Internet or using it to conduct transactions that involve
transmitting confidential information. We may incur significant costs to protect
against the threat of security breaches or to alleviate problems caused by those
breaches. Eliminating computer viruses and alleviating other security problems
may result in interruptions, delays or termination of service to users accessing
web sites that deliver our services, any of which could harm our business. We
rely on browser-level encryption, authentication and certificate technologies,
all of which are licensed from third parties, to provide the security and
authentication necessary to effect secure transmission of data. However, we
cannot guarantee that advances in computer capabilities, new discoveries in the
field of cryptography or other events or developments will not result in a
compromise or breach of our security measures. Unauthorized users could possibly
circumvent the measures we take to protect client data. To the extent that our
activities involve the storage and transmission of proprietary information,
security breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability. Any compromise of our security could harm our
business. In addition, the Federal Trade Commission and state agencies have been
investigating various Internet companies regarding their use of personal
information. We could incur additional expenses if new regulations regarding the
use of personal information are introduced or if our privacy practices are
investigated. See "Business--Privacy Policy."
RISKS RELATED TO THIS OFFERING OF OUR COMMON STOCK
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK.
Before this offering, there has been no public market for our common stock.
Although we expect our common stock to be quoted on the Nasdaq National Market,
an active trading market for our shares may not develop or may not be sustained
following this offering. Purchasers in this offering may not be able to resell
their shares at prices equal to or greater than the initial public offering
price. The initial public offering price will be determined through negotiations
between us and the underwriters and may not be indicative of the market price
for these shares following this offering. You should read "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
OUR EXISTING STOCKHOLDERS WILL CONTINUE TO CONTROL ALL MATTERS REQUIRING A
STOCKHOLDER VOTE.
Following this offering, our officers, directors and affiliated persons will
beneficially own approximately % of our common stock, or % if the
underwriters exercise their over-allotment option in full. As a result, our
officers, directors and affiliated persons will effectively be able to:
- elect or defeat the election of our directors;
- amend or prevent amendment of our certificate of incorporation or bylaws;
12
<PAGE>
- effect or prevent a merger, sale of assets or other corporate transaction;
and
- control the outcome of any other matter submitted to the shareholders for
vote.
As long as our public stockholders hold less than 50% of our common stock,
they will be unable to control the outcome of these transactions. Management's
stock ownership may discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of Open Solutions, which in turn could
reduce our stock price or prevent our stockholders from realizing a premium over
our stock price. See "Management" and "Principal Stockholders."
PROVISIONS OF OUR CHARTER AND BY-LAWS AND OF DELAWARE LAW MAY MAKE A TAKEOVER
MORE DIFFICULT.
Provisions in our certificate of incorporation and by-laws and in the
Delaware corporate law may make it difficult and expensive for a third party to
pursue a tender offer, change in control or takeover attempt which is opposed by
our management and Board of Directors. Public stockholders who might desire to
participate in such a transaction may not have an opportunity to do so. In
addition, we have a staggered Board of Directors which makes it difficult for
stockholders to change the composition of the Board of Directors in any one
year. These anti-takeover provisions could significantly impede the ability of
public stockholders to change our management and Board of Directors. See
"Description of Capital Stock Delaware Law and Certain Charter and By-Law
Provisions."
YOU WILL SUFFER IMMEDIATE AND SIGNIFICANT DILUTION.
The initial public offering price per share will be significantly higher
than the net tangible book value per share immediately after the offering. If
you purchase common stock in this offering, you will incur immediate and
substantial dilution of $ per share in the net tangible book value per
share of the common stock from the price you paid. We also have a large number
of outstanding warrants and stock options to purchase our common stock with
exercise prices significantly below the initial public offering price of the
common stock. To the extent these warrants or options are exercised, there will
be further dilution. See "Dilution."
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Many factors may cause the market price for our common
stock to decline, perhaps significantly, following this offering, including:
- the demand for our common stock;
- revenues and operating results failing to meet the expectations of
securities analysts or investors in any quarter;
- downward revisions in securities analysts' estimates or changes in general
market conditions;
- technological innovations by competitors or in competing technologies;
- investor perception of our industry or our prospects; and
- general technology or economic trends.
In the past, companies that have experienced volatility in the market price
of their stock have been the subject of securities class action litigation. We
may be involved in a securities class action litigation in the future. Such
litigation often results in significant costs and a diversion of management's
attention and resources and could harm our business, financial condition and
results of operations.
13
<PAGE>
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
If our existing stockholders sell a large number of shares of our common
stock or the public market perceives that existing stockholders might sell
shares of common stock, the market price of the common stock could significantly
decline. All of the shares offered under this prospectus will be freely tradable
in the open market, and
- additional shares may be sold immediately after this offering;
- additional shares may be sold 90 days after the effective date of
this offering; and
- additional shares may be sold upon the expiration of 180-day
lock-up agreements.
For more information on these shares that will be available for sale into
the public markets in the future, see "Shares Eligible for Future Sale."
Deutsche Bank Securities Inc., as representative of the underwriters, may
release any or all shares from the lock-up agreements at any time and without
notice.
Existing stockholders holding an aggregate of shares of common
stock have the right to require us to register their shares of common stock with
the Securities and Exchange Commission. If we register their shares of common
stock, they can sell those shares in the public market. See "Description of
Capital Stock--Registration Rights."
After this offering, we intend to register approximately shares
of our common stock that we have issued or may issue under our stock plans. Once
we register these shares, they can be freely sold in the public market upon
issuance subject to the lock-up agreements described above.
WE WILL HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS FROM THIS OFFERING.
Our Board of Directors and our management will have broad discretion over
the use of the net proceeds of this offering. Investors will be relying on the
judgment of our Board of Directors and our management regarding the application
of the proceeds of this offering. See "Use of Proceeds."
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on shares of our common
stock. We currently intend to retain our earnings, if any, for future growth
and, therefore, do not anticipate paying any dividends in the foreseeable
future.
14
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance and are identified by terminology such as "may,"
"will," "could," "should," "expects," "plans," "intends," "seeks,"
"anticipates," "believes," "estimates," "potential," or "continue" or the
negative of such terms or other comparable terminology. These statements are
only predictions. You should not place undue reliance on these forward-looking
statements. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various important factors,
including the risks outlined under "Risk Factors." These factors may cause our
actual results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform such
statements to actual results.
------------------------
EXCEPT AS SET FORTH IN THE FINANCIAL STATEMENTS OR AS OTHERWISE INDICATED,
ALL INFORMATION IN THIS PROSPECTUS:
- ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED;
- REFLECTS THE CONVERSION OF ALL OUTSTANDING SHARES OF OUR CONVERTIBLE
PREFERRED STOCK INTO SHARES OF OUR COMMON STOCK UPON THE CLOSING OF
THIS OFFERING; AND
- REFLECTS THE FILING, AS OF THE CLOSING OF THIS OFFERING, OF OUR RESTATED
CERTIFICATE OF INCORPORATION AND THE ADOPTION OF OUR AMENDED AND RESTATED
BY-LAWS IMPLEMENTING CERTAIN PROVISIONS DESCRIBED BELOW UNDER "DESCRIPTION
OF CAPITAL STOCK" AND THE RECEIPT OF STOCKHOLDER APPROVAL THEREFOR.
15
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares
of common stock that we are offering hereby will be approximately $
after deducting underwriting discounts and commissions and estimated offering
expenses.
We expect to use the net proceeds for working capital and general corporate
purposes, including product development and sales and marketing. In addition, we
may use a portion of the net proceeds to acquire or invest in complementary
businesses, products or technologies. However, we have no current plans,
agreements or commitments with respect to any such acquisition, and we are not
currently engaged in any negotiations with respect to any such transaction.
Pending such uses, we intend to invest our net proceeds from the offering in
short-time, interest-bearing, investment-grade securities, certificates of
deposit or direct or guaranteed obligations of the United States.
The principal purposes of this offering are to obtain additional working
capital, to create a public market for our common stock and to create a currency
for employee benefit purposes and possible future acquisitions.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying cash dividends in the foreseeable future. We
currently intend to retain future earnings, if any, to fund the expansion and
growth of our business. Payment of future cash dividends, if any, will be at the
discretion of our Board of Directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Open Solutions as of
December 31, 1999:
- on an actual basis; and
- on a pro forma, as adjusted basis giving effect to the conversion of all
outstanding shares of our convertible preferred stock into common stock
upon the closing of this offering and the issuance and sale of the
shares of common stock offered by this prospectus, assuming an initial
public offering price of $ per share, the mid-point of the range set
forth on the cover page of this prospectus, and after deducting the
estimated underwriting discounts and commissions and offering expenses.
This information should be read in conjunction with our financial statements and
notes there to appearing elsewhere in this prospectus. This information also
gives effect to the filing of our amended and restated certificate of
incorporation. This information excludes shares of common stock issuable
upon exercise of outstanding options as of , 2000, of which options
to purchase shares of common stock were exercisable as of such date. This
information also excludes 2,145,925 shares of Series F preferred stock sold on
March 17, 2000 for an aggregate purchase price of $20,000,021.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------------ ------------
<S> <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; none authorized, issued or outstanding on a pro
forma and pro forma as adjusted basis................... $ 500,000 $
Series B preferred stock, $0.01 par value; 1,736,250
shares authorized, 1,627,917 issued and outstanding
actual; none authorized, issued or outstanding on a pro
forma and proforma as adjusted basis.................... 4,930,333
Series C preferred stock, $0.01 par value; 1,375,000
shares authorized, 1,263,889 issued and outstanding
actual; none authorized, issued or outstanding on a pro
forma and pro forma as adjusted basis................... 5,731,482
Series D preferred stock, $0.01 par value; 1,250,000
shares authorized, 833,333 issued and outstanding
actual; none authorized, issued or outstanding on a pro
forma and pro forma as adjusted basis................... 4,977,734
Series E preferred stock, $0.01 par value; 746,157 shares
authorized, 746,157 issued and outstanding actual; none
authorized, issued or outstanding on a pro forma and
proforma as adjusted basis.............................. 5,944,940
------------ ------------
$ 22,084,489
============
Stockholders' equity (deficit):
Series A-1 preferred stock, $0.01 per value; 1,000,000
shares authorized, 1,000,000 issued and outstanding
actual; none authorized, issued or outstanding on a pro
forma and pro forma as adjusted basis................... 10,000
Series A-2 preferred stock, $0.01 par value; 416,666
shares authorized, 416,666 issued and outstanding
actual; none authorized, issued or outstanding on a pro
forma and pro forma as adjusted basis................... 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 on a pro
forma and pro forma as adjusted basis................... --
Common stock, $0.01 par value; 20,000,000 shares
authorized, 2,637,226 issued and outstanding actual;
40,000,000 shares authorized, 7,544,485 on a pro forma
and pro forma as adjusted basis shares issued and
outstanding............................................. 26,372
Additional paid-in capital................................ 4,492,280
Accumulated deficit....................................... (21,080,788)
------------ ------------
Total stockholders' equity (deficit).................... (16,547,969)
------------ ------------
Total capitalization................................ $ 5,536,520
============ ============
</TABLE>
17
<PAGE>
DILUTION
As of December 31, 1999, we had a net tangible book value of $ , or
$ per share of common stock. Pro forma net tangible book value per share is
determined by dividing our tangible net worth (tangible assets less liabilities)
by the number of shares of common stock outstanding, after giving effect to the
mandatory conversion of our convertible preferred stock upon the completion of
this offering. After giving effect to the sale of the shares of common stock
offered hereby at an assumed initial public offering price of $ per share,
the mid-point of the range set forth on the cover page of this prospectus, and
after deducting the estimated underwriting discounts and commissions and
offering expenses, our pro forma net tangible book value as of December 31,
1999, would have been approximately $ per share. This represents an
immediate increase in such pro forma net tangible book value of $ per share
to existing stockholders and an immediate dilution of $ 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, accordingly. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
, ..................................................... $
Increase per share attributable to this offering..........
---
Pro forma net tangible book value per share after this
offering.................................................. $
---
Dilution per share to new investors......................... $
===
</TABLE>
The following table summarizes, on a pro forma basis as of ,
, after giving effect to the conversion of all outstanding shares of our
convertible preferred stock upon the closing of this offering, the difference
between existing stockholders and the new investors with respect to the number
of shares of common stock purchased, the total consideration paid and the
average price per share paid. The table assumes that the initial public offering
price will be $ , the mid-point of the range set forth on the cover of this
prospectus.
If the underwriters' over allotment option is exercised in full, the number
of shares held by existing stockholders will decrease to , or
% of the total number of shares of common stock after the offering.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New investors....................
--- --- --- ---
Total.......................... 100% 100%
</TABLE>
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected financial data set forth below as of December 31, 1999 and
1998, and for the three years ended December 31, 1999 are derived from our
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, 1997, 1996 and 1995
and for the two years ended December 31, 1996 are derived from our audited
financial statements which are not included in this prospectus. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements, including the notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license............................ $ 213 $ 801 $ 4,314 $ 6,276 $ 5,347
Service and maintenance..................... 55 218 2,550 6,631 8,705
------- ------- ------- ------- -------
Total revenues............................ 268 1,019 6,864 12,907 14,052
Cost of revenues:
Software license............................ 223 507 1,160 1,503 1,567
Service and maintenance..................... 477 1,530 3,150 5,755 6,261
------- ------- ------- ------- -------
Total cost of revenues.................... 700 2,037 4,310 7,258 7,828
Operating expenses:
Sales and marketing......................... 398 1,051 2,132 3,711 3,960
Product development......................... 661 1,060 1,902 2,300 4,149
General and administrative.................. 399 645 1,784 3,110 3,150
Contract termination........................ -- -- -- 1,265 --
Transaction costs........................... -- -- -- 1,390 --
------- ------- ------- ------- -------
Total operating expenses.................. 1,458 2,756 5,818 11,776 11,259
Loss from operations.......................... (1,890) (3,774) (3,264) (6,127) (5,035)
Interest income (expense), net................ (5) 136 209 305 320
------- ------- ------- ------- -------
Net loss...................................... $(1,895) $(3,638) $(3,055) $(5,822) $(4,715)
======= ======= ======= ======= =======
Net loss per common share (basic and
diluted)....................................
Weighted average common shares used to compute
net loss per common share...................
Unaudited pro forma net loss per common share
(basic and diluted).........................
Unaudited pro forma weighted average common
shares outstanding..........................
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 3,914 $ 4,438 $ 7,596 $ 3,182 $ 5,225
Working capital............................. 3,570 4,901 6,198 1,548 3,008
Total assets................................ 4,354 7,546 11,302 9,145 10,027
Long-term debt, less current portion........ -- -- 58 -- --
Mandatorily redeemable convertible preferred
stock..................................... 5,092 10,573 15,551 16,140 22,084
Stockholders' (deficit)..................... (1,253) (4,779) (7,826) (12,018) (16,548)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND
THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CONTAINED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We provide electronic commerce platforms, Internet banking services and
enterprise processing applications to community banks. Our clients can deploy a
comprehensive integrated system that tracks a community bank's customer
transactions, in real-time whether the transactions occur at the ATM, on the
Internet or inside a community bank. Our system architecture uses an Oracle
relational database that enables our community banks to provide better customer
service and enhance customer relationship management.
We were formed in May 1992 and released our first major product, The
Complete Banking Solution, our enterprise processing application solution, in
the second quarter of 1995. We began to offer and recognized revenue from the
electronic commerce products and services within the Open Community Network in
the first quarter of 2000.
As of February 29, 2000, over 130 community banks have purchased The
Complete Banking Solution or The Complete Credit Union Solution, of which 107
have been implemented. In addition, 31 of the above mentioned community banks
purchased the eCommerce Banker, of which 20 have been implemented. Finally, 13
of the community banks that purchased an enterprise processing application also
have purchased eCommerce Mart, of which three have been implemented.
Substantially all of our historical revenue has been generated through the
licensing of our enterprise processing applications to community banks and the
provision of related services and maintenance. In 2000, we began to recognize
revenue from the license of our eCommerce Banker Internet banking service. We
have recently begun to deploy the eCommerce Mart component of the Open Community
Network in conjunction with the eCommerce Banker to several community banks. In
the future, we expect to derive a significant portion of our revenue from
electronic commerce and
20
<PAGE>
Internet banking related activities. The following table is a summary of our
expected sources of revenue for future periods:
<TABLE>
REVENUE SOURCES PRODUCT
<S> <C> <C>
Software Licenses Direct licensing fees are primarily The Complete Banking Solution,
associated with the enterprise The Complete Credit Union
processing applications. These fees are Solution
based on our client's asset size and
number of accounts. Sublicensing fees
are based on software license and
marketing agreements with our strategic
marketing partners.
Service and Maintenance Fees Service fees include implementation and The Complete Banking Solution,
training fees and are based on our The Complete Credit Union
client's size and magnitude and the Solution
complexity of the project. This service
is performed in conjunction with the
installation of the software.
Maintenance fees are based on a
percentage of list price for the
software license.
Application Service Provider Monthly fees are collected from eCommerce Mart, eCommerce
community banks for providing a fully Banker
operational web hosting facility.
Community banks may opt to purchase,
for an additional charge, eMarketing
services designed to encourage use of
the electronic commerce and Internet
banking services.
Electronic Commerce Partner-suppliers pay a commission when eCommerce Mart
Transactions purchases are made on Open Community
Network. Commissions are based on the
type and volume of the goods purchased
by the customer and are shared between
a community bank and Open Solutions.
</TABLE>
Support and maintenance agreements generally have a term of 12 months and
are renewable annually. As of December 31, 1999, all users of our products were
covered by support and maintenance agreements.
We currently market our products in the United States directly and, through
an alliance with Unisys Corporation, in Asia (except Japan), Africa, Australia
and New Zealand. We have software license and marketing agreements with
BISYS, Inc. and Connecticut On-Line Computer Center, Inc. Under these
agreements, our strategic marketing partners use our products to provide
enterprise processing application solutions to community banks on an outsourced
basis. Under the agreement with BISYS Inc., we receive software license revenues
that are recognized over a three-year period following the implementation by
BISYS, Inc. of each of its clients' systems. Under the agreement with
Connecticut On-Line Computer Center, Inc., software license fees are paid up to
a maximum of $3.0 million, and revenues are recognized, upon implementation by
Connecticut On-Line Computer Center, Inc. of each of its clients' systems. Under
both the BISYS, Inc. and Connecticut On-Line
21
<PAGE>
Computer Center, Inc. agreements, we receive annual support and maintenance fees
on each installed system.
The amount of revenue we will generate as a result of transactions conducted
over the eCommerce Mart component of our Open Community Network is dependent on
the terms of our agreements with our nationally recognized partner-suppliers and
our community bank clients. Each of our agreements with our partner-suppliers
provides for a commission to be paid by the partner-supplier on every product or
service sold through our Open Community Network by that partner-supplier. Our
agreements with our community bank clients allows us to share the commissions
with them on a specific basis.
We recognize revenue from the license of our software when a license
agreement has been executed, fees are fixed and determinable and the software
has been delivered. Software maintenance revenue is recognized ratably over the
term of the maintenance contract and service revenue is recognized as services
are performed. We recognize revenues under our agreements with our strategic
marketing partners when the software is delivered to the strategic marketing
partners' clients unless the fees have extended payment terms and in such case
revenues are recognized as payments are received.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Software license.......................................... 62.8% 48.6% 38.1%
Service and maintenance................................... 37.2 51.4 61.9
----- ----- -----
Total revenues............................................ 100.0 100.0 100.0
Cost of revenues:
Software license.......................................... 16.9 11.6 11.1
Service and maintenance................................... 45.9 44.6 44.6
----- ----- -----
Total cost of revenues.................................. 62.8 56.2 55.7
Operating expenses:
Sales and marketing....................................... 31.1 28.7 28.2
Product development....................................... 27.7 17.8 29.5
General and administrative................................ 26.0 24.1 22.4
Contract termination...................................... -- 9.8 --
Transaction costs......................................... -- 10.8 --
----- ----- -----
Total operating expenses................................ 84.8 91.2 80.1
Loss from operations........................................ (47.6) (47.4) (35.8)
Interest income............................................. 3.1 2.3 2.3
----- ----- -----
Net loss.................................................... (44.5)% (45.1)% (33.5)%
</TABLE>
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
REVENUES. Revenues increased 8.9% to $14.1 million for 1999 from
$12.9 million for 1998. Software license revenues decreased 14.8% to
$5.3 million for 1999 from $6.3 million for 1998. This decrease of software
license revenues was primarily due to a decreased number of new sales, primarily
because of the impact of the year 2000 system concern which required community
banks to be certified as compliant by the Federal Deposit Insurance Corporation
by June 30, 1999. Once certified, any changes to a community bank's processing
system would require re-certification.
22
<PAGE>
Service and maintenance revenues increased 31.3% to $8.7 million for 1999 from
$6.6 million for 1998. This increase in service and maintenance revenues was
primarily due to an increase in the installed client base under support and
maintenance agreements and an increase in implementation related services. Our
installed client base was 106 at December 31, 1999 compared with 56 at
December 31, 1998. Our backlog at December 31, 1999 was approximately
$8.1 million, which represented the unrecognized portion of contractually
committed software license, implementation and maintenance fees.
COST OF REVENUES. Cost of software license revenues consists primarily of
sublicense fees paid on third-party software products that are sold with our
enterprise processing applications, including the Oracle relational database
product, amortization of capitalized software development costs, personnel costs
and other costs to develop and produce media and documentation. We amortize
capitalized software development costs over a three-year period. 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 7.8% to $7.8 million for 1999 from
$7.3 million for 1998. As a percent of total revenues, total cost of revenues
decreased to 55.7% for 1999 from 56.2% for 1998, reflecting higher total
revenues.
Cost of software license revenues increased 4.2% to $1.6 million for 1999
from $1.5 million for 1998. This increase was primarily due to increased
personnel and facility costs to produce media and documentation offset by a
decrease in license royalties. Cost of software license revenues as a percentage
of software license revenues increased to 29.3% for 1999 from 23.9% for 1998.
This increase was primarily due to a smaller software license fee revenue base
over which to spread increased costs.
Cost of service and maintenance revenues increased 8.8% to $6.3 million for
1999 from $5.8 million for 1998. This increase is primarily due to additional
personnel expenses in the implementation and customer support departments. Cost
of service and maintenance revenues as a percentage of service and maintenance
revenues decreased to 71.9% for 1999 from 86.8% for 1998. This decrease was
primarily due to a larger service and maintenance revenue base. We anticipate
that the dollar amount of service and maintenance costs will increase in future
periods as we expand our implementation staff to accommodate future growth.
SALES AND MARKETING. Sales and marketing expenses primarily include
personnel costs associated with our 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 6.7% to
$4.0 million for 1999 from $3.7 million for 1998. This increase was primarily
due to an increase in consulting and recruiting fees and sales commissions
offset by a decrease in advertising and promotions. Sales and marketing expenses
as a percentage of total revenues decreased to 28.2% for 1999 from 28.7% for
1998. This decrease was primarily due to a larger revenue base over which to
spread costs. We anticipate that the absolute dollar amount of our sales and
marketing expenses will increase significantly in future periods as we plan to
dramatically expand our 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. Product
development expenses increased 80.4% to $4.1 million for 1999 from $2.3 million
for 1998. This increase was primarily due to an increase in development
personnel during the second half of 1999. We capitalized software development
costs
23
<PAGE>
of $235,000 and $257,000 and capitalized costs of computer software development
for internal use of $91,000 and $83,000, in 1999 and 1998, respectively. Product
development expenses as a percentage of total revenues increased to 29.5% for
1999 from 17.8% for 1998. This increase was primarily due to the significant
increase of costs spread over a marginal increase in the revenue base. We
anticipate that product development costs will increase in absolute terms and
future periods as we continue our development work on future releases of each
component of the Open Community Network.
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 1.3% to $3.2 million for 1999
from $3.1 million for 1998. This increase was primarily due to an increase in
bad debt expense and professional service expenses offset by a decrease in
personnel costs. We expect that the dollar amount of general and administrative
costs will increase in future periods to accommodate anticipated growth as well
as the incremental expenses associated with our added responsibilities as a
public company. General and administrative expenses as a percentage of total
revenues decreased to 22.4% for 1999 from 24.1% for 1998. This decrease was
primarily due to a larger revenue base over which to spread costs.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
REVENUES. Revenues increased 88.1% to $12.9 million for 1998 from
$6.9 million for 1997. Software license revenues increased 45.5% to
$6.3 million for 1998 from $4.3 million for 1997. This increase of software
license revenues was primarily due to increased sales of the enterprise
processing applications. Service and maintenance revenues increased 160.1% to
$6.6 million for 1998 from $2.6 million for 1997. This increase in service and
maintenance revenues was primarily due to an increase in implementation fees
and, to a lesser extent, an increase in the installed base of clients under
support and maintenance agreements. Our installed client base was 56 at
December 31, 1998 compared with 22 at December 31, 1997. Our backlog at
December 31, 1998 was approximately $10.7 million.
COST OF REVENUES. Total cost of revenues increased 68.4% to $7.3 million
for 1998 from $4.3 million for 1997. As a percent of total revenues, total cost
of revenues decreased to 56.2% for 1998 from 62.8% for 1997, reflecting higher
total revenues and improved utilization in the implementation, training and
customer support functions.
Cost of software license revenues increased 29.6% to $1.5 million for 1998
from $1.2 million for 1997. This increase was primarily due to an increase in
the number of Oracle relational database licenses required to support a greater
number of new installations and increased amortization of capitalized software
development costs. Cost of software license revenues as a percentage of software
license revenues decreased to 23.9% for 1998 from 26.9% for 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 82.7% to $5.8 million for
1998 from $3.2 million for 1997. This increase is primarily due to the hiring of
additional personnel in the implementation, training and customer support
departments and to a lesser extent increased recruiting fees and depreciation.
Cost of service and maintenance revenues as a percentage of service and
maintenance revenues decreased to 86.8% for 1998 from 123.6% for 1997. This
decrease was primarily due to a larger service and maintenance revenue base and
improved utilization achieved in the implementation, training and support
functions with a larger number of installations and a larger installed base.
24
<PAGE>
SALES AND MARKETING. Sales and marketing expenses increased 74.0% to
$3.7 million for 1998 from $2.1 million for 1997. This increase was primarily
due to an increase in sales and marketing department personnel, increased sales
commissions paid on higher revenues, an increase in travel and entertainment
expenses and an increase in advertising and promotion. Sales and marketing
expenses as a percentage of total revenues decreased to 28.7% for 1998 from
31.1% for 1997. This decrease was primarily due to a larger revenue base over
which to spread costs.
PRODUCT DEVELOPMENT. Product development expenses increased 20.9% to
$2.3 million for 1998 from $1.9 million for 1997 due to an increase primarily
due to an increase in development personnel and increased recruiting expenses.
Product development expenses as a percentage of total revenues decreased to
17.8% for 1998 from 27.7% for 1997. This decrease was primarily due to a larger
revenue base over which to spread costs. We capitalized software development
costs of $257,000 and $455,000 and capitalized costs of computer software
development for internal use of $83,000 and $0, in 1998 and 1997 respectively.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased
74.4% to $3.1 million for 1998 from $1.8 million for 1997. This increase was
primarily due to increased personnel costs, including the addition of personnel
to support our growth, increased professional services and bad debt expense.
General and administrative expenses as a percentage of total revenues decreased
to 24.1% for 1998 from 26.0% for 1997. This decrease was primarily due to a
larger revenue base over which to spread costs.
CONTRACT TERMINATION. In January 1994, Open Solutions entered into an
agreement with Banking Spectrum to license certain software products and for
consulting and support services. In March 1998, Open Solutions and Banking
Spectrum entered into an agreement that terminated their previous agreement. The
agreement released Open Solutions 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 Banking Spectrum to purchase 275,000
shares of Common Stock at and 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 amount previously accrued, Open Solutions recorded a
contact termination expense of approximately $1.3 million for the year ended
December 31, 1998.
TRANSACTION COSTS. During 1998, Open Solutions incurred $1.4 million in
transaction costs associated with an initial public offering and merger
transaction which were ultimately not completed.
SELECTED QUARTERLY RESULTS OF OPERATIONS
Our quarterly results have fluctuated significantly in the past, and we
expect our quarterly results to fluctuate significantly in the future,
particularly as our eCommerce Mart and eCommerce Banker applications become a
larger part of our business. Some of the more significant factors that we
believe will contribute to this fluctuation include:
- the market for electronic commerce and Internet banking solutions are in
an early stage of development and therefore demand for our products and
services may be uneven;
- the sales cycle for our enterprise processing application is typically
longer than that for our other services;
- the mix of revenue among licensing and service fees and transaction
revenue may vary significantly over time;
- the timing and market acceptance of new products or product enhancements
by us or our competitors may impact our competitive position;
25
<PAGE>
- distribution channels through which our products are sold could change;
- the timing of hiring additional sales and other key personnel and the
speed at which such personnel become productive could impact our ability
to increase revenues;
- our operating expenses could change out of proportion to changes in our
revenues;
- we may not be able to anticipate or adapt effectively to developing
markets and rapidly changing technologies; and
- our prices or the prices of our competitors' products may change.
The following table sets forth unaudited quarterly results of operations of
Open Solutions for each of the quarters in the year ended December 31, 1999. In
management's opinion, this unaudited information has been prepared on the same
basis as the audited financial statements and include 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 our financial statements and notes thereto included elsewhere
this prospectus.
<TABLE>
<CAPTION>
MAR. 31, 1999 JUNE 30, 1999 SEPT. 30, 1999 DEC. 31, 1999
------------- ------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Software license........................... $2,557 $1,451 $ 715 $ 623
Service and maintenance.................... 2,598 2,534 1,782 1,792
------ ------ ------- -------
Total revenues........................... 5,155 3,985 2,497 2,415
Cost of revenues:
Software license........................... 667 420 268 212
Service and maintenance.................... 2,023 1,871 1,247 1,120
------ ------ ------- -------
Total cost of revenues................... 2,690 2,291 1,515 1,332
Operating expenses:
Sales and marketing........................ 1,116 924 872 1,048
Product development........................ 742 643 1,213 1,550
General and administrative................. 826 500 840 985
Contract termination....................... -- -- -- --
Transaction costs.......................... -- -- -- --
------ ------ ------- -------
Total operating expenses................. 2,684 2,067 2,925 3,583
Loss from operations......................... (219) (373) (1,943) (2,500)
Interest income.............................. 37 101 103 79
Net loss..................................... $ (182) $ (272) $(1,840) $(2,421)
====== ====== ======= =======
</TABLE>
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
We do not engage in trading material market risk sensitive instruments or
purchasing material hedging instruments or "other than trading" instruments that
are likely to expose Open Solutions to market risk, whether interest rate,
foreign currency exchange, commodity price or equity price risk. We have not
purchased options or entered into swaps of forward or futures contracts.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily from the sale of preferred stock
and other financing events. We had net working capital of $3.0 million at
December 31, 1999, including cash and cash equivalents totaling $5.2 million.
26
<PAGE>
Cash used in operating activities was $3.3 million, $3.1 million and
$1.0 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Cash used in operations in 1999 was primarily due to net losses and a decrease
in deferred revenue, partially offset by a decrease in accounts receivable. Cash
used in operations during 1998 and 1997 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 and, in 1997, a reduction in
deferred project costs.
Cash used in investing activities was $769,000, $1.7 million, and $812,000
for the years ended December 31, 1999, 1998 and 1997, respectively. Cash used
during such periods was to acquire property and equipment and for capitalized
software development costs. We currently have no significant capital spending or
purchase commitments, except for continued costs relating to new product
development and purchase of property and equipment and furniture and fixtures to
support our anticipated growth in headcount
Cash provided by financing activities was $6.1 million, $342,000 and
$5.0 million for the years ended December 31, 1999, 1998 and 1997, respectively.
During 1999 and 1997, we received $5.9 million and $5.0 million, respectively,
of net proceeds from the sales of preferred stock. In 1998, we received $588,000
of proceeds from the exercise of warrants. In addition, on March 17, 2000 we
closed the sale of 2,145,925 shares of our Series F preferred stock, which
resulted in the receipt of gross proceeds of $20,000,021 million.
We believe that the proceeds generated by the sale of our common stock in
this offering and cash and cash equivalents on hand will be sufficient to meet
our working capital requirements for at least the next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 100, Restructuring and Impairment Charges ("SAB 100").
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB
100 expresses the views of the Securities and Exchange Commission staff
regarding the accounting for and disclosure of certain expenses not commonly
reported in connection with exit activities and business combinations. We do not
expect the provisions of SAB 100 to have a material impact on our financial
statements. SAB 101 expresses the views of the Securities and Exchange
Commission staff in applying generally accepted accounting principles to certain
revenue recognition issues. We do not expect the provisions of SAB 101 to have a
material impact on our financial statements.
27
<PAGE>
BUSINESS
OVERVIEW
We provide a comprehensive system that integrates electronic commerce,
Internet banking and enterprise processing applications for community banks. Our
Open Community Network allows our clients to use technology and the Internet to
expand their customer relationships and generate new profitable revenue streams.
We help promote electronic commerce transactions centered around our community
bank clients and the trust, affinity and frequent interactions they have with
their customers.
We provide our Open Community Network on a completely outsourced and
customized basis. Our application service provider model allows our community
bank clients to quickly and cost-effectively deploy electronic commerce and
Internet banking platforms without needing to dedicate significant technical or
capital resources.
Our proprietary technology uses a Windows NT-based architecture and an
Oracle relational database. This architecture gives our clients real-time
transaction processing capabilities with increased speed, ease of use,
functionality and scalability. Our technology platform also enables our clients
to use advanced techniques such as data mining and collaborative filtering, so
that they may provide their customers with better service and increase the
effectiveness of their electronic commerce related marketing efforts.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ELECTRONIC COMMERCE
Businesses and consumers are taking increasing advantage of the Internet's
ability to facilitate transactions by conducting more commerce over the
Internet. GartnerGroup estimates that revenues from worldwide business to
business electronic commerce will increase from approximately $145 billion in
1999 to more than $7 trillion in 2004, which will represent 7% of the forecasted
$105 trillion total global sales transactions. According to Forrester Research,
revenues from business to consumer electronic commerce in the United States will
increase from approximately $18 billion in 1999 to more than $108 billion in
2003.
GROWTH OF SMALL BUSINESS ELECTRONIC COMMERCE
Transactions among small businesses are a significant and rapidly growing
segment of the electronic commerce market. International Data Corporation
estimates that small businesses will account for approximately $107 billion in
electronic commerce in 2002, an increase from approximately $6 billion in 1998.
Small businesses are increasingly looking to the Internet as a cost-effective
and efficient way to procure goods and services to conserve their limited time
and resources.
FINANCIAL INSTITUTIONS AND THE ROLE OF THE INTERNET
Rapid advances in technology and the widespread adoption of the Internet are
fundamentally changing the ways that financial services firms approach their
markets, conduct their business and interact with their customers. For example,
International Data Corporation estimates that there were approximately
12 million users banking over the Internet in 1999 and projects that number to
increase to over 39 million in 2003. Additionally, Meridien Research estimates
that by 2003, the Internet will deliver more than 60% of all electronic banking
transactions to small businesses.
28
<PAGE>
COMMUNITY BANKS TODAY
Community banks represent the largest segment of the financial services
industry. According to the Federal Deposit Insurance Corporation and the
National Credit Union Administration, currently there are approximately 20,000
small to mid-size commercial banks, thrifts and credit unions with assets less
than $3 billion. Community banks have historically been major focal points of
commerce in their immediate communities, concentrating on meeting the needs of
small businesses and consumers. According to the American Bankers Association,
small businesses hold approximately 27% of community retail bank deposits and
the average community bank has an average of approximately 950 small business
checking accounts.
Community banks have been slower to adopt new technologies and Internet
applications than their larger counterparts. According to Online Banking Report,
over 50% of the largest banks in the United States offer Internet banking. By
contrast, only approximately 5% of community banks currently offer Internet
banking. Generally, community banks have smaller in-house technical staffs and
may find it difficult to monitor their systems for regulatory and security
concerns and to train and support their customers on the use of the systems.
Additionally, many of community banks rely upon 20 to 30 year old legacy
systems, often provided by a service bureau on an outsourced basis, to perform
their enterprise processing. Many legacy systems cannot be integrated with
multiple Internet-based interfaces without significant expense and operational
disruption, or at all. Community banks may also be reluctant to make the
significant initial investments required to implement these systems and maintain
security and redundancy for them.
We believe that community banks have traditionally competed on the basis of
personalized service and their long-standing community relationships and
reputations. Community banks face increased competitive pressures in today's
rapidly-evolving financial services market. Changing federal regulations permit
non-traditional competitors, such as insurance and mutual fund companies, to
provide traditional banking services. Additionally, community banks' traditional
customers are becoming more technologically sophisticated and are beginning to
demand Internet banking and other online value-added services, many of which are
being provided by these institutions' larger competitors. Finally, community
banks face declining profitability in their traditional banking services and are
seeking additional revenue streams that offer higher margins.
OUR MARKET OPPORTUNITY
We believe that we have a significant opportunity to provide community banks
with a complete, integrated, outsourced solution that offers a platform for
electronic commerce and Internet banking as well as advanced enterprise
processing applications. Some of the factors driving this opportunity include:
- Community banks have an opportunity to generate additional revenue streams
by facilitating their customers' business to business and business to
consumer electronic commerce transactions.
- Community banks hope to use new technology as a tool to improve their
competitive position.
- Community banks need cost-effective means to meet their customers' demand
for Internet banking and other online financial services quickly and on an
outsourced basis.
- Community banks need enterprise systems that are capable of handling the
increased demands placed on them by the rapidly changing market landscape.
29
<PAGE>
OUR SOLUTION
We provide electronic commerce, Internet banking and enterprise processing
application solutions to community banks. Through our Open Community Network we
allow our clients to use technology and the Internet to strengthen and better
manage their customer relationships and generate new profitable revenue streams.
In addition to providing comprehensive, integrated, real-time Internet banking
and back-end processing capabilities, we promote electronic commerce
transactions centered around our community bank clients and the trust and
affinity they share with their customers. Our solution enables increased
functionality, ease of use and ultimately enhanced customer relationship
management capabilities. In addition, implementation is cost-effective, rapid
and easy. The three primary components of our integrated Open Community Network
are:
- ECOMMERCE MART-an electronic commerce platform which facilitates business
to business and business to consumer transactions between over 40
nationally recognized partner-suppliers and a community bank's customers;
- ECOMMERCE BANKER-a cost-effective and easy to use suite of Internet
banking products and services, which enables our clients' customers to
conduct their banking transactions online; and
- THE COMPLETE BANKING SOLUTION/THE COMPLETE CREDIT UNION SOLUTION-an open
architecture enterprise processing application, which uses a real-time
relational database and runs the core processing operations of a community
bank.
We believe that the combination of our enterprise processing application and
the electronic commerce and Internet banking components of our Open Community
Network, position us as the only provider of an integrated end-to-end real-time
system for community banks. Our solution:
OFFERS NEW PROFITABLE ELECTRONIC COMMERCE REVENUE STREAMS TO OUR COMMUNITY
BANK CLIENTS
Our Open Community Network uses Internet banking to aggregate buyers and
sellers within an electronic commerce platform that is centered around our
community bank clients and the trust and affinity they have developed with their
customers. By aggregating a community bank's customers and nationally recognized
partner-suppliers, the Open Community Network allows our clients to capture
revenues from purchases that are made online through a transaction fee paid to
them by our partner-suppliers. This allows our clients to leverage their
existing customer relationships and use interactive technology to turn their
Internet banking activities into a profit center rather than an incremental cost
center. Our solution is also designed to allow community banks to deploy
additional revenue-producing services in the future.
OFFERS SIGNIFICANT BENEFITS OF ELECTRONIC COMMERCE TO OUR CLIENTS' SMALL
BUSINESS CUSTOMERS AND OUR PARTNER-SUPPLIERS
By fully utilizing the Internet, the small business customers of community
banks are able to save time and money. Small business customers can fulfill
substantially all of their procurement needs through our Open Community Network
because of the variety of goods and services offered by the many
partner-suppliers. We aggregate nationally recognized partner-suppliers and
encourage them to provide their best rates to our clients' customers. This
enables smaller and mid-sized businesses to obtain the same discounts on goods
or services that larger, more established companies receive. Small businesses
are also able to use our automated debit system over our Open Community Network,
which reduces time and expense associated with processing purchase orders and
checks.
Partner-suppliers also reduce their costs by using our Open Community
Network. We serve as a buying consortium to the nationally recognized
partner-suppliers that cannot cost-effectively
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<PAGE>
market and successfully service small business customers. By aggregating small
business customers, we reduce our partner-suppliers advertising costs. Small
business customers were traditionally targeted through costly direct mail or
media outlets. With our Open Community Network, partner-suppliers can tailor
their products or services for higher transaction volume, higher retention and
repeat purchases with little additional promotional expense.
IS COMPREHENSIVE, COST-EFFECTIVE AND COMPLETELY OUTSOURCED FOR OUR COMMUNITY
BANK CLIENTS
We provide community banks with a cost-effective, comprehensive, easy to use
system that enables our clients to quickly deploy technologies that address
their competitive concerns. Our application service provider model allows our
clients to immediately and cost-effectively meet their customers' demands for
Internet banking capabilities and electronic commerce without significant
capital expenditures. Both our Internet components and our enterprise processing
application can be quickly and easily integrated with existing third-party
applications. Our clients can join our Open Community Network and within days
begin offering electronic commerce and Internet banking services. There is no
implementation cost for the deployment of our Internet suite of products nor do
we charge a per-user fee for our clients' customers use of eCommerce Banker. We
believe our application service provider pricing model is less expensive than
other Internet solutions offered to community banks. In addition, we believe our
enterprise processing applications are less expensive to maintain than older
legacy systems or upgrading existing processing systems.
OFFERS ENHANCED CUSTOMER RELATIONSHIP MANAGEMENT TO COMMUNITY BANKS THROUGH
REAL-TIME PROCESSING AND RELATIONAL DATABASE
Community banks can use real-time customer profiling and collaborative
filtering techniques to analyze a customer's transaction behavior whether it is
on the Internet, by telephone, at the ATM or at a community bank branch. Our
clients can quickly offer cross-selling and up-selling opportunities to their
customers through improved methods of capturing information. In addition to
direct marketing, customer service is improved. For example, a teller can
provide instant customer identification and recognition during a transaction,
decreasing processing time and adding a personal touch to the transaction.
STRENGTHENS COMMUNITY RELATIONSHIPS BETWEEN OUR CLIENTS AND THEIR CUSTOMERS
Our Open Community Network allows community banks to leverage their greatest
asset, their long-standing trusted customer relationships. Our solution provides
the technological functionality and conveniences offered by larger banks. Our
solution allows community banks to customize their web sites in order to enable
them to offer electronic commerce and Internet banking services with a look and
feel that preserves their unique brand identity. In addition, we are able to
more closely identify our clients with other prominent community institutions
such as schools, churches and local businesses by including information about
such institutions, and even links to such institutions' web sites, on a
community bank's branded network. In addition, we allow a community bank to
promote local businesses by allowing them to participate as a local supplier on
our Open Community Network. We offer the choice to our clients' customers of
purchasing an item from a nationally recognized partner-supplier or from a local
store.
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OUR STRATEGY
Our objective is to be the leader in providing integrated electronic
commerce, Internet banking and enterprise processing application solutions to
community banks. To pursue our objective we intend to:
CONTINUE TO EXPAND MARKET SHARE. We intend to dramatically increase our
sales and marketing efforts to offer our Open Community Network to community
banks by increasing the size of our direct sales force and the number of our
strategic marketing partners. We also intend to create greater recognition of
the Open Community Network brand name by building positive product awareness
with increased advertising, attendance at industry trade shows and targeted
direct marketing.
We have established strategic marketing alliances with BISYS, Inc. and
Connecticut On-Line Computer Center, Inc., under which they provide outsourced
processing services to community banks using our enterprise processing
applications. We plan to continue to jointly market our systems with our
outsourcing partners to expand our customer base. We intend to enter into
additional strategic alliances to increase our channels of distribution.
INCREASE PENETRATION OF OUR EXISTING CLIENTS. We intend to actively market
our complete Open Community Network solution to those of our existing clients
that currently use only part of our solution. We believe that we have many
cross-selling and up-selling opportunities to provide our clients with the
completely integrated end-to-end system.
INCREASE ELECTRONIC COMMERCE ACTIVITY ON OUR OPEN COMMUNITY NETWORK BY:
- INCREASING THE NUMBER OF PARTNER-SUPPLIERS. We will continue to pursue
nationally recognized partner-suppliers to enter into non-exclusive
agreements to provide high quality items at the lowest price to our
clients and their customers. We also intend to introduce additional
revenue-producing services through our Open Community Network such as
insurance and online lending, through additional partnering relationships.
For example, in February 2000, we signed an agreement with
Stockwalk.com, Inc. to provide brokerage services to our clients'
customers.
- PROVIDING GREATER CONTENT AND CUSTOMIZATION. We will offer new items on
our Open Community Network, such as community news, online fundraising,
book drives and local community interests. We also intend to add new
features that will offer our clients more customization options in order
to determine the look and feel of their Internet site and its branding.
- INCREASED ELECTRONIC COMMERCE MARKETING ACTIVITY. We will continue to use
our marketing services, our pre-packaged software that can be customized
for our clients with their branded promotional templates and advertising
enhancements, to help a community bank encourage its customers to use our
Open Community Network.
EXPAND THE FEATURES AND FUNCTIONS OF OUR OPEN COMMUNITY NETWORK. We intend
to add a variety of other features to our Open Community Network that will make
it easier for small businesses to purchase goods and services electronically
through improved automated processing technology. We intend to provide added
levels of security and purchasing controls for our eCommerce Mart to better
manage the purchasing process of small businesses. We also intend to improve the
commercial functionality of our eCommerce Banker to help serve the needs of our
clients' small business customers.
EXPAND OUR TARGET MARKETS. As insurance companies, financial services
firms, and mutual fund companies begin to compete with community banks by
providing traditional banking and cash management services, we intend to focus
additional sales and marketing efforts on these new
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entrants to the market. We also intend to expand our presence in markets outside
the United States, by adding foreign language content, and localizing and
translating our Open Community Network user interface. We expect that our
international expansion will most likely be accomplished through strategic
alliances. We have recently gained two customers in Asia through our alliance
with Unisys Corporation.
ACQUIRE COMPLEMENTARY PRODUCTS, SERVICES AND BUSINESSES. In an effort to
expand target markets, increase market share and increase the content of the
Open Community Network, we intend to pursue acquisition opportunities in the
areas of enterprise processors and local electronic commerce enabled enterprise
providers, as well as of companies or technologies that may enable us to
increase the functionality or content of our Open Community Network.
PRODUCTS AND SERVICES
Our Open Community Network consists of eCommerce Mart, eCommerce Banker and
our enterprise processing applications, The Complete Banking Solution and The
Complete Credit Union Solution. All components of our Open Community Network may
be purchased separately. However, if a community bank uses all components of our
Open Community Network it benefits from our seamlessly integrated system and
obtains comprehensive real-time processing of all its customers' transactions.
Our eCommerce Mart and eCommerce Banker services interact with most enterprise
processing applications currently deployed by community banks.
ECOMMERCE MART
eCommerce Mart is a destination within our Open Community Network where our
clients' customers can purchase goods and services online from over 40
nationally recognized partner-suppliers. eCommerce Mart is designed to uniquely
address the purchasing needs of our clients' small business and individual
customers. "My Business" and "My Personal," two distinct locations within the
eCommerce Mart, are designed to address the particular purchasing needs of each
group. For example, "My Business" contains office supplies, computers and other
goods needed to run a small business.
For every electronic commerce transaction processed in eCommerce Mart, we
receive a fee from our partner-suppliers which we share with community banks.
Our clients pay a low monthly fee to access Internet markets that connect our
nationally recognized partner-suppliers with community banks' customers. There
is no added cost to our clients for their customers' use of the eCommerce Mart.
Some of the features of our eCommerce Mart include:
- ONLINE PURCHASING AND ORDERING. A community bank's customers can browse
catalogs, select items and place orders online.
- SIMPLE APPROVALS. A community bank's small business customers can simplify
the purchasing process and improve spending control by establishing
approval policies that automatically filter and manage purchase requests.
- ORDER TRACKING. Purchasing information is automatically captured, enabling
customers to track and monitor requests and orders through all stages of
the purchasing process.
- POWERFUL REPORTING. Purchasing information is captured on an individual
and company-wide level according to the customer's specifications allowing
a small business customer to monitor budgets and gain insights into buying
habits and patterns.
- STATE-OF-THE-ART SECURITY. User roles, passwords, and encryption provide
security for the customer's accounts, information and transactions.
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- INTEGRATION WITH COMMUNITY BANKS. Payment for electronic commerce
transactions can be debited directly from a customer's existing account.
EMARKETING SERVICES
We interact with our community bank clients to promote usage of eCommerce
Mart by their customers through our eMarketing services. We develop customized
promotional templates and specialized advertising for our community bank clients
to help generate electronic commerce transactions. Our eMarketing manager works
with our clients and their local printer to develop brochures, statement
inserts, banners and other advertising materials featuring our clients' logo
that directly market eCommerce Mart to their customers. We also assist our
community banks in providing electronic messages to their customers that remind
them of special sales offers from partner-suppliers.
ECOMMERCE BANKER
eCommerce Banker permits a community bank to choose from a wide menu of
financial services that may be provided to customers over the Internet,
including:
- ACCOUNT INFORMATION. Customers can view balance information for checking
and savings accounts, certificates of deposit, lines of credit, automobile
loans and mortgage loans. Customers can also view year-to-date interest
accrued or paid, interest rates and deposit maturity dates.
- CASH MANAGEMENT. Business customers can monitor their accounts, make tax
payments and execute automated clearing house or wire transfers. We also
provide a cash concentration function, which periodically sweeps cash from
several accounts into a single interest-bearing account.
- FUNDS TRANSFER. Customers can transfer funds among accounts and establish
real-time electronic bill payment.
- COMPATIBILITY WITH PERSONAL FINANCIAL MANAGEMENT SOFTWARE. Popular
personal financial management software, such as Intuit
Quicken-Registered Trademark- and Microsoft Money-Registered Trademark-,
is automatically synchronized with recent transactions.
- BILL PAYMENT. Customers can pay bills electronically 24 hours a day, seven
days a week and can establish future and recurring payments.
- SECURE MESSAGING. Customers can communicate with a community bank through
secure encrypted message systems.
- ADDITIONAL FEATURES. Customers can reorder paper checks, request an
account statement or contact community bank personnel by e-mail.
Our Internet banking application supports the open financial exchange
standard, which enables the system to interface to community bank services that
use a variety of devices to originate customer transactions. These
administrative components will include the ability for community banks'
customers and potential customers to submit account applications in a secure
environment. Also, community banks can automatically generate e-mail responses
to customer applications, update product interest rates and terms and receive
customer-specific marketing and data analysis.
THE COMPLETE BANKING SOLUTION AND THE COMPLETE CREDIT UNION SOLUTION
The enterprise processing application component of the Open Community
Network, The Complete Banking Solution or The Complete Credit Union Solution,
provides a comprehensive
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real-time open architecture system capable of managing all of a community bank's
core processing requirements. When combined with the eCommerce Mart and the
eCommerce Banker our enterprise processing application provides the only
end-to-end real-time system where the community bank and its customers can
conduct electronic commerce and Internet banking on a cost-effective basis. Our
enterprise processing application permits the community bank and its customers
to view their transactions immediately, whether the transactions occur over the
telephone, on the Internet, at the ATM, inside the community bank or at an
external debit location.
Our enterprise processing application features an Oracle relational database
and an open 32-bit Microsoft Windows NT-based architecture. The relational
database allows community banks to compile specific information about their
customers to determine profitability by customer as well as by product. This
information allows our community bank clients to market directly to their
customers. The Windows NT-based architecture does not require any proprietary
hardware components. Our enterprise processing application features multi-level
security that takes advantage of the features of the underlying architecture.
Our enterprise processing application is less expensive to install or
maintain than most legacy systems. It can be easily integrated with third party
applications or can be combined with our eCommerce Banker and our eCommerce Mart
to provide a comprehensive solution that can immediately retrieve valuable
customer information for specifically targeting customers with cross-selling or
up-selling opportunities.
Some of the key features of our enterprise processing application include:
<TABLE>
<S> <C>
- - Customer Service - External File Manager
- - Comprehensive Lending - Direct Payroll Processing
- - Depository System - General Ledger Interface
- - Teller Application - External File Manager
- - Bank and Branch Operations - Product Manager
- - End of Day Production - IRS/Year-End Reporting
- - Executive Information - Forms Integration
</TABLE>
The features of our enterprise processing application offer a comprehensive
real-time view of each customer relationship. These features enable community
banks to provide better customer service by having the customer's picture,
signature recognition and profitability characteristics available to tellers and
officers instantaneously.
TRAINING AND SUPPORT SERVICES
We provide comprehensive training services and support to our clients. In
addition to helping customize the Internet components of our Open Community
Network, we assist our clients in training their customers for Internet banking
and electronic transactions. We provide education and training programs either
at our headquarters or on-site to our clients. We assign a team to convert a
community bank's current account data to the relational database for our
enterprise processing applications. We provide immediate telephone response
service during normal working hours and on-call support 24 hours a day, seven
days a week for all components of our Open Community Network. In addition, we
offer remote product support services whereby our support team directly connects
to our client's server to troubleshoot or perform routine maintenance.
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<PAGE>
ONLINE STRATEGIC PARTNER-SUPPLIERS
We have non-exclusive alliances with over 40 nationally recognized
partner-suppliers that provide goods and services online to a community bank's
customers through our eCommerce Mart. These alliances are principally designed
to meet the buying needs of the small businesses, although we also offer
significant electronic commerce options designed for the individual consumer. We
select our partner-suppliers according to quality of products, the breadth of
their product offerings, their national reputation, and the reliability of their
online purchasing capabilities. Some of the products available include books,
computers and office supplies. Our partner-supplier agreements allows us to
bring the best prices of nationally recognized product offerings to the small
business customer while preserving the relationship that the customer may have
with the local vendor. By offering this flexibility in our eCommerce Mart we
allow the small business purchaser to have a host of purchasing options that
they may not find in other electronic commerce systems.
"My Business" partner-suppliers are:
<TABLE>
<S> <C> <C> <C>
Borders Books eDestiny McAfee Software TimeBills.com
Business Book Review ePrint Press Now Docs! TotalOfficeSupply.com
Coffee Direct eStamp Office Max VarioISP.Services
Crucial Technology Hardware Street Offices-2-Share @Backup
Dell Computer Jobs Online Shop 121
</TABLE>
"My Personal" partner-suppliers are:
<TABLE>
<S> <C> <C> <C>
Amazing Baskets DVD Express Great Coffee The Sharper Image
Buyers Reward Eve Cosmetics iBaby.com Toys R Us
Cars Direct Every CD Omaha Steaks uBid.com
Cooking.com Express Auto Parts Outpost.com Varsity Books
CVS Pharmacy Flower.com Pet Quarters Warner Bros.Studio
Disney Store Online Golf Essentials Store
</TABLE>
SALES AND MARKETING
We market our Open Community Network primarily through a direct sales force
and through a selected group of strategic marketing partners. As of
February 29, 2000, our direct sales force was comprised of 18 salespersons. Our
sales force is divided by geographic areas of coverage, as well as applications
expertise. We also employ a team of two individuals who are focused on the
development of additional partnerships within the eCommerce Mart. In addition,
our sales force is complemented by five application specialists, all of whom
have extensive experience in Internet banking and banking technology, that
provide pre-sales support to potential clients on product information and
deployment capabilities. We plan to dramatically expand our direct sales force
and business development team during 2000.
Our marketing program includes:
- direct mail;
- telemarketing;
- eMarketing services with their clients, including pre-packaged promotions;
- advertising in banking trade journals and periodicals;
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- disseminating our quarterly newsletter "Open View;" and
- participating in seminars and trade shows.
Historically, a significant portion of community banks have chosen to
satisfy their information technology needs through service bureaus. To address
this market, we have entered into software license and marketing agreements with
BISYS, Inc. and Connecticut On-Line Computer Center, Inc. Both of these
companies act as service bureaus to provide outsourced processing services to
third parties using the enterprise processing applications of our Open Community
Network. We have also entered into a software license agreement with Unisys
Corporation to integrate and sublease our products under the Unisys brand in
Asia (except Japan), Africa, Australia and New Zealand.
Under our agreements with these strategic marketing partners, we receive a
license fee or royalty payment based on the asset size of the third party using
our applications. Our agreement with BISYS, Inc. provides BISYS, Inc. the
exclusive right to market on an outsource basis the enterprise processing
applications of the Open Community Network in the United States, except for a
limited number of local and regional providers. Our agreement with Connecticut
On-Line Computer Center, Inc. provides them with the exclusive right to market
on an outsource basis the enterprise processing applications of the Open
Community Network to community banks in Connecticut, Vermont, New Hampshire,
Maine, Massachusetts, Rhode Island and New York.
COMMUNITY BANK CLIENTS
Our clients are primarily community banks, typically with fewer than ten
branches, that serve the banking needs of local small businesses and consumers.
These community banks are often the primary local providers of savings accounts
and consumer, mortgage and commercial loans in the markets they serve. The
majority of our clients are located in the northeast region of the United
States, although we are expanding in other regions. As of February 29, 2000,
over 130 community banks purchased one or more components of our Open Community
Network, of which 107 have been implemented.
Our top ten community bank clients based on our 1999 revenue were:
<TABLE>
<S> <C>
- - Provident Savings Bank, FSB (CA) - First Bank (ID)
- - Evangelical Christian Credit Union (CA) - Cameron Savings and Loan Association
(MO)
- - Key Bank and Trust (MD) - First Bancorporation (WI)
- - First Savings Bank of Perkasie (PA) - Darby Bank and Trust Co. (GA)
- - Harleysville Savings Bank (PA) - OBA Federal Savings and Loan
Association (MD)
</TABLE>
No client accounted for more than 10% of our revenues in the year ending
December 31, 1999.
STRATEGIC RELATIONSHIPS
TECHNOLOGY
We have major technological alliances with an Oracle Corporation, Compaq
Computer Corporation and Microsoft Corporation. We are a reseller of Oracle
relational database. We receive from Oracle Corporation promotional fees for
each enterprise processing application sold. We created our enterprise
processing application on an open-based architecture system in a 32-bit
Microsoft Windows NT environment to run on Microsoft's Commerce Server. Compaq
Computer Corporation provides the server technology for our Open Community
Network.
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We work closely with Oracle Corporation and Compaq Computer Corporation on
joint marketing efforts. These efforts include collaboration on product
marketing, participation in seminars, joint client presentations, and links in
our Open Community Network. Oracle Corporation also provides us with promotional
fees for each trade show we attend where we promote their relational database.
We devote the significant time and attention of our senior management to making
these partnerships successful.
THIRD-PARTY APPLICATIONS
The open architecture of our enterprise processing application facilitates
the integration of third-party applications to complement our Open Community
Network. We also have third-party applications that provide some of the features
of our enterprise processing application. We offer various third-party
applications for use with our enterprise processing application, such as:
- asset/liability management;
- check and statement imaging;
- collection management;
- disaster recovery planning;
- general ledger;
- voice response;
- loan origination; and
- online ATM interface.
These applications are provided by service providers, including IPS-Sendero
(a wholly-owned subsidiary of Fiserv, Inc.), Regency Voice Systems, Inc. and
Financialware, Inc. We have a strategic alliance agreement with HNC
Software Inc. to cross market our financial services products. HNC
Software Inc. provides third-party applications, such as general ledger and
profitability software, to profile customers and predict what other products may
be of value to those customers. These applications work with our enterprise
processing application. We receive a fee for each HNC Software Inc. application
sold with our enterprise processing application.
PRODUCT DEVELOPMENT
We plan to continue to invest significant resources to maintain and enhance
our current product and service offerings. Our efforts are focused on
developing:
- enhanced functionality of our Open Community Network through the
development of additional features for eCommerce Mart and eCommerce
Banker;
- software updates for new versions of the Windows NT operating system and
an Oracle relational database; and
- tools to automate the process of converting a client's legacy data to our
Open Community Network.
As of February 29, 2000, we employed a staff of 43 employees engaged in
product development. We intend to significantly increase our product development
head count during 2000.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We rely primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. We seek to
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<PAGE>
protect our software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection. Our license
agreements contain provisions which limit the number of users, state that title
remains with Open Solutions and protect confidentiality. We presently have no
patents or patent applications pending.
COMPETITION
We believe that we face three basic levels of competition in our market. The
first is competition from companies that are offering different electronic
commerce solutions to our community banks' customers. The second is competition
from companies offering competitive Internet banking applications, either on an
out-source basis or with licenses. The third is competition from companies that
offer enterprise processing applications or solutions to community banks. All of
these markets are highly competitive. We believe that the major factors
affecting customer decisions in our markets are flexibility, operating
effectiveness, industry trust, price and scalability.
We face competition from companies that are targeting small businesses in
the electronic commerce market. These competitors provide procurement solutions
to small business by aggregating purchasers and suppliers to facilitate
transactions through the Internet. Some of the competitors of eCommerce Mart
include: Works.com, Inc., Allbusiness.com, and American Express Small Business
Services.
Portions of the Internet banking market are becoming increasingly
competitive. A number of banks have developed and others may in the future
develop, Internet banking services in-house. Because the Internet is expected to
grow significantly in the coming years, we anticipate continued strong
competition. Some of the competitors of eCommerce Banker include: Digital
Insight Corporation, nFront Inc., Funds Express Financial Network, Online
Resources and Communications Corporation, and Q-Up Systems, Inc.
In the enterprise processing applications market, we compete directly with a
number of firms including large, diversified computer software companies and
independent suppliers of software products. We also compete with other
enterprise 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 or through a
service bureau arrangement. Some of the competitors of The Complete Banking
Solution or The Complete Credit Union Solution include: Prologic Corporation,
Fiserv, Inc., NCR Corporation, Electronic Data Systems Corporation and
BISYS, Inc.
INFRASTRUCTURE AND FACILITIES
All of our communications and network equipment is located in our corporate
headquarters in Glastonbury, Connecticut. We have preventive maintenance plans,
which include periodic equipment and software testing, data monitoring and
maintaining records of system errors. We have 24 hour monitoring and engineering
support. Our facilities have emergency back-up generators and communication
lines. In the event of an emergency, we have a contingency plan to provide
services through a nationally recognized emergency service provider.
We lease approximately 32,000 square feet of space in Glastonbury,
Connecticut. The lease for 22,000 square feet expires in 2003, the lease for
6,000 square feet expires in 2001, and the lease for 4,000 square feet expires
in 2000.
PRIVACY POLICY
We believe that issues relating to privacy and use of personal information
relating to Internet users are becoming increasingly important as the Internet
and its commercial use grow. We have
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<PAGE>
adopted a detailed privacy policy that outlines how we use information
concerning our clients and their customers and the extent to which third parties
may have access to this information. We do not sell or rent any personally
identifiable information about our clients or their customers to any third
party. We use the information about our clients and their customers for internal
purposes only in order to improve our marketing and promotional efforts, to
statistically analyze site usage, and to improve content, product offering and
site layout.
The privacy provisions of the recently-enacted Gramm-Leach-Bliley Act, which
become effective in November 2000:
- may bar financial institutions from disclosing to unaffiliated third
parties nonpublic personal information collected from consumers;
- require financial institutions to develop and disclose consumer privacy
policies;
- empower federal regulators with the authority to regulate information
sharing and enforce the provisions of the law; and
- expressly allow states to pass stricter financial privacy laws.
Federal regulations implementing the statute are being developed. Since we
are likely to be subject to existing regulations for service bureau operations
supporting financial institution transactions and data, we may be required to
amend our privacy policy to comply with current and future regulations and
guidelines promulgated by the Federal Financial Institutions Examinations
Council.
GOVERNMENT REGULATION
The financial services industry is subject to extensive and complex federal
and state regulation. Our current and prospective community banks clients,
operate in markets that are also subject to rigorous regulatory oversight and
supervision. Our clients must ensure that our services and related products work
within the extensive and evolving regulatory requirements applicable to them,
including those under federal and state truth-in-lending and truth-in-deposit
rules, usury laws, the Equal Credit Opportunity Act, the Fair Housing Act, the
Electronic Fund Transfer Act, the Fair Credit Reporting Act, the Bank Secrecy
Act and the Community Reinvestment Act. The compliance of our products and
services with these requirements depends on a variety of factors including the
particular functionality, the interactive design and the classification of the
client. Our clients must assess and determine what is required of them under
these regulations and are responsible for ensuring that our system and the
design of their site conform to their regulatory needs. We do not make
representations to clients regarding applicable regulatory requirements, and
rely on each client to identify its regulatory issues and to adequately specify
appropriate responses. It is not possible to predict the impact that any of
these regulations could have on our business.
We are not licensed by the Office of the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, the Office of Thrift
Supervision, the National Credit Union Administration or other federal or state
agencies that regulate or supervise depository institutions or other providers
of financial services. We are subject to examination by the Federal depository
institution regulators under the Bank Service Company Act and the Examination
Parity. These regulators have broad supervisory authority to remedy any
shortcomings identified in any such examination. We are also subject to
encryption and security export laws and regulations which, depending on future
developments, could render our business or operations more costly, less
efficient or impossible.
Federal, state or foreign authorities could adopt laws, rules or regulations
affecting our business operations, such as by requiring us to comply with data,
record keeping and other
40
<PAGE>
processing requirements. We may become subject to additional regulation as the
market for our business evolves. It is possible that laws and regulations may be
enacted with respect to the Internet, covering issues such as user privacy,
pricing, content, characteristics and quality of services and products. Existing
regulations may be modified. For example, we are not subject to the disclosure
requirements of Regulation E of the Federal Reserve Board under the Electronic
Fund Transfer Act, because we do not agree with consumers to provide them with
electronic funds transfer services or provide access devices (such as cards,
codes or other means of accessing accounts to initiate electronic funds
transfers) to them. Regulation E regulates certain electronic funds transfers
made by providers of access devices and electronic fund transfer services. Under
Regulation E, our clients are required, among other things, to provide certain
disclosure to retail customers using electronic transfer services, to comply
with certain notification periods regarding changes in the terms of service
provided and to follow certain procedures for dispute resolutions. The Federal
Reserve Board could adopt new rules and regulations for electronic funds
transfers that could lead to increased operating costs and could also reduce the
convenience and functionality of our services, possibly resulting in reduced
market acceptance. If enacted or deemed applicable to us, the laws, rules or
regulations applicable to financial services activities would render our
business or operations more costly, burdensome, less efficient or impossible. We
cannot assure that federal, state or foreign governmental authorities will not
adopt new regulations addressing electronic financial services or operations
generally that could require us to modify our current or future products and
services. The adoption of laws or regulations affecting our business or our
clients' business could have a material adverse effect on our business,
financial condition and results of operations.
A number of proposals at the federal, state and local level and by certain
foreign governments would, if enacted, expand the scope of regulation of
Internet-based financial services and could impose taxes on the sale of goods
and services and certain other Internet activities.
EMPLOYEES
As of February 29, 2000, we had a total of 174 employees. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and believe that our relations with our employees are good.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our executive officers, key employees and directors, their positions and
their ages as of , 2000, are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION
- -------------------------------- -------- ------------------------------------------
<S> <C> <C>
Louis Hernandez, Jr....................... 33 Chairman of the Board and Chief Executive
Officer
John L. Person............................ 65 President and Chief Operating Officer
Clifford I. Waggoner...................... 59 Senior Vice President and Chief Technology
Officer
John S. Wieczorek......................... 39 Vice President and Chief Financial Officer
Michael D. Nicastro....................... 41 Vice President of Marketing and Sales
Douglas K. Anderson....................... 50 Director
Douglas C. Carlisle (1)(2)................ 43 Director
David M. Clarke........................... 49 Director
David Dame (1)............................ Director
Samuel F. McKay (1)(2).................... 60 Director
John Mutch (2)............................ 43 Director
Carlos P. Naudon.......................... 49 Director
William W. Neville........................ 46 Director
Richard P. Yanak.......................... 65 Director
<CAPTION>
KEY EMPLOYEES
- -------------
Charles J. Beer. 40 Vice President of Application Development
<S> <C> <C>
John J. DeMita............................ 55 Vice President of eServices
John L. Messier........................... 36 Vice President of Conversion Services
</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. HERNANDEZ has served as Chairman of the Board of Open Solutions since
March 2000 and as Chief Executive Officer since November 1999. From
January 1998 to November 1999, Mr. Hernandez served as Executive Vice President
of RoweCom Inc., an electronic commerce provider of magazines, newspapers and
other knowledge resources. Mr. Hernandez served as RoweCom's Chief Financial
Officer between February 1997 through November 1999. Prior to joining RoweCom,
Mr. Hernandez served as the Chief Financial Officer and Corporate Secretary for
U.S. Medical Instruments, Inc., a high technology medical device company. From
1990 to 1996, Mr. Hernandez worked in the business and advisory services group
of Price Waterhouse LLP.
MR. PERSON has served as President and Chief Operating Officer of Open
Solutions since December 1997, and served as Executive Vice President and Chief
Operating Officer 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. WAGGONER co-founded Open Solutions in 1992 and has served as Senior Vice
President and Chief Technology Officer of Open Solutions since October 1995 and
as a director since 1992.
42
<PAGE>
Mr. Waggoner served as President of Open Solutions 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. WIECZOREK has served as Chief Financial Officer of Open Solutions since
February 2000. From October 1998 to February 2000, Mr. Wieczorek was the Founder
and Managing Partner of Financial Innovations, LLC, a consulting firm providing
executive financial advice to companies. From October 1994 to October 1998,
Mr. Wieczorek served as Vice President, Chief Financial Officer and Treasurer of
SS&C Technologies, Inc, a provider of enterprise software and services. Prior to
joining SS&C Technologies, Mr. Wieczorek served as Vice President and Chief
Financial Officer at Vantage Computer Systems, Inc., a provider of enterprise
software and services that was acquired by The Continuum Company Inc.
MR. NICASTRO has served as Vice President of Marketing and Sales of Open
Solutions since July 1999, as Vice President of Marketing since October 1996,
and Director of Marketing and Customer Services 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.
MR. ANDERSON served as Chairman of the Board of Directors from
December 1997 to March 2000 and as a director since July 1994. Mr. Anderson
served as Chief Executive Officer of Open Solutions from December 1997 to
November 1999 and as President 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. CARLISLE has served as a director of Open Solutions since March 1994.
Since 1984, Mr. Carlisle has served as a general partner of Menlo Ventures VI,
L.P., 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 Open Solutions since April 1998.
Since July 1996, Mr. Clarke has served as Vice President, Private Equity of the
Aetna Investment Management Group of Aetna Life Insurance Company. From
September 1977 to September 1993, Mr. Clarke held various other positions in the
Private Bond Investment Group of Aetna Life Insurance Company.
MR. DAME has served as a director of Open Solutions since March 2000. Since
_____________ Mr. Dame has served as a principal with Key Principal Partners
LLC, a venture capital fund.
MR. MCKAY has served as a director of Open Solutions since December 1995.
Since April 1994, Mr. McKay has served as a general partner of Axiom Venture
Partners, L.P., a venture capital firm. Previously, Mr. McKay was general
partner of Connecticut Seed Ventures, L.P. Mr. McKay is also a director of Anika
Therapeutics, Inc., Sabre Communications Corporation, Costar Corporation and
Nightingale Corp.
MR. MUTCH has served as a director of Open Solutions since March 2000. Since
September 1998, he has served as President of HNC Insurance Solutions. He was
also Vice President, Marketing of HNC Software Inc. from July 1997 to
September 1998. Mr. Mutch was a founder of MVenture Holdings, Inc., a private
equity fund that invests in start-up technology companies, and served as its
General Partner from June 1994 to July 1997. From December 1996 to June 1997,
Mr. Mutch held a variety of positions with Microsoft Corporation.
43
<PAGE>
MR. NAUDON has served as a director of Open Solutions since September 1994,
as Managing Director from March 1995 to October 1995 and as Vice Chairman of the
Board from October 1995 to March 2000. 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 Banking Spectrum
Services, Inc. and Banking Spectrum, Inc., each a banking consulting company.
MR. NEVILLE has served as a director of Open Solutions since June 1998.
Since June 1997, Mr. Neville has served as President of BISYS, Inc. 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 Bisys, Inc.'s Vice President and General Manager of the
New England region.
MR. YANAK has served as a director of Open Solutions 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.
KEY EMPLOYEES
MR. BEER has served as Vice President of Application Development of Open
Solutions since October 1996, and served as our Director of Application
Development from June 1992 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 eServices of Open Solutions since
December 1999. From September 1996 to December 1999, Mr. DeMita served as Vice
President of Professional Services of Open Solutions. 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 the American Business Information
Services, a subsidiary of American Savings Bank.
MR. MESSIER has served as Vice President of Conversion Services of Open
Solutions since December 1997 and served as our Manager of Customer Support 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.
BOARD OF DIRECTORS. Upon the completion of this offering, our Board of
Directors will be divided into three classes of directors. Directors in the
first class will be elected for a one-year term, those in the second class will
be elected for a two-year term, and those in the third class will be elected for
a three-year term. At each subsequent annual meeting, stockholders will elect
replacements for the directors whose terms are then expiring, and the directors
so elected will serve for a three-year term or until their successors are duly
elected and qualified.
In March 2000, our Board of Directors established a Compensation Committee
and an Audit Committee. The members of the Compensation Committee are
Mr. Carlisle, Mr. McKay and Mr. Mutch. The members of the Audit Committee are
Mr. Carlisle, Mr. Dame and Mr. McKay.
Executive officers of Open Solutions are appointed by our Board of Directors
and serve until their successors have been duly elected and qualified. There are
no family relationships among any of the executive officers or directors of Open
Solutions.
44
<PAGE>
Following this offering, we anticipate that, directors who are employees of
Open Solutions will not be paid any fees or receive any additional compensation
for service as members of the Board of Directors or any committee of the Board
other than the issuance of options to purchase shares of commons stock under the
2000 Non-Employee Director Stock Option Plan. Open Solutions will enter into
customary arrangements with respect to fees and other compensation, including
expense reimbursement for directors who are not employees of Open Solutions. See
"Management--Stock Plans--2000 Non-Employee Director Stock Option Plan." We have
directors' and officers' liability insurance and our restated certificate of
incorporation provides for mandatory indemnification of directors and officers
to the fullest extent permitted by Delaware law. In addition, our restated
certificate of incorporation limits the liability of our directors or our
stockholders for breaches of the directors' fiduciary duties to the fullest
extent permitted by Delaware law. See "Description of Capital Stock--Delaware
Law and Certain Charter and By-Law Provisions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All decisions regarding the compensation of our executive officers for the
fiscal year ended December 31, 1999 were made by Mr. Carlisle, Mr. McKay and
Mr. Yanak. None of our executive officers participated in deliberations of our
Board of Directors concerning executive officer compensation for the fiscal year
ended December 31, 1999. No executive officer of Open Solutions has served as a
director or member of the Compensation Committee (or other committee serving an
equivalent function) of any other entity.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1999 for our current Chief Executive Officer, our
former Chief Executive Officer and our four other most highly compensated
executive officers who earned at least $100,000.
45
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Louis Hernandez, Jr........... $ 37,606 -- $ 38,097(2) -- --
Chairman of the Board and
Chief Executive Officer(1)
Douglas Anderson.............. 206,250 -- $107,813
Director and former Chief
Executive Officer(3)
Clifford I. Waggoner.......... 128,043 $ 4,000 -- -- --
Senior Vice President and
Chief Technology Officer
John L. Person................ 190,000 6,000 4,800 -- --
President and Chief
Operating Officer
Michael D. Nicastro........... 100,000 -- -- -- --
Vice President of Marketing
and Sales
Graham H. Gurney (4).......... $151,366 -- -- -- --
Senior Vice President of
Sales
</TABLE>
- ------------------------
(1) Mr. Hernandez began serving as our Chief Executive Officer in
November 1999. Under his employment agreement his annual salary is $292,000.
(2) Represents relocation-related expenses reimbursed to Mr. Hernandez in 1999.
(3) Mr. Anderson resigned as Chief Executive Officer in July 1999 but continued
to act as Chief Executive Officer until November 1999.
(4) Mr. Gurney resigned as Senior Vice President in June 1999.
The following table sets forth grants of stock options to each of the
executive officers named above during the year ended December 31, 1999.
46
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 0% 5% 10%
- ---- ---------- ------------ --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Louis Hernandez, Jr.(2)... 57% 11/15/2009
Douglas Anderson(3)....... 1% 12/16/2009
1% 12/16/2009
Clifford I. Waggoner...... -- -- -- --
John L. Person............ -- -- -- --
Michael D. Nicastro....... -- -- -- --
Graham H. Gurney.......... -- -- -- --
</TABLE>
- ------------------------
(1) The fair market value of the common stock on the grant date, $ per share,
was determined in good faith by our Board of Directors. 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 the 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 our 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 our common stock at the date of grant was $ per share,
the mid-point of the range set forth on the cover of this prospectus, the
potential realizable value of these options (a) at a 5% assumed annual rate
of stock price appreciation would be $ for Mr. Hernandez,
$ for Mr. Anderson, $ for Mr. Waggoner,
$ for Mr. Person $ for Mr. Nicastro and
$ for Mr. Gurney and (b) at a 10% assumed annual rate of stock
price appreciation, would be $ for Mr. Hernandez, $
for Mr. Anderson, $ for Mr. Waggoner $ for
Mr. Person $ for Mr. Nicastro and $ for Mr. Gurney.
(2) Mr. Hernandez began serving as our Chief Executive Officer in
November 1999.
(3) Mr. Anderson resigned as Chief Executive Officer in July 1999 but continued
to act as Chief Executive Officer until November 1999.
The following table sets forth certain information concerning the number and
value of unexercised options held by each of our executive officers on
December 31, 1999. None of these officers exercised any stock options during the
year ended December 31, 1999.
47
<PAGE>
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>
Louis J. Hernandez, Jr.(2)................ $ $
Douglas Anderson(3).......................
Clifford I. Waggoner......................
John L. Person............................
Michael D. Nicastro.......................
Graham H. Gurney (4)......................
</TABLE>
- ------------------------
(1) Represents the difference between the exercise price and the fair market
value of the common stock at fiscal year end.
(2) Mr. Hernandez began serving as our Chief Executive Officer in
November 1999.
(3) Mr. Anderson resigned as Chief Executive Officer in July 1999 but continued
to act as Chief Executive Officer until November 1999.
(4) Mr. Gurney resigned as Senior Vice President in July 1999.
EMPLOYMENT AGREEMENTS
We are party to an employment agreement, dated October 18, 1999, with Louis
Hernandez, Jr., our Chairman and Chief Executive Officer. Under this agreement,
which has a three-year term, we agreed to pay Mr. Hernandez an annual base
salary of $292,000 and a bonus based on the achievement of certain performance
targets. Mr. Hernandez was granted an incentive stock option to purchase
shares of common stock at an exercise price of per share on November 15,
1999. If Open Solutions successfully completes an initial public offering by
June 2000, Mr. Hernandez will also receive a bonus of $50,000. We also agreed to
grant options to purchase common stock at the initial public offering price
to Mr. Hernandez upon the successful completion of an initial public offering.
The agreement also included a covenant by Mr. Hernandez not to compete with our
business or to solicit any of our employees or clients during the 12 month
period following his employment termination. The agreement provides for
severance pay if employment terminates without cause or good reason equal to a
year's salary.
Pursuant to a letter agreement dated February 16, 2000, we agreed to employ
John S. Wieczorek as Vice President and Chief Financial Officer. We agreed to
pay Mr. Wieczorek an annual base salary of $150,000 and granted him an incentive
stock option to purchase shares of common stock at an exercise price of
per share vesting over a four-year period. The agreement also provides for
an additional grant of an option to purchase 25,000 shares at the initial public
offering price vesting over a four-year period upon a successful initial public
offering and a discretionary bonus based on certain performance targets.
We are also party to an employment agreement, dated January 2, 1993, with
Clifford I. Waggoner, our Senior Vice President and Chief Technology Officer.
Under this agreement, we agreed to pay Mr. Waggoner a minimum annual base salary
of $100,000. The agreement also includes a covenant by Mr. Waggoner not to
compete with our business or to solicit any of our employees or clients during
the two-year period following his employment termination.
Pursuant to a letter agreement dated September 16, 1998, we agreed to employ
John L. Person as President and Chief Operating Officer. We agreed to pay
Mr. Person an annual base
48
<PAGE>
salary of $190,000 and a bonus based on the achievement of certain performance
targets. We also agreed to provide, salary continuation and acceleration of
options upon termination of Mr. Person's employment.
STOCK PLANS
1994 STOCK OPTION PLAN AND 2000 STOCK INCENTIVE PLAN
Our 1994 Stock Option Plan was adopted by our Board of Directors and
approved by our stockholders in March 1994. In March 2000 our 1994 Stock Option
Plan was amended by our Board of Directors to provide for acceleration of
vesting upon an acquisition event, as defined, subject to recision by our Board
of Directors. A maximum of shares of common stock were issuable. As of
December 31, 1999 options to purchase an aggregate of shares of common
stock at a weighted average exercise price of per share were outstanding
under the plan. Upon the closing of this offering, no further option grants will
be made under the 1994 Stock Option Plan.
In March 2000, our Board of Directors and stockholders approved the 2000
Stock Incentive Plan, which provides for the grant of incentive stock options,
nonqualified stock options and restricted stock awards to employees (including
officers and employee directors) and consultants. Upon the closing of this
offering, a maximum of shares of common stock will be reserved for
issuance pursuant to this plan. This maximum number of shares will increase,
effective as of January 1, 2001, and each January 1 thereafter during the term
of the plan, by an additional number of shares of common stock equal to 5% of
the total number of shares of common stock issued and outstanding as of the
close of business on the preceding December 31. No participant in this plan may
in any year be granted stock options or awards with respect to more than
shares of common stock.
The 2000 Stock Incentive Plan is administered by the Compensation Committee
of our Board of Directors, which has the authority to determine which
individuals are eligible to receive options or restricted stock awards, the
terms of such options or awards, the status of such options as incentive or
nonqualified stock options under the federal income tax laws, including the
number of shares, exercise or purchase prices and times at which the options
become and remain exercisable or restricted stock vests and the time, manner and
form of payment upon exercise of an option. The exercise price of non-qualified
options granted under this plan may not be less than 85% of the fair market
value of a share of common stock on the date of grant, or 100%, in the case of
incentive stock options. The options become exercisable at such time or times as
are determined by the Compensation Committee and expire after a specified period
that may not exceed ten years.
Upon the acquisition of 50% or more of our outstanding common stock pursuant
to a hostile tender offer, each option granted to an officer of Open Solutions,
if it has been outstanding for at least six months, will automatically be
canceled in exchange for a cash distribution to the officer based upon the
difference between the tender offer price and the exercise price of the option.
In the event Open Solutions is acquired, vesting of options and restricted
stock awards granted under the 2000 Stock Incentive Plan will accelerate to the
extent that the options or our repurchase rights with respect to restricted
stock awards are not assumed by or assigned to the acquiring entity. The
Compensation Committee also has discretion to provide for accelerated vesting of
options and restricted stock awards upon the occurrence of certain changes in
control. Accelerated vesting may be conditioned upon subsequent termination of
the affected optionee's service.
With the consent of an option holder, the Compensation Committee can cancel
that holder's options and replace them with new options for the same or a
different number of shares having an exercise price based upon the fair market
value of our common stock on the new grant date.
49
<PAGE>
We intend to grant options to purchase an aggregate shares of
common stock to employees on the effective date of this offering at a price per
share equal to the initial public offering price.
Our Board of Directors may amend or modify the 2000 Stock Incentive Plan at
any time subject to the rights of holders of outstanding options. This plan will
terminate on March 2010.
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In March 2000, our Board of Directors and stockholders approved the 2000
Non-Employee Director Stock Option Plan which is effective upon an initial
public offering. Under this plan, each director of Open Solutions who is not
also an employee of Open Solutions will receive upon the commencement of this
offering, or upon later initial election to our Board of Directors, an option to
purchase shares of common stock. Additionally, after a director's initial
grant, the director will receive, as of each date on which he is reelected as a
director (but not more frequently than every 3 years), an option to purchase
shares of common stock minus the number of options previously granted under
this plan which have not yet vested. Options are granted under the plan at an
exercise price equal to the fair market value of the common stock on the date of
grant. The options vest monthly at the rate of shares a year provided that
the optionee continues to serve as a director of Open Solutions as of each
vesting date, and have a term of ten years. A maximum of shares of common
stock have been reserved for issuance of options under this plan.
2000 EMPLOYEE STOCK PURCHASE PLAN
In March 2000, our Board of Directors and stockholders approved the 2000
Employee Stock Purchase Plan which is effective upon an initial public offering
and enables eligible employees to acquire shares of common stock through payroll
deductions. This plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the internal Revenue Code of 1986, as amended. The
initial offering period will start on the date of this offering and end on
December 31, 2000, unless otherwise determined by our Board of Directors.
Subsequent offerings under this plan are planned to start on January 1 and
July 1 of each year and end on June 30 and December 31 of each year. During each
offering period, an eligible employee may select a rate of payroll deduction
from 1% to 10% of compensation, up to an aggregate of $12,500 in any offering
period. The purchase price for the common stock purchased under this plan is 85%
of the lesser of the fair market value of the shares on the first day or the
last day of the offering period. An aggregate of shares of common stock
have been reserved for issuance under this plan.
50
<PAGE>
CERTAIN TRANSACTIONS WITH RELATED PARTIES
In January 1994, we entered into an agreement with Banking Spectrum
Services, Inc. and Banking Spectrum, Inc. to license certain software products
and for consulting and support services. Pursuant to that agreement, we agreed
to pay Banking Spectrum Services, Inc. and Banking Spectrum, Inc., a royalty
based on the licensing of software products and related services ranging from 3%
to 17% of net revenues based on their involvement in the sale of such products
and services. In March 1998, Open Solutions, Banking Spectrum Services, Inc. and
Banking Spectrum, Inc. entered into a distribution agreement and a termination
agreement. The agreement provides us with a fully-paid license to distribute 20
copies of an electronic regulatory reference product developed by Banking
Spectrum Services, Inc. and Banking Spectrum, Inc. The termination agreement
releases Open Solutions from any future royalty payments to either party in
exchange for a cash payment of $100,000 and grants affiliates of Banking
Spectrum, Inc. fully-vested options to purchase shares of common stock at
an exercise price of $ per share. Mr. Naudon, a director of Open Solutions,
is President and Chief Executive Officer, a director and the majority
shareholder of Banking Spectrum, Inc. The stock options were estimated by
management to have a fair value of approximately $1.6 million, and we recorded a
contract termination expense of approximately $1.3 million (net of amounts
previously accrued) for December 31, 1998.
On August 22, 1997, we issued 833,333 shares of Series D preferred stock at
$6.00 per share for an aggregate purchase price of $5.0 million to The BISYS
Group., Inc. In addition, we issued a warrant to purchase 416,667 shares of
Series D preferred stock at $6.00 per share. Concurrent with such preferred
stock offering, we entered into a Software License and Marketing and
Distribution Agreement with BISYS, Inc. See "Business--Sales and Marketing." For
the years ended December 31, 1999 and 1998, there were revenues under the
Software License and Marketing and Distribution Agreement of approximately
$536,000 and $313,000, respectively. BISYS, Inc. is required to pay us a license
fee for each BISYS, Inc. client utilizing our system. Under the terms of the
agreement we also receive annual maintenance fees for each of BISYS, Inc.'s
clients using our system. We may also receive fees from BISYS, Inc. for
rendering additional services under a software license and marketing and
distribution agreement. Mr. Neville is President of BISYS, Inc. and was elected
as a director of Open Solutions pursuant to the agreement.
On April 12, 1999, we issued 746,157 shares of Series E preferred stock at
$8.00 per share for an aggregate purchase price of $5,969,256 to HNC
Software Inc. We also entered into a strategic alliance agreement with HNC
Software Inc. to cross market our financial services products. HNC
Software Inc. provides third party applications that work with our enterprise
processing applications. We receive a fee for each HNC Software Inc. application
sold. Mr. Mutch is President of HNC Insurance Solutions and has also served as
Vice President, Marketing of HNC Software Inc. He was elected as a director of
Open Solutions pursuant to the purchase of Series E preferred stock.
On March 17, 2000, we issued 2,145,925 shares of Series F preferred stock at
$9.32 per share for an aggregate purchase price of $20,000,021 to
27 independent investors and five existing stockholders. The following
beneficial owners of 5% of our stock purchased Series F preferred stock:
- Aetna Life Insurance Company purchased 214,592 shares for an aggregate
purchase price of $1,999,997. Mr. Clarke, a director of Open Solutions, is
a Vice President of Private Equity of Aetna Life Insurance Company.
- Axiom Investment Partners, L.P., an affiliate of Axiom Venture Partners,
L.P., purchased 80,472 shares for an aggregate purchase price of $749,999.
Mr. McKay, a director of Open Solutions, is Chief Executive Officer of
Axiom Venture Partners, L.P., the general partner of Axiom Venture
Partners, L.P.
51
<PAGE>
- Connecticut Innovations, Incorporated purchased 214,592 shares for an
aggregate of $1,999,997. Connecticut Innovations/Webster LLC an affiliate
of Connecticut Innovations, Incorporated purchased 214,592 for an
aggregate purchase price of $1,999,997.
- HNC Software Inc. purchased 160,944 shares for an aggregate purchase price
of $1,499,998. Mr. Mutch, a director of Open Solutions, is the President
of HNC Insurance Solutions, a division of HNC Software Inc.
- Menlo Ventures VI, L.P. purchased 53,648 shares for an aggregate purchase
price of $499,999. Mr. Carlisle, a director of Open Solutions, is a
general partner of MV Management VI, L.P., a general partner of Menlo
Ventures, VI, L.P.
In connection with the sale of the Series F preferred stock, we entered into
an amended and restated investors' rights agreement. All rights under this
agreement will terminate upon the closing of this offering, except for the
registration rights described in "Description of Capital Stock--Registration
Rights." In order to comply with applicable regulatory investment mandates
applicable to Connecticut Innovations, Incorporated, one of our preferred
stockholders, we have agreed to maintain our principal place of business and
base a majority of our employees in Connecticut until March 17, 2002, subject to
earlier termination.
We believe that all of the transactions set forth above that were
consummated with the parties that may be deemed to be affiliated with Open
Solutions were made on terms no less favorable to us than could have been
obtained from unaffiliated third parties.
We have a policy that all material transactions between Open Solutions and
its officers, directors and other affiliates must:
- be approved by a majority of the members of our Board of Directors;
- be approved by a majority of the disinterested members of our Board of
Directors; and
- be on terms no less favorable to Open Solutions than could be obtained
from unaffiliated third parties.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Open Solutions common stock as of , 2000 on a pro forma, as
adjusted and fully-diluted basis immediately prior to the closing of this
offering and the sale of the common stock offered hereby, by:
- all persons known by us to own beneficially 5% or more of the common
stock;
- each of our directors;
- the Chief Executive Officer and the other current executive officers
listed in the Summary Compensation Table on page ; and
- all directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned
by the stockholder. The address of each of our officers and directors is c/o
Open Solutions Inc., 300 Winding Brook Drive, Glastonbury, CT 06033.
The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission and includes voting
or investment power with respect to securities. Under these rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting power or investment power and includes any shares as to which the
individual or entity has the right to acquire beneficial ownership within
60 days after , 2000 through the exercise of any warrant, stock option or
other right. As of , 2000, a total of shares of common stock were
either outstanding or subject to options or warrants that are exercisable or
that will become exercisable within 60 days of the estimated effective date of
this offering. The inclusion in this prospectus of such shares, however, does
not constitute an admission that the named stockholder is a direct or indirect
beneficial owner of such shares. The applicable
53
<PAGE>
percentage of "beneficial ownership" after the offering is based upon
shares of common stock outstanding.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY
OWNED(1)
-------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------ ------------------ -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS
Menlo Ventures Management VI, L.P.(2)...................
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
The BISYS Group, Inc.(3)................................
11 Greenway Plaza
Houston, TX 77046
Axiom Venture Partners, L.P.(4).........................
City Place II, 17th Floor
Hartford, CT 06103
Aetna Life Insurance Company(5).........................
151 Farmington Avenue
Hartford, CT 06106
Connecticut Innovations, Incorporated(6)................
999 West Street
Rocky Hill, CT 06067
HNC Software Inc(7).....................................
5935 Cornerstone Court
San Diego, CA 92121
OTHER DIRECTORS AND EXECUTIVE OFFICERS
Louis Hernandez, Jr.(8).................................
Douglas C. Carlisle(2)..................................
David M. Clarke(5)......................................
Samuel F. McKay(4)......................................
John Mutch(7)...........................................
Carlos P. Naudon(6).....................................
William W. Neville(3)...................................
Michael Nicastro(10)....................................
John L. Person(11)......................................
Clifford I. Waggoner(12)................................
John C. Wieczorek(13)...................................
Richard P. Yanak(14)....................................
All executive officers and directors as a group
( persons)(15)...................................
</TABLE>
- ------------------------
* Less than 1%
(1) Assumes no exercise of the underwriters' over-allotment option.
(2) Consists of shares held by Menlo Ventures VI, L.P. and
shares held by Menlo Entrepreneurs. MV Management VI, L.P. is a
general partner of Menlo Ventures VI, L.P. and Menlo Entrepreneurs.
Mr. Carlisle, a director of Open Solutions, is a general partner of MV
Management VI, L.P. Mr. Carlisle disclaims beneficial ownership of the
shares held by Menlo Ventures VI, L.P. and Menlo Entrepreneurs Fund VI,
L.P., except to the extent of his pecuniary interests therein.
54
<PAGE>
(3) Includes shares issuable upon the exercise of warrants held by
The BISYS Group, Inc. which are exercisable within 60 days after
, 2000. Mr. Neville, a director of Open Solutions is also
President of Bisys, Inc., a wholly-owned subsidiary of The BISYS Group, Inc.
(4) Includes shares issuable upon the exercise of warrants held by
Axiom Venture Partners, L.P. which are exercisable within 60 days after
, 2000. Mr. McKay, a director of Open Solutions, is Chief
Executive Officer of Axiom Venture Associates, Inc., the general partner of
Axiom Venture Partners, L.P. Mr. McKay shares voting and investment power
with respect to such shares with two other executive officers of Axiom
Venture Associates, Inc. Mr. McKay disclaims beneficial ownership of the
shares held by Axiom Venture Partners, L.P., except to the extent of his
pecuniary interest therein.
(5) Includes shares issuable upon the exercise of warrants held by
the Aetna Life Insurance Company which are exercisable within 60 days after
, 2000. Mr. Clarke, a director of Open Solutions is Vice
President of Private Equity of Aetna Life Insurance Company.
(6) Includes shares issuable upon the exercise of warrants held by
Connecticut Innovations, Inc. which are exercisable within 60 days after
, 2000. Connecticut Innovations, Inc. is the State of
Connecticut's technology development corporation.
(7) Consists of shares held by HNC Software Inc. Mr. Mutch a director of
Open Solutions is also President of HNC Insurance Solutions.
(8) Includes shares which Mr. Hernandez has the right to acquire within
60 days after , 2000 upon the exercise of stock options.
(9) Consists of shares held by Banking Spectrum, Inc. shares held by
Mr. Naudon of options held by Mr. Naudon which are exercisable within
60 days after , 2000, shares held by The Enrique S. Naudon
Trust, shares held by The Ignacio S. Naudon Trust, shares held
by The Huguette Rivet Trust, shares held by The Eric P. Steinglass Trust and
shares held by Allister & Naudon Profit Sharing Pension Plan.
Mr. Naudon, a director of Open Solutions, is President and Chief Executive
Officer, and a director and the majority shareholder of Banking
Spectrum, Inc. a trustee of the Allister & Naudon Profit Sharing Plan, and
Susan Steinglass, his spouse, is a trustee of The Enrique S. Naudon Trust,
The Ignacio S. Naudon Trust, The Huguette Rivet Trust and The Eric P.
Steinglass Trust.
(10) Includes shares which Mr. Nicastro has the right to acquire within
60 days after , 2000 upon the exercise of stock options.
(11) Includes shares which Mr. Person has the right to acquire within
60 days after , 2000 upon the exercise of stock options.
(12) Includes shares which Mr. Waggoner has the right to acquire within
60 days after , 2000 upon the exercise of stock options.
(13) Includes shares which Mr. Wieczorek has the right to acquire within
60 days after , 2000 upon the exercise of stock options.
(14) Includes shares which Mr. Yanak has the right to acquire within
60 days after , 2000 upon the exercise of stock options.
(15) Includes an aggregate of shares of common stock which the directors
and officers have the right to acquire within 60 days after , 2000
upon the exercise of stock options.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of 40,000,000 shares of common stock, $.01 par value per share, and 5,000,000
shares of preferred stock, $.01 par value per share, whose rights and
designation have not yet been established. There will be no preferred stock
outstanding immediately after the closing of this offering. The description in
the sections below of our certificate of incorporation and by-laws refers to our
restated certificate of incorporation and amended and restated by-laws,
respectively, as they will be in effect upon the closing of this offering.
As of , 2000 (after giving effect to the conversion of all outstanding
shares of our convertible preferred stock into common stock to be effected upon
the closing of this offering), there were outstanding
- shares of common stock held by stockholders of record;
- options to purchase an aggregate of shares of common stock;
and
- warrants to purchase an aggregate of shares of common stock.
COMMON STOCK
VOTING RIGHTS. The holders of our common stock are entitled to one vote for
each share held on all matters submitted to a vote of the stockholders, and are
not able to multiply the number of shares they own by the number of directors up
for election for purposes of electing directors. Accordingly, holders of a
majority of the shares of common stock entitled to vote in any election of
directors and may elect all of the directors standing for election.
DIVIDENDS. The holders of our common stock are entitled to receive
dividends in proportion to the number of shares they hold if dividends are
declared by our Board of Directors out of funds that are legally available for
that purpose, provided that dividends declared on outstanding preferred stock
shall have priority.
OTHER RIGHTS. Upon the liquidation, dissolution or winding up of Open
Solutions, the holders of our common stock are entitled to receive the net
assets of our available cash after the payment of all debts and other
liabilities, provided that holders of the outstanding preferred stock shall have
priority. The holders of our common stock have no preferential right to
participate in any future debt or equity offerings, to have their shares
redeemed or to convert their shares into any other type of security. The
outstanding shares of common stock are, and the shares offered by us in this
offering will be, when issued and paid for, fully paid and non-assessable. In
the event Open Solutions issues shares of preferred stock in the future, the
rights of the holders of our common stock may be adversely affected by that
issuance, because it is probable that any preferred stock issued will have
certain rights and preferences that entitle the holders of such shares to have
priority over the holders of the common stock with respect to certain matters.
These matters include the right to receive dividends and the right to receive
our assets in the event of a bankruptcy or similar type event. There will be no
shares of preferred stock outstanding immediately after the closing of this
offering.
PREFERRED STOCK
Under the certificate of incorporation, our Board of Directors is
authorized, subject to certain limitations prescribed by law, without further
stockholder approval from time to time to issue up to an aggregate of 5,000,000
shares of preferred stock. The preferred stock may be issued in one or more
series. Each series may have different rights, preferences and designations and
qualifications and limitations and restrictions that may be established by our
Board of Directors without approval from the shareholders. The rights,
designations and preferences include:
56
<PAGE>
- number of shares to be issued;
- dividend rights;
- dividend rates;
- right to convert the preferred shares into common stock;
- voting rights;
- right to set aside a certain amount of assets for payments relating to the
preferred shares; and
- prices to be paid upon redemption of the preferred shares or a bankruptcy
type event.
If our Board of Directors decides to issue any preferred stock, it could
have the effect of delaying or preventing another party from taking control of
us. This is because the terms of the preferred stock would be designed to make
it prohibitively expensive for any unwanted third party to make a bid for the
shares of Open Solutions. We have no present plans to issue any shares of
preferred stock.
WARRANTS
The following table summarizes Open Solutions' outstanding warrants as of
February 29, 2000:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
EXERCISE PREFERRED FOR NUMBER OF EXPIRATION
TYPE OF SECURITY PRICE SHARES COMMON SHARES COMMON SHARES DATE
- ---------------- --------- ----------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Series B preferred stock........... Dec. 27, 2000
Series C preferred stock........... Oct. 23, 2001
Series D preferred stock........... Aug. 22, 2002
</TABLE>
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
Open Solutions is subject to the provisions of Section 203 of the Delaware
General Corporation Law. 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 the most recent three years did own, 15% or more of
the corporation's voting stock.
Our certificate of incorporation and by-laws provide for the division of the
Board of Directors into three classes, as nearly equal in size as possible, with
each class beginning its three year term in a different year. See
"Management--Executive Officers and Directors." Any director may be removed only
for cause by the vote of a majority of the shares that are permitted to vote for
the election of directors.
Our by-laws provide that for nominations to our Board of Directors or for
other business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely notice of the matter
in writing to our Secretary. To be timely, a notice of nominations or other
business to be brought before an annual meeting must be delivered (x) between
120 and 150 days before the date that is the one year anniversary of the date of
the preceding year's proxy statement relating to the annual meeting; or (y) if
the date of the current year's annual meeting is more than 30 days before or
60 days after the anniversary date described in (x) or no proxy
57
<PAGE>
statement was delivered in the preceding year, then notice must be given no
earlier than 90 days before the meeting and no later than (1) 60 days prior to
such meeting or (2) 10 days following the day on which public announcement of
such meeting is first made, whichever is later. With respect to special
meetings, notice must generally be delivered not more than 90 days prior to such
meeting and not later than the later of 60 days prior to such meeting or
10 days following the day on which public announcement is first made by Open
Solutions. The notice must contain, among other things, certain information
about the stockholder delivering the notice and, as applicable, background
information about each nominee or a description of the proposed business to be
brought before the meeting.
Our certificate of incorporation empowers our Board of Directors, when
considering a tender offer or merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders.
These factors may include:
- comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of Open Solutions' capital
stock, the estimated current value of Open Solutions in a freely
negotiated transaction and the estimated future value of Open Solutions as
an independent entity; and
- the impact of a transaction on our employees, suppliers and clients and
its effect on the communities in which we operate.
The provisions described above could make it more difficult for a third
party to acquire control of Open Solutions and, furthermore, could discourage a
third party from making any attempt to acquire control of Open Solutions.
Our certificate of incorporation provides that any action required or
permitted to be taken by the stockholders of Open Solutions may be taken only at
a duly called annual or special meeting of the stockholders. Special meetings
may be called only by the Chairman of the Board of Directors of Open Solutions,
a majority of the Board of Directors of Open Solutions or the President of Open
Solutions except that holders of a majority of the common stock entitled to vote
on the election of directors may call a special meeting for the purpose of
filling a vacancy on the Board of Directors, and holders of at least two-thirds
of the common stock entitled to vote generally may call a special meeting for
any other purpose. These provisions could have the effect of delaying until the
next annual stockholders meeting stockholder actions that are favored by the
holders of a majority of the outstanding voting securities of Open Solutions.
These provisions may also discourage another person or entity from making an
offer to our stockholders for the common stock, because even if the person or
entity who makes the offer acquired a majority of our outstanding voting
securities, that person or entity would be unable to call a special meeting of
the stockholders and would further be unable to obtain unanimous written consent
of the stockholders. As a result, any meeting as to matters they endorse,
including the election of new directors or the approval of a merger, would have
to wait for the next duly called stockholders meeting.
The Delaware General Corporation Law provides 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 the corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Our certificate of incorporation requires the affirmative vote of
the holders of at least 67% of the outstanding voting stock of Open Solutions to
amend or repeal any of the provisions of our certificate of incorporation
described above, or to reduce the number of authorized shares of common stock
and preferred stock. The 67% vote is also required to amend or repeal any of our
by-law provisions described above. Our by-laws may also be amended or repealed
by unanimous vote of our Board of Directors. The 67% stockholder vote would be
in addition to any separate vote that each class of preferred stock is entitled
to that might in the future
58
<PAGE>
be required in accordance with the terms of any preferred stock that might be
outstanding at the time any amendments are submitted to stockholders.
In addition, subject to the limitations prescribed by law, our Board of
Directors has the authority to issue up to 5,000,000 shares of preferred stock
and determine the price rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The issuance of preferred stock, while providing flexibility
in connection with possible financings or acquisitions or other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of our outstanding voting stock.
REGISTRATION RIGHTS
Set forth below is a summary of the registration rights of the holders of
our Series A-1 preferred stock, Series A-2 preferred stock, Series B preferred
stock, Series C preferred stock, Series D preferred stock, Series E preferred
stock, and Series F preferred stock, each of which will convert into common
stock immediately after the consummation of this offering.
DEMAND REGISTRATIONS. At any time before the effective date of the first
registration for a public offering of securities, the holders of 50% or more of
the shares having registration rights may request that we register at least 30%
of these shares of common stock then outstanding or an anticipated gross
offering price of at least $2.0 million. Upon the advice of our underwriters to
reduce the number of shares proposed to be registered ratably among the
demanding holders. We are obligated to effect only two registrations pursuant to
such a request by holders of registration rights. We are not obligated to effect
a registration during the period starting with the date 60 days prior to the
filing of and ending on a date 180 days following effectiveness of the most
recent company-initiated registration or if the requested registration may be
made on Form S-3.
PIGGYBACK REGISTRATION RIGHTS. The holders who have registration rights
have unlimited rights to request that shares be included in any
company-initiated registration of common stock other than registrations of
employee benefit plans, business combinations subject to Rule 145 under the
Securities Act, convertible debt or certain other registrations. In our initial
registration and subsequent registrations, the underwriters may, for marketing
reasons, exclude all or part of the shares requested to be registered on behalf
of all stockholders having the right to request inclusion in such registration
to no less than 25% of the total number of shares in the offering. In addition,
we have the right to terminate any registration we initiated prior to its
effectiveness regardless of any request for inclusion by any stockholders.
FORM S-3 REGISTRATIONS. After we have qualified for registration on
Form S-3, holders of 33% or more of the shares having registration rights may
request in writing that we effect a registration of these shares on Form S-3,
provided that the gross offering price of the shares to be so registered in each
such registration exceeds $2.0 million.
FUTURE GRANTS OF REGISTRATION RIGHTS. Without the consent of current
stockholders owning at least a majority of the then outstanding registrable
securities, we may not grant further registration rights which would be on equal
or more favorable terms than the existing registration rights.
TRANSFERABILITY. The registration rights are transferable upon transfer of
registrable securities and notice by the holder to us of the transfer, provided
that the transferee or assignee, after such assignment or transfer, holds at
least shares eligible for registration and assumes the rights and
obligations of the transferor for such shares. The transferee or assignee must
agree in writing to be bound by the Amended and Restated Investors' Rights
Agreement dated March 17, 2000.
TERMINATION. The registration rights will terminate as to any particular
stockholder on the earlier of five years following the closing of the first firm
commitment underwritten public offering pursuant to an effective registration
statement covering the offer and sale of the registrable securities
59
<PAGE>
statement covering the offer and sale of the shares eligible for registration
then outstanding to the public for not less than $10,000,000, provided that the
offering price is not less than $ per share and our stock is listed on the
Nasdaq or its equivalent for trading.
TRADING ON THE NASDAQ NATIONAL MARKET SYSTEM
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol OPEN.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock,
and we cannot predict the effect, if any, that sales of common stock or the
availability of common stock for sale will have on the market price of our
common stock prevailing from time to time. Nonetheless, significant sales of
common stock in the public market following this offering, or the perception
that such sales could occur, could lower the market price of our common stock or
make it difficult for us to raise additional equity capital in the future.
Following this offering, there will be approximately shares of our
common stock outstanding on a fully diluted basis. Of these shares, the
shares which are being sold in this offering generally will be freely
transferable without restriction or further registration under the Securities
Act of 1933, except that any shares held by our "affiliates" as is defined in
Rule 144 under the Securities Act may be sold only in compliance with the
limitations described below. The remaining shares of common stock which
will be outstanding after the offering will be "restricted securities" as
defined in Rule 144, and may be sold in the future without registration under
the Securities Act subject to compliance with the provisions of Rule 144 or any
other applicable exemption under the Securities Act.
In connection with this offering, our existing officers, directors, holders
of at least 1% of our common stock on a fully diluted basis, who currently hold
% of the outstanding shares of common stock (or securities exercisable for or
convertible into common stock) and will own an aggregate of shares of
common stock after this offering, have agreed with the underwriters that,
subject to exceptions, they will not sell or dispose of any of their shares for
180 days after the date of this prospectus. The underwriters' representatives
may, in their sole discretion and at any time without notice, release all or any
portion of the shares subject to such restrictions. Subject to these lock-up
agreements, the shares of common stock outstanding upon the closing of the
offering will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES DESCRIPTION
- ---------------- -----------
<S> <C>
After the date of this prospectus, freely tradable shares
sold in the offering.
After 180 days from the date of this prospectus, the lock-up
period will expire and these shares will be saleable under
Rule 144 (subject, in some cases, to volume limitations),
Rule 144(k), or under a registration statement to register
for resale shares of common stock issued upon the exercise
of stock options or warrants or the conversion of preferred
stock.
</TABLE>
In general, under Rule 144 as currently in effect, a person or persons whose
shares are required to be aggregated, including an affiliate of ours, and who
has beneficially owned shares for at least one year is entitled to sell, within
any three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of common stock, which is expected to be approximately shares upon
the completion of this offering, or the average weekly trading volume of the
common stock during the four calendar weeks preceding the date on which notice
of such sale is filed, subject to certain restrictions. In addition, a person
who is not deemed to have been an affiliate of ours at any time during the
90 days preceding a sale and who has beneficially owned the shares proposed to
be sold for at least two years would be entitled to sell such shares under
Rule 144(k) without regard to the requirements described above. To the extent
that shares were acquired from an affiliate of ours, such person's holding
period for the purpose of effecting a sale under Rule 144 commences on the date
of transfer from the affiliate.
61
<PAGE>
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, except
that we may issue, and grant options to purchase, shares of common stock under
the Stock Option Plan, the Incentive Plan and the Purchase Plan. The future sale
of shares of our common stock could adversely affect the market price of our
common stock.
We intend to file registration statements on Form S-8 with respect to the
aggregate of shares of common stock issuable under our 1994 Stock Option
Plan, 2000 Stock Incentive Plan, 2000 Non-Employee Director Stock Option Plan
and 2000 Employee Stock 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 statement will be eligible for
resale in the public market without restriction, except that affiliates must
comply with Rule 144, and these shares may not be sold or otherwise transferred
for 180 days following the date of this prospectus without the prior written
consent of the underwriters representatives or us.
In general, under rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144.
The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, along with
the shares acquired upon exercise of such options (including exercises after the
date of this prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than "affiliates" (as defined in Rule 144) subject only to the
manner of sale provisions of Rule 144 and by "affiliates" under Rule 144 without
compliance with its one year minimum holding period requirements.
62
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, the underwriters named below, for whom
Deutsche Bank Securities Inc., J.P. Morgan & Co. and Prudential Securities
Incorporated, are acting as representatives, have severally but not jointly
agreed to purchase from Open Solutions the following respective number of shares
of common stock:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Deutsche Bank Securities Inc...............................
J.P. Morgan Securities Inc.................................
Prudential Securities Incorporated.........................
----------
Total....................................................
==========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to approval of certain conditions precedent and that the
underwriters will be obligated to purchase all of the shares of the common stock
offered hereby, other than those shares covered by the over-allotment option
described below, if any are purchased. The underwriting agreement provides that,
in the event of a default by an underwriter, in certain circumstances the
purchase commitments of non-defaulting underwriters may be increased or the
underwriting agreement may be terminated.
The following table summarizes the compensation to be paid to the
underwriters by Open Solutions and the expenses payable by Open Solutions
assuming no exercise of the underwriters' over-allotment option:
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ---------
<S> <C> <C>
Underwriting discounts and commissions payable by Open
Solutions............................................ $ $
Expenses payable by Open Solutions..................... $ $
</TABLE>
Open Solutions has granted to the underwriters an option expiring on the
30th day after the date of this prospectus to purchase up to additional
shares of common stock at the initial public offering price, less the
underwriting discounts and commissions. Such option may be exercised only to
cover over-allotments in the sale of shares of common stock. To the extent such
option is exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of common stock as it was obligated to purchase pursuant to the
underwriting agreement.
Open Solutions has been advised by the representatives that the underwriters
propose to offer the shares of common stock to the public initially at the
public offering price set forth on the cover page of this prospectus and,
through the representatives, to selling group members at such price less a
concession of $ per share, and the underwriters and such selling group
members may allow a discount of $ per share on sales to certain other
broker-dealers. After the offering, the public offering price and concession and
discount to dealers may be changed by the representatives.
63
<PAGE>
The representatives have informed Open Solutions that they do not expect
discretionary sales by the underwriters to exceed 5% of the shares being offered
hereby.
Open Solutions, its officers and directors, and certain other existing
stockholders and option holders of Open Solutions have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of or transfer,
directly or indirectly, or, in the case of Open Solutions, file with the
Securities and Exchange Commission a registration statement relating to any
shares of common stock or securities exchangeable or exercisable for or
convertible into shares of common stock, or publicly disclose the intention to
do any of the foregoing, without the prior written consent of Deutsche Bank
Securities Inc. for a period of 180 days after the date of this prospectus,
except under certain circumstances.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with Open Solutions who have expressed an
interest in purchasing such shares of common stock in the offering. The number
of shares available for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same basis as
other shares offered hereby.
Open Solutions has agreed to indemnify the underwriters against liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments which the underwriters may be required to make in respect thereof.
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol OPEN.
Prior to the offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between Open
Solutions and the representatives. The principal factors to be considered in
determining the initial public offering price include:
- the information set forth in this prospectus and otherwise available to
the representatives;
- the history of, and the prospects for, Open Solutions and the industry in
which it competes;
- an assessment of Open Solutions' management;
- the prospects for, and the timing of, future earnings of Open Solutions;
- the present state of Open Solutions' development and its current financial
condition;
- the general condition of the securities markets at the time of the
offering;
- the recent market prices of, and the demand for, publicly-traded common
stock of companies in businesses similar to those of Open Solutions;
- market conditions for initial public offerings; and
- other relevant factors.
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor-SM-, a full service brokerage program, may view offering terms and a
prospectus online and place orders through their financial advisors.
64
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by Open Solutions will be
passed upon for Open Solutions by Bingham Dana LLP, Boston, Massachusetts. Two
partners of Bingham Dana LLP own, in the aggregate, shares of our common
stock. Various legal matters related to the sale of the common stock offered
hereby will be passed upon for the underwriters by Goodwin, Procter & Hoar LLP.
EXPERTS
The financial statements of Open Solutions as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999 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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a
registration statement on Form S-1 (including the exhibits and schedules
thereto) under the Securities Act and the rules and regulations thereunder, for
the registration of the common stock offered hereby. This prospectus is part of
the registration statement. This prospectus does not contain all the information
included in the registration statement because we have omitted certain parts of
the registration statement as permitted by the SEC rules and regulations. For
further information about us and our common stock, you should refer to the
registration statement. Statements contained in this prospectus as to any
contract, agreement or other document referred to are not necessarily complete.
Where the contract or other document is an exhibit to the registration
statement, each statement is qualified by the provisions of that exhibit.
You can inspect and copy the registration statement at the public reference
facility maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the SEC's regional offices at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may call the SEC at 1-800-732-0330 for further
information about the operation of the public reference rooms. Copies of all or
any portion of the registration statement can be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the registration statement is publicly available
through the SEC's site on the Internet's World Wide Web, located at
http://www.sec.gov.
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You can also request copies of these
documents, for a copying fee, by writing to the SEC. We intend to furnish to our
stockholders annual reports containing audited financial statements for each
fiscal year.
65
<PAGE>
OPEN SOLUTIONS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet at December 31, 1999 and 1998................. F-3
Statement of Operations for each of the three years in the
period ended
December 31, 1999......................................... F-4
Statement of Cash Flows for each of the three years in the
period ended
December 31, 1999......................................... F-5
Statement of Changes in Stockholders' Deficit for each of
the three years in the period ended December 31, 1999..... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
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, cash flows and changes in stockholders' deficit present fairly, in
all material respects, the financial position of Open Solutions Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
March 17, 2000
F-2
<PAGE>
OPEN SOLUTIONS INC.
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- DECEMBER 31, 1999
1999 1998 (NOTE 2)
----------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 5,224,624 $ 3,182,021
Accounts receivable, net (Note 2)............ 1,703,607 3,056,038
Prepaid expenses and other current assets.... 460,141 221,127
----------- ------------
Total current assets....................... 7,388,372 6,459,186
Fixed assets, net (Notes 2 and 3).............. 2,028,069 2,085,594
Software development costs, net (Note 2)....... 610,136 600,635
----------- ------------
Total assets............................... $10,026,577 $ 9,145,415
=========== ============
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT)
EQUITY
Current liabilities:
Accounts payable............................. $ 527,697 $ 643,070
Accrued expenses (Note 4).................... 1,811,663 1,502,301
Deferred revenue (Note 2).................... 2,041,263 2,765,872
----------- ------------
Total current liabilities.................. 4,380,623 4,911,243
----------- ------------
Other long-term liabilities (Note 9)........... 109,434 112,255
----------- ------------
Total liabilities.......................... 4,490,057 5,023,498
----------- ------------
Commitments and contingencies (Note 9)
Mandatorily redeemable convertible preferred
stock (Note 5)............................... 22,084,489 16,139,549
----------- ------------
Stockholders' deficit (Note 6 and 7):
Preferred stock, $0.01 par value; 1,416,666
and 1,416,666 shares authorized; 1,416,666
and 1,416,666, issued and outstanding...... 14,167 14,167 $ --
Common stock, $0.01 par value; 20,000,000 and
19,055,417 shares authorized; 2,637,226 and
2,236,013 shares issued and outstanding.... 26,372 22,360
Additional paid-in capital................... 4,492,280 4,311,842
Accumulated deficit.......................... (21,080,788) (16,366,001)
----------- ------------ ----
Total stockholders' (deficit) equity....... (16,547,969) (12,017,632) $ --
----------- ------------ ====
Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders' deficit.................... $10,026,577 $ 9,145,415
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OPEN SOLUTIONS INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues (Note 2):
Software license.................................. $ 5,346,873 $ 6,276,430 $ 4,313,722
Service and maintenance........................... 8,704,979 6,631,349 2,549,890
----------- ----------- -----------
Total revenues.................................. 14,051,852 12,907,779 6,863,612
----------- ----------- -----------
Costs of revenues:
Software license.................................. 1,566,591 1,502,876 1,160,005
Service and maintenance........................... 6,260,786 5,755,445 3,150,536
----------- ----------- -----------
Total cost of revenues.......................... 7,827,377 7,258,321 4,310,541
----------- ----------- -----------
Operating expenses:
Sales and marketing............................... 3,959,788 3,711,042 2,132,410
Product development............................... 4,148,897 2,300,080 1,901,892
General and administrative........................ 3,150,831 3,109,751 1,783,568
Contract termination (Note 12).................... -- 1,265,292 --
Transaction costs (Note 2)........................ -- 1,389,785 --
----------- ----------- -----------
Total operating expenses........................ 11,259,516 11,775,950 5,817,870
----------- ----------- -----------
Loss from operations................................ (5,035,041) (6,126,492) (3,264,799)
Interest income, net................................ 320,254 304,514 209,427
----------- ----------- -----------
Net loss............................................ $(4,714,787) $(5,821,978) $(3,055,372)
=========== =========== ===========
Net loss per common share--basic and diluted (Note
2)................................................ $ $ $
Weighted average common shares used to compute net
loss per share (Note 2)...........................
=========== =========== ===========
Unaudited pro forma net loss per common share--basic
and diluted (Note 2).............................. $
===========
Unaudited pro forma weighted average common shares
outstanding (Note 2).............................. $
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
OPEN SOLUTIONS INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(4,714,787) $(5,821,978) $(3,055,372)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization.................. 816,801 642,504 352,326
Compensation expense related to stock and
options granted.............................. 168,893 160,596 85,526
Options granted to Banking Spectrum (Note
12).......................................... -- 1,608,750 --
Loss on disposal of fixed assets............... -- 24,832 --
Changes in operating assets and liabilities:
Restricted cash.............................. -- 281,090 (186,849)
Accounts receivable.......................... 1,352,431 (1,550,098) (57,367)
Prepaid expenses and other current assets.... (239,014) 11,680 (97,597)
Deferred project costs....................... -- -- 458,675
Accounts payable and accrued expenses........ 54,703 798,609 500,645
Royalties payable............................ -- (378,981) 310,666
Deferred revenue............................. (724,609) 1,122,415 638,328
Other........................................ (2,821) 11,432 23,092
----------- ----------- -----------
Net cash used in operating activities.......... (3,288,403) (3,089,149) (1,027,927)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets.......................... (443,075) (1,327,231) (597,256)
Software development costs......................... (325,702) (339,901) (215,078)
----------- ----------- -----------
Net cash used in investing activities.......... (768,777) (1,667,132) (812,334)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the sale of mandatorily
redeemable convertible preferred stock........... 5,944,940 -- 4,977,734
Proceeds from exercise of stock options............ 154,843 21,230 8,607
Proceeds from exercise of warrants................. -- 588,335 --
Payments of short-term debt........................ -- (209,668) --
Proceeds from long-term debt....................... -- -- 104,002
Payments of long-term debt......................... -- (57,778) (91,556)
----------- ----------- -----------
Net cash provided by financing activities...... 6,099,783 342,119 4,998,787
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... 2,042,603 (4,414,162) 3,158,526
Cash and cash equivalents at beginning of period... 3,182,021 7,596,183 4,437,657
----------- ----------- -----------
Cash and cash equivalents at end of period......... $ 5,224,624 $ 3,182,021 $ 7,596,183
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid for:
Interest......................................... $ -- $ 4,367 $ 9,148
Income taxes..................................... 2,642 26,550 19,172
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
OPEN SOLUTIONS INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
-------------------- -------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- -------- --------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--December 31,
1996..................... 1,416,666 $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..................... 1,416,666 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 12)................ -- -- -- -- 1,608,750 -- 1,608,750
Net loss................... -- -- -- -- -- (5,821,978) (5,821,978)
--------- ------- --------- ------- ---------- ------------ ------------
Balance--December 31,
1998..................... 1,416,666 14,167 2,236,013 22,360 4,311,842 (16,366,001) (12,017,632)
Exercise of stock
options.................. -- -- 401,213 4,012 150,831 -- 154,843
Issuance of stock
options.................. -- -- -- -- 29,607 -- 29,607
Net loss................... -- -- -- -- -- (4,714,787) (4,714,787)
--------- ------- --------- ------- ---------- ------------ ------------
Balance--December 31,
1999..................... 1,416,666 $14,167 2,637,226 $26,372 $4,492,280 $(21,080,788) $(16,547,969)
========= ======= ========= ======= ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Open Solutions Inc. (the "Company") is a provider of electronic commerce,
Internet banking and enterprise processing applications for small to
medium-sized commercial banks, thrifts and credit unions, which we refer to as
community banks. Management believes that through the use of the Open Community
Network, its clients will use technology and the Internet to strengthen and
better manage their customer relationships and generate new revenue streams. In
addition to providing integrated, real-time, Internet banking and back-end
processing capabilities, the Company promotes electronic commerce transactions
centered around the Company's community bank clients and the trust, affinity
they share with their customers. The Company was incorporated in Delaware in
May 1992.
The Company's proprietary technology uses a Windows NT-based architecture
and Oracle relational database and gives the Company's clients real time
transaction processing capabilities with increased speed, ease of use,
functionality and scalability. The Company's technology platform also enables
the Company's clients to use advanced techniques such as data mining and
collaborative filtering, so that they may provide their customers with better
service and increase the effectiveness of their electronic commerce related
marketing efforts.
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 at the date of acquisition of
90 days or less.
ACCOUNTS RECEIVABLE
Receivables are net of the allowance for doubtful accounts. As of
December 31, 1999 and 1998, the allowance for doubtful accounts was $600,000 and
$428,000, respectively. Bad debt expense for the years ended December 31, 1999,
1998 and 1997 was $477,000, $291,000 and $214,000, respectively.
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 3 to
7 years. Leasehold improvements are amortized over the shorter of the term of
the lease or the useful life of the asset.
SOFTWARE DEVELOPMENT AND INTERNAL USE SOFTWARE 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 Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed." Capitalized software development costs were $234,578 and
$256,901 for years ended December 31, 1999 and 1998, respectively. Amortization
expense was $275,893, $272,609 and $125,770 for the years ended December 31,
1999, 1998 and 1997, respectively. Accumulated amortization was $742,960 and
$467,067 as of December 31, 1999 and 1998, respectively.
F-7
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In 1998, the Company early adopted Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). Under SOP 98-1, computer software costs incurred in the preliminary
project stage are expensed as incurred until the capitalization criteria has
been met. The criteria for capitalization is defined as the point the
preliminary project stage is complete and management commits to funding a
computer software project and it is probable that the project will be completed
and the software will be used to perform the function intended. Capitalization
ceases at the point that the computer software project is substantially complete
and ready for its intended use. The capitalized costs are amortized using the
straight-line method over the estimated economic life of the product, generally
three years. Capitalized internal use software costs were $91,124 and $83,000
for years ended December 31, 1999 and 1998, respectively. Amortization expense
and accumulated amortization was $40,308 and $0 for the years ended
December 31, 1999 and 1998, respectively.
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 December 31, 1999 reflects the conversion of all outstanding preferred
stock into common stock. The unaudited pro forma net loss per common share data
included in the Statement of Operations for the year ended December 31, 1999
gives 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.
Maintenance revenues are recognized ratably over the maintenance period,
generally one-year. Revenues from implementation and training services are
recognized as services are 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.
The Company receives royalties from several software vendors for marketing
referrals. Royalty income of $98,150, $108,005 and $103,478 was recognized in
1999, 1998 and 1997, respectively, and is recognized at the time the Company
receives payment from the software vendor. Such income is included in service
and maintenance revenue.
The Company is receiving payments under certain license and marketing
agreements with resellers. The Company recognizes such license revenue when the
software has been delivered to the reseller's customer, assuming all other
revenue recognition criteria are met. When extended
F-8
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
payment terms exist, generally the software license fee is recognized as
payments become due, unless a determination is made at the outset of the
arrangement that the fee is fixed and determinable.
TRANSACTION COSTS
During 1998, the Company incurred $1.4 million associated with an initial
public offering and merger transaction which were ultimately not completed.
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 net operating loss carryforwards using presently enacted tax
rates.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("EP") ("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 dilutive 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 1997, 1998, and 1999 calculations of diluted EPS do not include the
exercise of stock options, conversion of preferred stock or the exercise of
warrants as the effect would have been antidilutive.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially expose the Company to concentrations
of credit risk are limited to accounts receivable. No individual customer
accounted for 10% or more of total revenues for the years ended December 31,
1999 and 1998. Sales to two customers accounted for approximately 17% and 15% of
total revenues, respectively, in the year ended December 31, 1997. One customer
accounted for 15% of the accounts receivable balance at December 31, 1999. No
individual customers accounted for 10% or more of the accounts receivable
balance at December 31, 1998. 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
F-9
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
value of the underlying stock on the date of grant exceeds the exercise price of
the employee stock option. Additional disclosures required under Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
(SFAS 123), are included in Note 7, 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 November 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 100, Restructuring and Impairment Charges
("SAB 100"). In December 1999, the SEC issued SAB No. 101, Revenue Recognition
in Financial Statements ("SAB 101"). SAB 100 expresses the views of the SEC
staff regarding the accounting for and disclosure of certain expenses not
commonly reported in connection with exit activities and business combinations.
The Company does not expect the provisions of SAB 100 to have a material impact
on its financial statements. SAB 101 expresses the views of the SEC staff in
applying generally accepted accounting principles to certain revenue recognition
issues. The Company does not expect the provisions of SAB 101 to have a material
impact on its financial statements.
3. FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Computer equipment................................ $ 2,201,717 $1,845,717
Office furniture and equipment.................... 693,058 605,983
Leasehold improvements............................ 364,394 364,394
----------- ----------
3,259,169 2,816,094
Less: accumulated depreciation.................... (1,231,100) (730,500)
----------- ----------
$ 2,028,069 $2,085,594
=========== ==========
</TABLE>
Depreciation and amortization expense was $500,600, $369,895 and $226,556
for the years ended December 31, 1999, 1998 and 1997, respectively.
F-10
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Accrued compensation............................... $ 968,830 $ 663,152
Accrued third party license fees................... 588,764 626,776
Other.............................................. 254,069 212,373
---------- ----------
$1,811,663 $1,502,301
========== ==========
</TABLE>
5. 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 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. In addition to the rights provided to a preferred shareholder, the
Series D investor is allowed one seat on the Board of Directors. 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 years ended December 31, 1999, 1998 and 1997, there were
revenues of $536,509, $312,942 and $-0- recognized under this agreement,
respectively. As of December 31, 1999 and 1998, $175,491 and $92,233 was due
from this investor.
F-11
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In April 1999, the Company issued to an investor 746,157 shares of Series E
Preferred Stock at $8.00 per share for approximately $5.9 million. The Series E
Preferred Stock has similar mandatory redemption features as the May 1995
Series A-2, Series B, Series C, and Series D Preferred Stock. In addition to the
rights provided to a preferred shareholder, the Series E investor is allowed one
seat of ten on the Board of Directors. Concurrent with the preferred stock
offering, the investor also entered into a strategic alliance agreement designed
to enhance the product offerings of both companies. As of December 31, 1999,
there had been no revenue recognized under the strategic alliance 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, Series D and
Series E Preferred Stock shall be entitled to all unpaid dividends at the time
of liquidation and $1.50, $3.00, $3.00, $4.50, $6.00 and $8.00, 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 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 a 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 a closing of a public offering.
In March 2000, the Company, CII and the requisite number of holders of
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, the
Series D Preferred Stock Agreement dated as of August 20, 1997, and the
Series E Preferred Stock Agreement dated as of April 12, 1999 to provide that
the mandatory redemption provisions of the Series A-2, Series B and Series C, D
and E Preferred Stock terminate upon a closing of a public offering.
In order to comply with applicable regulatory investment mandates applicable
to CII, the Company entered into an agreement with CII to maintain the Company's
principal place of business and base a majority of the Company's employees in
Connecticut until March 17, 2002 subject to earlier termination.
F-12
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. 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 are common stock and 4,694,583
are 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 are common stock and
5,944,583 are 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, of which 19,055,417 are common stock and 5,944,583 are
preferred stock. In April 1999, the Company revised its certificate of
incorporation to approve an increase in authorized shares from 25,000,000 shares
to 26,690,740, of which 20,000,000 are common stock and 6,690,740 are preferred
stock.
The Company has reserved shares of common stock as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Conversion of preferred stock........................ 6,054,629 5,308,472
Conversion of preferred stock upon exercise of
warrants........................................... 636,111 636,111
Exercise of options.................................. 2,467,775 2,868,988
--------- ---------
9,158,515 8,813,571
========= =========
</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 14, 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, which was paid in full as of
December 31, 1996. 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 a closing of a public offering meeting certain criteria.
F-13
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLAN
1994 STOCK OPTION PLAN AND 2000 STOCK INCENTIVE PLAN
The Company has established the 1994 Stock Option Plan (the "1994 Plan") for
employees, officers, directors, and consultants 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
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.
The Company's 1994 Plan was amended by the Board of Directors in March 2000
to provide for acceleration of vesting upon an acquisition event, as defined,
subject to recision by the Board of Directors. The maximum number of shares that
were issuable under the 1994 Plan is 3,000,000. Upon the closing of an initial
public offering, no further option grants will be made under the 1994 Plan.
In March 2000, the Company's Board of Directors and stockholders approved
the 2000 Stock Incentive Plan, effective as of the closing of an initial public
offering, which provides for the grant of incentive stock options, nonqualified
stock options and restricted stock awards to employees (including officers and
employee directors) and consultants. All options previously granted under the
Company's 1994 Plan are still outstanding and exercisable according to the
vesting schedule. A maximum of 5,000,000 shares of common stock are currently
reserved for issuance pursuant to this plan. This maximum number of shares will
increase, effective as of January 1, 2001 and each January 1 thereafter during
the term of the plan, by an additional number of shares of common stock equal to
5% of the total number of shares of common stock issued and outstanding as of
the close of business on the preceding December 31. No participant in this plan
may in any year be granted stock options or awards with respect to more than
500,000 shares of common stock.
Upon the acquisition of 50% or more of our outstanding common stock pursuant
to a hostile tender offer, each option granted to an officer of Open Solutions,
if it has been outstanding for at least six months, will automatically be
canceled in exchange for a cash distribution to the officer based upon the
difference between the tender offer price and the exercise price of the option.
In the event Open Solutions is acquired, vesting of options and restricted
stock awards granted under the 2000 Stock Incentive Plan will accelerate to the
extent that the options or our repurchase rights with respect to restricted
stock awards are not assumed by or assigned to the acquiring entity. The
Compensation Committee also has discretion to provide for accelerated vesting of
options and restricted stock awards upon the occurrence of certain changes in
control. Accelerated vesting may be conditioned upon subsequent termination of
the affected optionee's service.
The 2000 Stock Incentive Plan is administered by the Compensation Committee
of the Company's Board of Directors, which has the authority to determine which
eligible individuals are to receive options or restricted stock awards, the
terms of such options or awards, the status of such options as incentive or
nonqualified stock options under the federal income tax laws, including the
number of shares, exercise or purchase prices and times at which the options
become and remain
F-14
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
exercisable or restricted stock vests and the time, manner and form of payment
upon exercise of an option. The exercise price of options granted under this
plan may not be less than 85% of the fair market value of a share of common
stock on the date of grant, or 100%, in the case of incentive stock options. The
options become exercisable at such time or times as are determined by the
Compensation Committee and expire after a specified period that may not exceed
ten years.
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In March 2000, the Company's Board of Directors and stockholders approved
the 2000 Non-Employee Director Stock Option Plan, effective as of the closing of
an initial public offering. Under this plan, each director of the Company who is
not also an employee will receive upon the commencement of an initial public
offering, or upon later initial election to the Board of Directors, an option to
purchase 15,000 shares of common stock. Additionally, after a director's initial
grant, the director will receive, as of each date on which he is reelected as a
director (but not more frequently than 3 years), an option to purchase 15,000
shares of common stock minus the number of options previously granted under this
plan which have not yet vested. Options are granted under the plan at an
exercise price equal to the fair market value of the common stock on the date of
grant. The options vest monthly, at the rate of 5,000 shares a year provided
that optionee continues to serve as a director of the Company as of each vesting
date, and have a term of ten years. A maximum of 1,350,000 shares of common
stock have been reserved for issuance under this plan.
2000 EMPLOYEE STOCK PURCHASE PLAN
In March 2000, the Company's Board of Directors and stockholders approved
the 2000 Employee Stock Purchase Plan, effective as of the closing of an initial
public offering, which enables eligible employees to acquire shares of common
stock through payroll deductions. This plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended. The initial offering period will start on the effective date
of the Company's first registration statement to become effective pursuant to
the securities Act and end on December 31, 2000, unless otherwise determined by
the Board of Directors. Subsequent offerings under this plan are planned to
start on January 1 and July 1 of each year and end on June 30 and December 31 of
each year. During each offering period, an eligible employee may select a rate
of payroll deduction from 1% to 10% of compensation, up to an aggregate of
$12,500 in any offering period. The purchase price for the common stock
purchased under this plan is 85% of the lesser of the fair market value of the
shares on the first day or the last day of the offering period. An aggregate of
4,000,000 shares of common stock have been reserved for issuance under the 2000
Employee Stock Purchase Plan.
F-15
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 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............................................. (13,574) 2.42
Exercised............................................ (70,541) 0.30
--------- -----
Outstanding at December 31, 1998....................... 1,686,635 0.76
Granted.............................................. 875,259 3.97
Canceled............................................. (131,437) 2.19
Exercised............................................ (401,213) 0.39
--------- -----
Outstanding at December 31, 1999....................... 2,029,244 2.13
========= =====
</TABLE>
As of December 31, 1999, 1998 and 1997, there were 1,022,788, 1,188,674 and
680,326 shares exercisable at a weighted average exercise price of $0.62, $0.40
and $0.26, respectively.
The following table summarizes information regarding stock options granted
during 1997, 1998 and 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED SFAS 123
NUMBER OF AVERAGE MINIMUM
OPTIONS EXERCISE VALUE AT
GRANTED PRICE GRANT DATE
--------- -------- ----------
<S> <C> <C> <C>
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 3.12
1999
Options granted with an exercise price less than market
value................................................... 875,259 3.97 1.20
</TABLE>
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.
F-16
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes additional information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS
-------------------------------------------------- EXERCISABLE
WEIGHTED- --------------
NUMBER AVERAGE NUMBER
OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT
EXERCISE DECEMBER 31, CONTRACTUAL LIFE AVERAGE DECEMBER 31,
PRICE 1999 IN YEARS EXERCISE PRICE 1999
- --------------------- -------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
$0.15 352,000 4.6 $0.15 352,000
0.30 293,875 6.4 0.30 261,573
0.45 324,396 7.6 0.45 284,857
2.75 182,988 7.9 2.75 107,610
4.00 863,819 9.8 4.00 11,769
4.50 3,500 8.3 4.50 1,506
6.00 8,666 8.5 6.00 3,473
---------- ---------
2,029,244 1,022,788
========== =========
</TABLE>
Had compensation expense been recognized based on the fair 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>
YEAR ENDED
DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net loss:
As reported.......................... $4,714,787 $5,821,978 $3,055,372
Pro forma under FAS123............... 4,871,071 5,936,579 3,131,847
Net Loss per share:
As reported........................
Pro Forma under FAS123.............
</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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk free interest rate...................... 5.8-6.2% 5.5-5.7% 5.6-6.6%
Expected dividend yield...................... None None None
Expected life of option...................... 6 years 6 years 6 years
Expected volatility.......................... 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.
Compensation expense of $367,975, $419,325 and $358,513 has been attributed
to those common stock options granted to employees during 1999, 1998 and 1997,
respectively, with an exercise price below estimated fair value. Compensation
expense is recognized over the four year vesting period and totaled $168,893,
$160,596, and $85,526 for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-17
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. 401(K) PLAN
In 1994, the Company established a voluntary 401(k) plan in which all full
time employees are eligible to participate. In July 1996, the Company began
providing 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, 1999, 1998 and 1997, were
$69,234, $52,826 and $27,773, respectively.
9. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, 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 2005. Terms of the facility lease provide for
escalating rent payments in future years. Minimum lease payments under these
noncancelable leases at December 31, 1999 are approximately as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1999
------------
<S> <C>
2000........................................................ $ 444,597
2001........................................................ 407,200
2002........................................................ 373,673
2003........................................................ 136,466
2004........................................................ 1,188
----------
Total minimum obligations................................... $1,363,124
==========
</TABLE>
The Company recognizes rent expense on a straight-line basis relating to a
seven-year lease agreement with escalating payment terms expiring April 2003,
which results in accrued rent expense of $109,434 and $112,255 as of
December 31, 1999 and 1998, respectively.
Rent expense under operating leases was approximately $386,000, $324,000 and
$194,000 for the years ended December 1999, 1998 and 1997, respectively.
As of December 31, 1999, there were employment agreements outstanding for
certain executive officers of the Company. These agreements are subject to
termination by either party, and provide for salary continuation and benefits
for a specified period under certain circumstances including a change in control
(as defined) of the Company.
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.
F-18
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. 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.
11. INCOME TAXES
Significant components of the Company's deferred tax asset at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carryforwards.......................... $ 6,966,000 $ 5,253,000
Research & development credit carryforwards............... 769,000 536,000
Stock compensation expense................................ 34,000 636,000
Deferred revenue.......................................... 413,000
Other..................................................... 431,000 212,000
----------- -----------
8,613,000 6,637,000
----------- -----------
Gross deferred tax liability:
Capitalized software development costs.................... 217,000 183,000
Accelerated depreciation.................................. 161,000 121,000
----------- -----------
378,000 304,000
----------- -----------
Valuation allowance......................................... (8,235,000) (6,333,000)
----------- -----------
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, 1999 and 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 December 31, 1999, the Company had approximately $17.9 million of federal
net operating loss carryforwards that begin expiring in 2007 and had
approximately $16.9 million of state net operating loss carryforwards that begin
expiring in year 2000. At December 31, 1999, the Company had approximately
$627,000 of federal research and development credit carryforwards that begin to
expire in 2007 and had approximately $142,000 of state research and development
credit carryforwards that do not expire.
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.
F-19
<PAGE>
OPEN SOLUTIONS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. RELATED PARTIES
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.
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
distribution and termination agreement expires upon delivery to the Company's
customers of a limited number of modules licensed from Banking Spectrum. The
stock options were estimated 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 year ended
December 31, 1998. The Company recognized royalty expense of $90,403 and
$337,945 for the years ended December 31, 1998 and 1997, respectively.
A director of the Company is also a member of management at one of the
Company's customers. Additionally, the Company holds their main operating bank
account with this customer. For the years ended December 31, 1999, 1998 and
1997, revenues from the customer were $222,970, $253,101 and $1,093,178. As of
December 31, 1999 and 1998, $2,120 and $96,191 was due from this customer.
See Note 5 for additional related party disclosure.
13. SUBSEQUENT EVENTS
On March 17, 2000, the Company issued to 32 investors 2,145,925 shares of
Series F Preferred Stock at $9.32 per share for approximately $20,000,000. The
Series F Preferred Stock has similar mandatory redemption features as the
May 1995 Series A-2, Series B, Series C, Series D and Series E Preferred Stock.
The Company expects to record a beneficial conversion charge as a result of the
issuance of the Series F Preferred Stock.
F-20
<PAGE>
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Special Note Regarding Forward-
Looking Statements.................. 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Historical Financial Data.... 19
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations....................... 20
Business.............................. 28
Management............................ 42
Certain Transactions with Related
Parties............................. 51
Principal Stockholders................ 53
Description Of Capital Stock.......... 56
Shares Eligible For Future Sale....... 61
Underwriting.......................... 63
Legal Matters......................... 65
Experts............................... 65
Where You Can Find More Information... 65
Index to Financial Statements......... F-1
</TABLE>
------------------------
Until , 2000 (25 days after the commencement of this offering),
all dealers that effect transactions in the common stock, whether or not
participating in this offering, 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.
[LOGO]
Open Solutions Inc.
Shares
Common Stock
Deutsche Banc Alex. Brown
J.P. Morgan & Co.
Prudential Volpe Technology
a unit of Prudential Securities
Prospectus
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
- ----------------- --------
<S> <C>
SEC Registration Fee........................................ $15,840
NASD Filing Fee............................................. 6,500
Nasdaq National Market Listing Fee.......................... 5,000
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing Expenses........................................... *
Blue Sky Qualification Fees and Expenses.................... *
Transfer Agent's Fee........................................ *
Miscellaneous............................................... *
-------
TOTAL..................................................... $27,340
=======
</TABLE>
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq National
Market fees, are in each case estimated.
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein.
The form of the restated certificate of incorporation of the Registrant and
the amended and restated by-laws of the Registrant, copies of the forms of which
will be filed as Exhibits 3.1 and 3.2, provide for indemnification of officers
and directors of the Registrant and certain other persons against liabilities
and expenses incurred by any of them in certain stated proceedings and under
certain stated conditions.
The above discussion of the Registrant's restated certificate of
incorporation, amended and restated by-laws and Section 145 of the Delaware
General Corporation Law is not intended to be exhaustive and is qualified in its
entirety by the forms of such restated certificate of incorporation, amended and
restated by-laws and Delaware statute.
The Registrant will agree to indemnify the underwriters and their
controlling persons, and the underwriters will agree to indemnify the Registrant
and its controlling persons, including directors and executive officers of the
Registrant, against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of the Underwriting Agreement that
will be filed as part of the Exhibits hereto.
For information regarding the Registrant's undertaking to submit to
adjudication the issue of indemnification for violation of the securities laws,
see Item 17 hereof.
II-1
<PAGE>
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 August 1997. 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 August 22, 1997, the Registrant sold a total of 833,333 shares of
Series D Preferred Stock to The BISYS Group, Inc for $5 million. We 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.
2. 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.
3. On April 12, 1999, the Registrant sold 746,157 shares of Series E
preferred stock to HNC Software Inc. for $5,969,256.
4. On March , 2000, the Registrant sold shares of Series F
preferred stock for $ to a number of independent investors and existing
shareholders.
Certain of the transactions described above involved directors, officers and
five percent stockholders of the Registrant. See "Certain Transactions with
Related Parties."
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 December 31, 1999, options to purchase 532,225 shares of common stock had
been exercised for an aggregate consideration of approximately $186,957. Options
to purchase 2,029,244 shares of common stock were outstanding.
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
EXHIBITS (A)
<TABLE>
<CAPTION>
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Form of Restated Certificate of Incorporation of the
Registrant, to be effective upon the closing of this
offering.
*3.2 Form of Amended and Restated By-Laws of the Registrant, to
be effective upon the closing of this offering.
*4.1 Specimen certificate for shares of the Registrant's Common
Stock
*5.1 Opinion of Bingham Dana LLP, counsel to the Registrant,
regarding the legality of the shares of common stock.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.1 1994 Stock Option Plan, as amended (incorporated by
reference to the same numbered exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-56503)).
*10.2 2000 Stock Incentive Plan, including forms of stock option
agreement for incentive and nonstatutory stock options.
*10.3 2000 Employee Stock Purchase Plan.
10.4 Form of Amended and Restated Investors' Rights Agreement,
dated as of March 17, 2000, between Open Solutions and the
Investors (as defined therein).
10.5 Form of Stock Subscription Warrant to Purchase Series B
Preferred Stock dated December 27, 1995 (incorporated by
reference to the same numbered exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-56503)).
10.6 Form of Stock Subscription Warrant to Purchase Series C
Preferred Stock dated October 23, 1996 (incorporated by
reference to the same numbered exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-56503)).
10.7 Stock Subscription Warrant to Purchase Series D Preferred
Stock, dated August 22, 1997, issued to The BISYS Group,
Inc. (incorporated by reference to the same numbered exhibit
to the Registrant's previously filed Registration Statement
on Form S-1 (Reg. No. 333-56503)).
10.8 Employment Agreement between Open Solutions Inc. and Louis
Hernandez, Jr. dated October 18, 1999.
+10.9 Software License and Marketing and Distribution Agreement,
between Open Solutions Inc. and BISYS, Inc., dated as of
August 20, 1997.
+10.10 Development and Promotion Agreement between Open Solutions
Inc. and Stockwalk.com, Inc. dated February 14, 2000.
10.11 Strategic Alliance Agreement between Open Solutions Inc. and
HNC Software Inc. dated April 12, 1999.
10.12 Letter Agreement between Open Solutions Inc. and John S.
Wieczorek dated February 16, 2000.
10.13 Employment Agreement between Open Solutions Inc. and
Clifford I. Waggoner dated January 2, 1993, as amended
(incorporated by reference to the same numbered exhibit to
the Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 333-56503)).
10.14 Letter Agreement between Open Solutions Inc. and John L.
Person dated April 10, 1997 (incorporated by reference to
the same numbered exhibit to the Registrant's previously
filed Registration Statement on Form S-1 (Reg. No.
333-56503)).
10.15 Gross Lease between Open Solutions Inc. and Principal Mutual
Life Insurance Company dated February 29, 1996.
10.16 Series E Preferred Stock Purchase Agreement dated April 12,
1999 by and between Open Solutions and HNC Software Inc.
10.17 Form of Series F Preferred Stock Purchase Agreement dated
March 17, 2000 by and among Open Solutions and the investors
listed therein.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.18 Agreement, dated March 26, 1998, among Open Solutions Inc.,
Banking Spectrum, Inc. and Banking Spectrum Services, Inc.
(incorporated by reference to the same numbered exhibit to
the Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 333-56503)).
*10.19 2000 Non-Employee Director Stock Option Plan.
23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of Bingham Dana LLP (included in Exhibit 5.1).
24. Power of Attorney (included on page II-6).
27. Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment to this registration statement.
+ 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 financial
statements or notes to those statements.
ITEM 17. UNDERTAKINGS
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Glastonbury, Connecticut, on March
20, 2000.
<TABLE>
<S> <C> <C>
OPEN SOLUTIONS INC.
By: /s/ LOUIS HERNANDEZ, JR.
-----------------------------------------
Louis Hernandez, Jr.
Chairman of the Board and Chief Executive
Officer
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of Louis Hernandez, Jr., John S. Wieczorek,
Brian Keeler and Johan V. Brigham such person's true and lawful attorney-in-fact
and agent with full power of substitution and resubstitution, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement (or to any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act), and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that any said
attorney-in-fact and agent, or any substitute or substitutes of any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board and
/s/ LOUIS HERNANDEZ, JR. Chief Executive Officer
- ------------------------------------------- (Principal Executive March 20, 2000
Louis Hernandez, Jr. Officer)
Chief Financial Officer
/s/ JOHN S. WIECZOREK (Principal Financial
- ------------------------------------------- Officer and Principal March 20, 2000
John S. Wieczorek Accounting Officer)
/s/ DOUGLAS K. ANDERSON Director
- ------------------------------------------- March 20, 2000
Douglas K. Anderson
Director
- ------------------------------------------- March , 2000
David M. Clarke
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DOUGLAS C. CARLISLE Director
- ------------------------------------------- March 20, 2000
Douglas C. Carlisle
Director
- ------------------------------------------- March , 2000
David Dame
/s/ SAMUEL F. MCKAY Director
- ------------------------------------------- March 20, 2000
Samuel F. McKay
/s/ JOHN MUTCH Director
- ------------------------------------------- March 20, 2000
John Mutch
/s/ CARLOS P. NAUDON Director
- ------------------------------------------- March 20, 2000
Carlos P. Naudon
Director
- ------------------------------------------- March , 2000
William W. Neville
Director
- ------------------------------------------- March , 2000
Richard P. Yanak
</TABLE>
II-6
<PAGE>
SCHEDULE II
OPEN SOLUTIONS INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT --------------------------------- BALANCE AT
BEGINNING OF CHARGE TO COSTS CHARGE TO OTHER END OF
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS, NET PERIOD
- -------------------------- ------------ --------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
Years ended
December 31, 1997....... $ 86 $214 $ -- $ 86 $214
December 31, 1998....... 214 291 -- 77 428
December 31, 1999....... 428 477 -- 305 600
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Form of Restated Certificate of Incorporation of the
Registrant, to be effective upon the closing of this
offering.
*3.2 Form of Amended and Restated By-Laws of the Registrant, to
be effective upon the closing of this offering.
*4.1 Specimen certificate for shares of the Registrant's Common
Stock
*5.1 Opinion of Bingham Dana LLP, counsel to the Registrant,
regarding the legality of the shares of common stock.
10.1 1994 Stock Option Plan, as amended (incorporated by
reference to the same numbered exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-56503)).
*10.2 2000 Stock Incentive Plan, including forms of stock option
agreement for incentive and nonstatutory stock options.
*10.3 2000 Employee Stock Purchase Plan.
10.4 Form of Amended and Restated Investors' Rights Agreement,
dated as of March 17, 2000, between Open Solutions and the
Investors (as defined therein).
10.5 Form of Stock Subscription Warrant to Purchase Series B
Preferred Stock dated December 27, 1995 (incorporated by
reference to the same numbered exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-56503)).
10.6 Form of Stock Subscription Warrant to Purchase Series C
Preferred Stock dated October 23, 1996 (incorporated by
reference to the same numbered exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-56503)).
10.7 Stock Subscription Warrant to Purchase Series D Preferred
Stock, dated August 22, 1997, issued to The BISYS Group,
Inc. (incorporated by reference to the same numbered
exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-56503)).
10.8 Employment Agreement between Open Solutions Inc. and Louis
Hernandez, Jr. dated October 18, 1999.
+10.9 Software License and Marketing and Distribution Agreement,
between Open Solutions Inc. and BISYS, Inc., dated as of
August 20, 1997.
+10.10 Development and Promotion Agreement between Open Solutions
Inc. and Stockwalk.com, Inc. dated February 14, 2000.
10.11 Strategic Alliance Agreement between Open Solutions Inc. and
HNC Software Inc. dated April 12, 1999.
10.12 Letter Agreement between Open Solutions Inc. and John S.
Wieczorek dated February 16, 2000.
10.13 Employment Agreement between Open Solutions Inc. and
Clifford I. Waggoner dated January 2, 1993, as amended
(incorporated by reference to the same numbered exhibit to
the Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 333-56503)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14 Letter Agreement between Open Solutions Inc. and John L.
Person dated April 10, 1997 (incorporated by reference to
the same numbered exhibit to the Registrant's previously
filed Registration Statement on Form S-1 (Reg. No.
333-56503)).
10.15 Gross Lease between Open Solutions Inc. and Principal Mutual
Life Insurance Company dated February 29, 1996.
10.16 Series E Preferred Stock Purchase Agreement dated April 12,
1999 by and between Open Solutions and HNC Software Inc.
10.17 Form of Series F Preferred Stock Purchase Agreement dated
March 17, 2000 by and among Open Solutions Inc. and the
investors listed therein.
10.18 Agreement, dated March 26, 1998, among Open Solutions Inc.,
Banking Spectrum, Inc. and Banking Spectrum Services, Inc.
(incorporated by reference to the same numbered exhibit to
the Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 333-56503)).
*10.19 2000 Non-Employee Director Stock Option Plan.
23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of Bingham Dana LLP (included in Exhibit 5.1).
24. Power of Attorney (included on page II-6).
27. Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment to this registration statement.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
<PAGE>
Exhibit 10.4
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"AGREEMENT") is made as of the 17th day of March, 2000 by and among Open
Solutions Inc., a Delaware corporation (the "COMPANY") and each of the
individuals and entities listed on Schedules A and B hereto (each an "INVESTOR"
and collectively the "INVESTORS").
RECITALS
WHEREAS, certain of the Investors listed on Schedule A are the holders
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, certain of the Investors listed on Schedule A are the holders
of Series B Preferred Stock of the Company, par value $.01 per share (the
"SERIES B PREFERRED STOCK"); and
WHEREAS, certain of the Investors listed on Schedule A are the holders
of Series C Preferred Stock of the Company, par value $.01 per share (the
"SERIES C PREFERRED STOCK");
WHEREAS, certain of the Investors listed on Schedule A are the holders
of Series D Preferred Stock of the Company, par value $.01 per share (the
"SERIES D PREFERRED STOCK");
WHEREAS, certain of the Investors listed on Schedule A are holders of
shares of Series E Preferred Stock of the Company, par value $.01 per share (the
"SERIES E PREFERRED STOCK");
WHEREAS, the Investors listed on Schedule B have agreed to purchase
from the Company shares of Series F Preferred Stock of the Company, par value
$.01 per share (the "SERIES F PREFERRED STOCK"); and
WHEREAS, in order to induce the Company to issue the Series F Preferred
Stock and to induce the Investors listed on Schedule B 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 RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
<PAGE>
(a) The term "ACT" means the Securities Act of 1933, as
amended.
(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, (vi)
the Common Stock issuable or issued upon conversion of the Series E Preferred
Stock, (vii) the Common Stock issuable or issued upon conversion of the Series F
Preferred Stock, and (viii) 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),
(iv), (v), (vi), (vii) and (viii) 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.
1.2 REQUEST FOR REGISTRATION.
-2-
<PAGE>
(a) If the Company shall receive at any time (i) 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) after 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 $5,000,000, 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 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.
-3-
<PAGE>
(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 sixty
(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 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:
-4-
<PAGE>
(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.
(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; 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
-5-
<PAGE>
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 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 selling 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
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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
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 pro-rata 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,
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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 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 required 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,
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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 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 current 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 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)
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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
THAT: (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 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
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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;
(b) such market stand-off time period shall not exceed one
hundred eighty (180) days; and
(c) such "market stand-off" or "lock-up" agreement, or other written
agreement to which the underwriter is a party, shall provide that Connecticut
Innovations, Inc. and Connecticut Innovations/Webster LLC shall be released from
any restrictions set forth therein in the event that the Company fails to
maintain a Connecticut Presence (as defined in each purchase agreement to which
the Company has issued to the holders of Registrable Securities shares of its
Preferred Stock).
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities
(and the shares or 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
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on the date five (5) years following the closing of a Qualified IPO (as defined
in the Company's Restated Certificate of Incorporation).
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 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; and
(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
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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 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 has obtained directors' and officers'
liability insurance in the minimum amount of $1,000,000, and the Company
covenants that so long as a representative of Aetna Life Insurance Company,
Menlo Ventures VI, L.P., Axiom Venture Partners, L.P., Crystal Internet Venture
Fund II (BVI) Crystal Vision L.P., Crystal Internet Venture Fund II (BVI), L.P.
or Key Principal Partners LLC serves on the Company's Board of Directors, it
will
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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, Series E Preferred Stock, Series F 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,
Series D, Series E and Series F 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, Series D, Series E and Series F 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 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 HNC Software Inc., 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:
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(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 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, Series E Preferred Stock, Series F 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, Series E
Preferred Stock, Series F 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 timely elects to purchase 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
purchase 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
purchased 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 3,000,000 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
-16-
<PAGE>
outstanding Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F 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 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 [Intentionally Omitted.]
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 (1) 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.
(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 (1) 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
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<PAGE>
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 (1) 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) So long as HNC Software Inc. shall continue to hold no
less than thirty-five percent (35%) of the shares of Series E Preferred Stock
originally acquired by it, HNC Software Inc. shall be entitled, but shall be
under no obligation, to designate one (1) nominee for election to the Board of
Directors by the Investors. In the event a designation is not made by HNC
Software Inc. in accordance with this Section 2.11(e), 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.
(f) So long as Crystal Internet Venture Fund II (BVI) Crystal
Vision L.P. ("CIV-CV"), Crystal Internet Venture Fund II (BVI), L.P. ("CIV") and
Key Principal Partners LLC ("KEY PRINCIPAL", and together with CIV-CV, and CIV,
the "CRYSTAL KEY GROUP") shall continue to hold no less than thirty-five percent
(35%) of the shares of Series F Preferred Stock originally acquired by them, the
Crystal-Key Group, acting jointly, shall be entitled, but shall be under no
obligation, to designate one (1) nominee for election to the Board of Directors
by the Investors. In the event a designation is not made by the Crystal-Key
Group in accordance with this Section 2.11(f), unless otherwise agreed by them,
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.
(g) The nominees selected in accordance with Sections 2.11(b),
(c), (d), (e) and (f), as applicable, 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(g) as to such nominee or nominees, the
Investors will use their best efforts to cause such position or positions to
remain vacant.
(h) Each Investor agrees to vote the Series A-1, Series A-2,
Series B, Series C, Series D, Series E and Series F 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), (e), (f)
and (g), as applicable, at each annual meeting of stockholders of the Company,
-18-
<PAGE>
and at any special meeting of stockholders of the Company called for the
election of directors, in such manner as may be required to elect such nominees.
(i) The Company agrees to use its best efforts to cause the
nominees so designated in accordance with Section 2.11(b), (c), (d), (e), (f)
and (g), as applicable, to be included in part of the slate of directors and to
be recommended to, and elected by stockholders, at each annual meeting of
stockholders of the Company, and at any special meeting of stockholders of the
Company called for the election of directors.
(j) If (i) the Company receives a written notice from an
Investor named in Section 2.11(b), (c), (d), (e) or (f), as applicable, that
such Investor wishes to remove a director designated by it and elected pursuant
to Section 2.11(b), (c), (d), (e) or (f), 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.
(k) If any Investor shall refuse to vote the Series A-1,
Series A-2, Series B, Series C, Series D, Series E or Series F 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 stockholders 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.
(l) For such period as Connecticut Innovations, Incorporated
("CII") holds Series A-2 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock or Common Stock shares, or warrants to
purchase any such shares, or any of the Company's securities into which any of
the foregoing has been converted, and provided that 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,
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 stockholders 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.
-19-
<PAGE>
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 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 without regard to principles of
conflicts of law.
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 (5) 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; PROVIDED THAT, no such amendment shall
materially adversely affect any single holder or group of holders in a manner
distinct from all other holders of Registrable Securities. 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
-20-
<PAGE>
the balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
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 April 12, 1999, 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 F 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.
3.12 AMENDMENT OF PUT RIGHTS UNDER EXISTING PURCHASE AGREEMENTS.
(a) Reference is hereby made to the following agreements (i) that
certain Purchase Agreement dated as of May 12, 1995 by and between the Company
and CII (the "SERIES A-2 PURCHASE AGREEMENT"), (ii) that certain Series B
Preferred Stock and Warrant Purchase Agreement dated as of December 27, 1995 by
and among the Company and the investors listed on Schedule A thereto (the
"SERIES B PURCHASE AGREEMENT"), (iii) that certain Series C Preferred Stock and
Warrant Purchase Agreement dated as of October 23, 1996 by and among the Company
and the investors listed on Schedule A thereto (the "SERIES C PURCHASE
AGREEMENT"), (iv) that certain Series D Preferred Stock and Warrant Purchase
Agreement dated as of April 22, 1997 by and between the Company and The Bisys
Group, Inc. (the "SERIES D PURCHASE AGREEMENT"), and (v) that certain Series E
Preferred Stock Purchase Agreement dated as of April 12, 1999 by and between the
Company and HNC Software Inc. (the "SERIES E PURCHASE AGREEMENT", and
collectively with the Series A-2 Purchase Agreement, the Series B Purchase
Agreement, the Series C Purchase Agreement and the Series D Purchase Agreement,
the "EXISTING PURCHASE AGREEMENTS").
(b) Each of the parties hereto that is a party to the Series A-2
Purchase Agreement hereby agrees that the Series A-2 Purchase Agreement shall be
amended in the manner and to the extent set forth on EXHIBIT A attached hereto,
and each of the parties hereto that is a party to one or more of the Series B
Purchase Agreement, the Series C Purchase Agreement, the Series D Purchase
Agreement and the Series E Purchase Agreement, hereby agrees that such Series B
Purchase Agreement, Series C Purchase Agreement, Series D Purchase Agreement and
Series E Purchase Agreement, respectively, shall be amended in the manner and to
the extent set forth on EXHIBIT B attached hereto. Each of the parties hereto
that is a party to one or more of the
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<PAGE>
Existing Purchase Agreements is sometimes referred to herein individually as an
"EXISTING HOLDER" and collectively as the "EXISTING HOLDERS."
(c) Each of the Existing Holders that is a holder of one or more of the
warrants issued pursuant to the Series B Purchase Agreement, the Series C
Purchase Agreement or the Series D Purchase Agreement (collectively the
"WARRANTS") hereby agrees that each such Warrant shall be amended by adding a
new Section 16 immediately following Section 15 thereof, to read as follows:
"SECTION 16. EXERCISE FOR COMMON STOCK. Notwithstanding
anything herein to the contrary, upon conversion of all of the outstanding
Preferred Stock into shares of the Company's Common Stock, par value $.01 per
share ("COMMON STOCK") in accordance with the Company's Restated Certificate of
Incorporation ("Conversion"), this Warrant shall thereupon be exercisable into
that number of shares of Common Stock as the holder hereof would have been
entitled to receive if immediately prior to Conversion such holder had exercised
this Warrant in full into shares of Preferred Stock and such shares of Preferred
Stock were simultaneously converted into shares of Common Stock. From and after
Conversion, this Warrant shall be deemed amended in any equitable manner
necessary to give effect to the intention of the Company and the holder of this
Warrant to provide that upon conversion of the Preferred Stock into shares of
Common Stock, this Warrant will thereafter be exercisable into shares of Common
Stock and the Company shall have no duty or obligation thereafter to maintain
any class or series of Preferred Stock."
(d) Each Existing Holder hereby represents and warrants to the Company
and to each other party hereto that such holder has not transferred any Subject
Securities (as defined in each of the Existing Purchase Agreements after giving
effect to the amendments contemplated hereby) to any person that is not a party
to this Agreement and covenants and agrees not to transfer any Subject
Securities to any person unless such person shall agree in writing to be bound
by and adhere to the terms of this Section 3.12.
[Intentionally Left Blank]
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<PAGE>
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:
--------------------------------------
Name:
Title:
AETNA LIFE INSURANCE COMPANY
By:
--------------------------------------
Name:
Title:
ALLISTER & NAUDON P/S, RAYMOND
JAMES & ASSOCIATES, INC. CSDN FBO,
JEFFREY W. ALLISTER
By:
--------------------------------------
Name:
Title:
-----------------------------------------
ALLAN J. AMER
AXIOM VENTURE PARTNERS, L.P.
By:
--------------------------------------
Name:
Title:
BANKING SPECTRUM SERVICES, INC.
By:
--------------------------------------
Name:
Title:
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<PAGE>
-----------------------------------------
BARRY M. BLOOM
CONNECTICUT INNOVATIONS, INCORPORATED
By:
--------------------------------------
Name:
Title:
-----------------------------------------
MARK HELLER
HNC SOFTWARE INC.
By:
--------------------------------------
Name:
Title:
MENLO ENTREPRENEURS FUND VI, L.P.
By its General Partner:
MV Management VI, L.P.
By:
--------------------------------------
Name:
Title:
MENLO VENTURES VI, L.P.
By its General Partner:
MV Management VI, L.P.
By:
--------------------------------------
Name:
Title:
-----------------------------------------
CARLOS P. NAUDON
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<PAGE>
THE BISYS GROUP, INC.
By:
--------------------------------------
Name:
Title:
-----------------------------------------
MARK L. VILLAMAR
ZACHS CMP
By:
--------------------------------------
Name:
Title:
[NEW INVESTORS - Need correct legal names and
form of signature block for new investors]
-25-
<PAGE>
Exhibit 10.8
OPEN SOLUTIONS INC.
Employment Agreement
October 18, 1999
Mr. Louis Hernandez, Jr.
15 Vernon Road
Belmont, MA 02478
This Agreement is entered into between you and Open Solutions Inc., a
Delaware Corporation (the "Company"), in consideration of the mutual promises
and covenants contained herein and for other good and valuable consideration,
including but not limited to the employment of you by the Company, your access
to the Company's confidential business and technological information, your
advancement at the Company, and any eligibility to receive benefits from the
Company.
Accordingly, the Company agrees with you as follows:
1. Position and Responsibilities.
1.1 You shall serve in an executive capacity as Chief Executive
Officer or in a position substantially equivalent thereto and shall perform such
duties at such place or places as the Company shall designate subject to section
2.5(e).
1.2 You will, to the best of your ability, devote your full time and
best 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 (the
"Board"), and to perform such executive duties as may be assigned to you by the
Board from time to time.
1.3 You will duly, punctually and faithfully perform your job duties
and observe any and all rules and regulations, which the Company may now or
shall hereafter establish governing its employees and the conduct of its
business.
2. Term of Employment.
2.1 The term of your employment shall be three (3) years commencing
on November 15, 1999, provided, however, that your employment shall
automatically
<PAGE>
terminate upon your death and may be terminated at any time as provided in
Section 2.2. Subject to Section 2.2 below, at the end of the initial three (3)
year term, your term of employment shall renew automatically for an additional
one year term unless either you or the Company provides written notice to the
other party of cancellation of such term at least 60 days prior to the
expiration of the initial three-year term.
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 (as hereinafter defined); or
(ii) at any time without Cause; or
(iii) upon a Change of Control (as hereinafter defined).
(b) You shall have the right, on written notice to the Company, to
terminate your employment for Good Reason (as hereinafter defined).
(c) You shall have the right, on written notice to the Company, to
terminate your employment without Good Reason.
2.3 If your employment is terminated (a) by the Company without
Cause pursuant to Section 2.2(a)(ii) above or (b) by you with Good Reason
pursuant to Section 2.2(b) above, the Company shall be obligated to pay you
severance pay in an amount equal to twelve (12) months of your base salary then
in effect, less applicable taxes and other required withholdings and any amount
you may owe to the Company, payable in eighteen (18) equal monthly installments
on the first day of each month commencing the first day of the month next
following the date of termination. In the event your employment is terminated by
the Company without Cause or by you for Good Reason prior to the completion of
the first year of your employment, any stock options granted to you normally
vesting upon the completion of your first year of employment shall vest ratably
based on the number of months of employment you have completed. If your
employment is terminated by the Company upon a Change in Control pursuant to
Section 2.2(a)(iii) above, you shall be paid the base salary then in effect for
any unexpired term of your employment, and any stock options granted to you
shall become fully vested in their entirety. 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 this Agreement, the term "Cause" shall mean: (a)
habitual intoxication: (b) drug addiction: (c) conviction of a felony (or a plea
of guilty or nolo contendre to a fe1ony charge): (d) adjudication by a court as
a mental incompetent: (e) insubordination, malfeasance, or willful misconduct:
or (f) material failure or inability to
2
<PAGE>
perform your agreements, duties, or obligations as an employee of the Company or
under this Agreement (including, without limitation, as a result of your
voluntary or involuntary termination of employment).
2.5 For purposes of this Agreement 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
failure of the Company to maintain its incentive compensation plan, or its
equivalent; (d) 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
or (e) requiring you to be permanently based at a location in excess of fifty
miles from Glastonbury, CT.
2.6 For purposes of this Agreement, 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.
3. Compensation.
3.1 The Company shall pay to you a salary for your services to the
Company at the initial annual rate of $292,000, as may be increased periodically
by the Board of Directors, in its sole discretion, payable in installments in
accordance with the Company's prevailing practice, as modified from time to time
(the "Base Salary").
3.2 In addition to the regular annual compensation to be paid to you
in accordance with Section 3.1 above, you may be entitled to bonuses, as
follows:
(a) The Company shall pay you a one-time bonus based on the
successful completion of an initial public offering by the Company (the
"Offering"). The bonus shall be $50,000 if the Offering is completed on or
before June 30, 2000 or shall be $25,000 if the Offering is completed on
or between July 1, 2000 and December 31, 2000. In the event that an
Offering is completed on or before the completion of your first year of
employment, any stock options granted to you which would normally vest
upon completion of your first year of employment shall vest ratably upon
completion of the Offering based upon the number of months of employment
you have completed.
3
<PAGE>
(b) You may also receive a bonus after the completion of the
Company's audited financial statements for its fiscal year 2000. Such
bonus shall not exceed fifty percent (50%) of your then Base Salary and
shall be based on the Company's actual performance during its fiscal year
2000. The Board of Directors, with your consultation and active
participation, shall set by no later than December 31, 1999 the standards
for the Company's expected performance in its fiscal year 2000 and a
mechanism to calculate the amount of your bonus based on performance of
such standards. The performance goals which you will be required to attain
to entitle you to payment of the bonus may include, without limitation,
the Company's market value, stock price, profitability, sales, product
research and development, customer installations, management practices and
such other areas as may be considered appropriate to further corporate
strategies.
3.3 Relocation Expenses. The Company shall reimburse you for your
reasonable, out-of-pocket expenses incurred by reason of your relocation to the
Glastonbury, Connecticut area in an amount not to exceed $50,000.
4. Incentive Stock Options.
4.1 Upon commencement of your employment, you will be granted an
option to purchase 500,000 shares of the Company's common under to the Company's
Incentive Stock Option Program at an exercise price of $4.00 per share, the form
of which is attached hereto as Exhibit A.
5. Other Activities during Employment.
5.1 Except with the prior written consent of the Company's Board of
Directors, 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 as described in Section 5.3. 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. The
Company hereby consents to your continued service as a Director of EDU.com and
IChina.com, for, in the Company's sole discretion, as long as said firms or
directorships continue to not be adverse or in conflict with the interests of
the Company, its business or prospects, financial or otherwise.
5.2 Except as permitted by Section 5.3, you will not acquire, assume
or participate in, directly or indirectly, any position, investment or interest
adverse or in conflict with the interests or the Company, its business or
prospects, financial or otherwise, or take any action towards any of the
foregoing.
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5.3 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, 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.
6. Former Employment.
6.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior employment or
consulting agreement or relationship, and that the use of any skills and
knowledge that you may have by the Company are not in violation of the terms of
any contract to which you are a party or any other applicable provisions of the
law. Subject to Section 6.2. you represent and warrant that you do not possess
confidential information arising out of prior employment which, in your best
judgment, would be utilized in connection with your employment by the Company in
the absence of Section 6.2.
6.2 If, in spite of the second sentence of Section 6.1, you should
find that confidential information belonging to any former employer might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on its behalf any confidential information
belonging to any of your former employers; but during your employment by the
Company you will use in the performance of your duties all information which is
generally known and used by persons with training and experience comparable to
your own and all information which is common knowledge in the industry or
otherwise legally in the public domain.
7. Confidentiality. You acknowledge that in the course of performing your
duties hereunder it will be necessary to disclose to you or you will be exposed
to, proprietary and other confidential information of the Company, including,
without limitation, the Company's product information, data, processes, methods,
inventions, discoveries, improvements, financial data, business product and
marketing plans, and customer information (collectively, "Confidential
Information"). You agree not to use or disclose the Confidential Information to
any third party (or cause such use or disclosure), except as necessary to
perform the duties assigned to you by the Company hereunder and in furtherance
of the best interests of the Company, or as may otherwise be authorized in
writing by the Company. Confidential Information shall not include information
which (i) is or hereafter becomes publicly known through no fault of yours or
(ii) is lawfully disclosed to you by a third party having a right to disclose
such information.
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8. Proprietary Information and Inventions. You agree to execute and be
bound by the provisions of a Proprietary Information and Inventions Agreement in
substantially the form attached hereto as Exhibit B.
9. Post-Employment Activities.
9.1 You acknowledge and agree that as a result of, among other
things, (i) your access to significant and valuable Confidential Information (as
defined in Section 7 above) of the Company and (ii) the lucrative world-wide
market for the Company's expertise, services, products and technology, the
restrictions contained in this Section 9 are reasonable in all respects and
necessary to protect the Company's investments in your training and in the
Company's good will and other business interests.
9.2 Based on the foregoing and in consideration thereof and of the
payments to be made to you by the Company pursuant to this Agreement, for a
period of eighteen (18) months after the termination of your employment with the
Company you will not directly or indirectly:
(a) engage in activities (similar or reasonably related to those in which
you shall have engaged during the 12 months immediately preceding the
termination of your employment with the Company) for, nor render services
(similar or reasonably related to those which you shall have rendered hereunder
during such 12 months) to, any firm or business organization which directly
competes with the Company in any line of business engaged in by the Company (or
which the Company's Board formally resolved during your employment to be engaged
in), whether now existing or established during your employment, nor shall you
engage in such activities nor render such services to any other person or entity
engaged or about to become engaged in such activities to, for, or on behalf of,
any such firm or business organization:
(i) in connection with the sale, marketing or promotion to any
customer of the Company upon whom you have called or in whose account you
participated or supervised on behalf of the Company during the year prior
to the termination of your employment with the Company, or
(ii) with respect to any product, process, or service, in existence
or under development which substantially resembles or competes with a
product, process, or service of the Company in existence or under
development upon which you worked or exercised supervisory responsibility
at any time during the year prior to the termination of your employment
with the Company:
(b) solicit employees of the Company to leave its employ;
(c) offer or cause to be offered employment to any person who is employed
by the Company at any time during the six months prior to the termination of
your employment with the Company;
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(d) entice, induce or encourage any of the Company's other employees to
engage in any activity which, were it done by you, would violate any provision
of Sections 7 or 8 or this Section 9; or
(e) otherwise attempt to interfere with or disrupt the business or
activities of the Company.
9.3 Upon your written request to the Company specifying the
activities proposed to be conducted by you, the Company may in its discretion
give you written approval(s) to personally engage in any activity or render
services referred to in Section 9.2 upon receipt of written assurances
(satisfactory to the Company and its counsel) from you and from your prospective
employer(s) that the integrity of the provisions of Sections 7, 8 and 9 will not
in any way be jeopardized or violated by such activities, provided the burden of
so establishing the foregoing to the satisfaction of the Company and said
counsel shall be upon you and your prospective employer(s).
10. Remedies. Your duties under Sections 7, 8 and 9 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 the
Sections 7, 8 or 9 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.
11. Miscellaneous.
11.1 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 or the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or you.
11.2 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.
11.3 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
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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.
11.4 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.
11.5 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.
11.6 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Connecticut.
11.7 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.
11.8 Counterparts. 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.
If you are in agreement with the foregoing, please so indicate by signing
and returning the enclosed copy of this Agreement.
OPEN SOLUTIONS INC.
By: /s/ Douglas Anderson
--------------------------------
Title: Chairman
-----------------------------
Accepted and agreed:
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/s/ Louis Hernandez, Jr.
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Louis Hernandez, Jr.
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Exhibit A
FORM OF INCENTIVE STOCK OPTION AGREEMENT
<PAGE>
OPEN SOLUTIONS INC.
INCENTIVE STOCK OPTION AGREEMENT
1. Grant of Option. OPEN SOLUTIONS INC., a Delaware corporation (the "Company"),
hereby grants to LOUIS HERNANDEZ, JR. (the "Optionee") an option, pursuant to
the Company's 1994 Stock Option Plan (the "Plan"), to purchase an aggregate of
500,000 shares of Common Stock ("Common Stock") of the Company at a price of
$4.00 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. Incentive Stock Option. This option is intended to qualify as an incentive
stock option ("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 tenth anniversary of the date of grant
(hereinafter the "Expiration Date") as to not more than the following number of
shares covered by this option during the respective periods set forth below:
(1) No shares from and after the date of grant and prior to the first
anniversary date of the date of grant;
(2) 125,000 shares from and after the first anniversary date of the date
of grant and prior to November 15, 2000;
(3) 10,417 shares from and after the l5th day of each month commencing
November 2000 and prior to October 2003; and
(4) 10,405 shares from and after the fourth anniversary date of the date
of grant.
Notwithstanding the foregoing, if the Optionee's employment with the
Company is terminated by the Company without Cause (as defined in that certain
employment agreement dated as of October 18, 1999 by and between the Company and
the Optionee (the "Employment Agreement")) or by the Optionee with Good Reason
(as defined in the Employment Agreement) prior to the first anniversary date of
the date of grant, then this option may be exercised as to not more than that
number of shares equal to the product of 10,417 times the number of full months
of employment with the Company commencing the date of this Agreement and ending
the date of such termination of employment. If the Optionee's employment with
the Company is terminated by the Company upon a Change in Control (as defined in
the Employment Agreement) then this option shall be immediately exercisable in
its entirety effective upon the date of such termination. If the Company
completes a sale of its securities pursuant to a registration statement filed by
the Company under the Securities Act of 1933, as amended (the
<PAGE>
"Securities Act"), in connection with the firm commitment underwritten offering
of its securities to the general public (an "IPO") prior to the first
anniversary date of the date of grant, then this option may be exercised as
follows: (i) not more than that number of shares equal to the product of 10,417
times the number of full months commencing the date of this Agreement and ending
the date an IPO is consummated, exercisable on and after the date an IPO is
consummated; (ii) not more than that number of shares equal to the difference of
125,000 minus the number of shares determined pursuant to clause (i) above,
exercisable on and after the first anniversary of the date of grant; and (iii)
not more than the number of shares set forth in clauses (3) and (4) above,
exercisable on and after the dates set forth in clauses (3) and (4) above.
The right of exercise shall be cumulative so that if the option is not
exercised to the maximum extent permissible during any exercise period, it shall
be exercisable, in whole or in part, with respect to all shares not so
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 ten whole shares.
(c) Continuous Employment Required. Except as otherwise provided in this
Section 3, this option may not be exercised unless the Optionee, at the time he
or she exercises this option is, and has been at all times since the date of
grant of this option, an employee of the Company. For all purposes of this
option, (i) "employment" shall be defined in accordance with the provisions of
Section 1.421-7(h) of the Income Tax Regulations or any successor regulations,
and (ii) if this option shall be assumed or a new option substituted therefor in
a transaction to which Section 424(a) of the Code applies, employment by such
assuming or substitution corporation (hereinafter called the "Successor
Corporation") shall be considered for all purposes of this option to be
employment by the Company.
(d) Exercise Period Upon Termination of Employment. If the Optionee ceases
to be employed by the Company for any reason, then, except as provided in
paragraph (e) below, the right to exercise this option shall terminate three
months after such cessation (but in no event after the Expiration Date),
provided that this option shall be exercisable only to the extent that the
Optionee was entitled to exercise this option on the date of such cessation. The
Company's obligation to deliver shares upon the exercise of this option shall be
subject to the satisfaction of all applicable federal, state and local income
and employment tax withholding requirements, arising by reason of this option
being treated as a non-statutory option or otherwise.
(e) Exercise Period Upon Death or Disability. If the Optionee dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to
the Expiration Date while
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he is an employee of the Company, or if the Optionee dies within three months
after the Optionee ceases to be an employee of the Company (other than as the
result of a discharge for "cause" as specified in paragraph (f) below), this
option shall be exercisable, within the period of one year following the date of
death or disability of the Optionee (but in no event after the Expiration Date),
by the Optionee or by the person to whom this option is transferred by will or
the laws of descent and distribution to the same extent that the Optionee could
have exercised this option or the date of his death or disability. Except as
otherwise indicated by the context, the term "Optionee", as used in this option,
shall be deemed to include the estate of the Optionee or any person who acquires
the right to exercise this option by bequest or inheritance or otherwise by
reason of the death of the Optionee.
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 duty 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.
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(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.
(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. Except as provided in paragraph (e) of Section
3, 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. 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 Social 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 of the Optionee 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 or decreased or are exchanged for a different number or
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<PAGE>
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.
(c) Limits on Adjustments. No adjustment shall be made under this Section
9 which would, within the meaning of any applicable provision of the Code,
constitute a modification, extension or renewal of this option or a grant of
additional benefits to the Optionee.
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 15 (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 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.
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<PAGE>
(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 assignee) 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 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:
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(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 consummation by the Company of an IPO 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. Limitations on Disposition of Incentive Stock Option Shares. It is
understood and intended that this option shall qualify as an "incentive stock
option" as defined in Section 422 of the Code. Accordingly, the Optionee
understands that in order to obtain the benefits of an incentive stock option
under Section 421 of the Code, no sale or other disposition may be made of any
shares acquired upon exercise of the option within one year after the day of the
transfer of such shares to him, nor within two years after the grant of the
option. If the Optionee intends to dispose, or does dispose (whether by sale,
exchange, gift, transfer or otherwise), of any such shares within said periods,
he will notify the Company in writing within ten days after such disposition.
14. 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,
or any rule or regulation under the Securities Act.
(ii) The Optionee has had such opportunity as he has deemed
adequate to obtain from representatives of the Company such
information as is necessary to permit the Optionee to evaluate
the merits and risks of his 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.
- 7 -
<PAGE>
(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 may not be available for at
least one year 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 14.
(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
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."
15. Miscellaneous.
- 8 -
<PAGE>
(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.
- 9 -
<PAGE>
This option shall be governed by and construed in accordance with the laws
of the State of Connecticut
Date of Grant: ________________ OPEN SOLUTIONS INC.
By: /s/ Debra Dabrowski Rooney
---------------------------
Debra Rooney
Secretary
Open Solutions Inc.
300 Winding Brook Drive
Gastonbury, CT 06033
- 10 -
<PAGE>
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.
OPTIONEE:
/s/ Louis Hernandez, Jr.
------------------------------
Louis Hernandez, Jr.
15 Vernon Road
Belmont, MA 02478
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<PAGE>
EXHIBIT A
TO
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
Open Solutions Inc.
300 Winding Brook Drive
Glastonbury, CT 06033
Ladies and Gentlemen:
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my employment by Open Solutions Inc.
Corporation (the "Company") which have been made or conceived or first reduced
to practice by me alone or jointly with others prior to my engagement by the
Company.
x No inventions or improvements
---
See Below
---
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Additional sheets attached
---
2. I propose to bring to my employment the following material and
documents of a former employer which are not personally available to the public,
which materials and documents may be used in my employment.
x No materials
---
See Below
---
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Additional sheets attached
---
The signature below confirms that my continued possession and use of these
materials is authorized.
Very truly yours,
Date: 10/18/99 /s/ Louis Hernandez, Jr.
------------------------------
Louis Hernandez, Jr.
<PAGE>
Exhibit B
OPEN SOLUTIONS INC.
Proprietary Information and Inventions Agreement
I recognize that Open Solutions Inc., a Delaware corporation (the
"Company") is engaged in a continuous program of research, development,
experimentation and production respecting its business, present and future.
I understand that:
A. As part of my employment by the Company I am expected to make new
contributions and inventions of value to the Company.
B. My employment creates a relationship of confidence and trust between me
and the Company with respect to any information:
(1) applicable to the business of the Company; and
(2) applicable to the business of any client or customer of the
Company, which may be made known to me by the Company or by any client or
customer of the Company, or learned by me during the period of my
employment.
C. The Company possesses and will in the future possess information that
has been, or will be, created, discovered or developed, or has become or will
become otherwise known to the Company (including, without limitation,
information created, discovered, developed or made known by or to me during the
period of or arising out of my employment by the Company), and/or in which
property rights have been or will be assigned or otherwise conveyed to the
Company, which information has or will have actual or potential economic value
in the business in which the Company is engaged. All of the aforementioned
information is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, processes, formulae, data and know-how, improvements, inventions,
techniques, marketing plans, Strategies, budgets, unpublished financial
statements, forecasts and customer lists.
D. As used herein, the period of my employment includes any time in which
I may be retained by the Company as a consultant, and the term "Company'
includes any subsidiaries or other affiliates of the Company.
In consideration of my employment or continued employment, as the case may
be, and the compensation received by me from the Company from time to time, I
hereby agree as follows:
<PAGE>
1. All Proprietary Information shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole owner of all
patents, copyrights, trademarks and other rights in connection therewith. I
hereby assign to the Company any rights I may have or acquire in all Proprietary
Information. At all times, both during my employment by the Company and after
its termination, I will not acquire any Proprietary Information by improper
means. I will keep in confidence and trust all Proprietary Information which I
may acquire, and I will nor use or disclose any such Proprietary Information or
anything relating to it without the written consent of the Company, except as
may be necessary in the ordinary course of performing my duties as an employee
oft he Company.
2. I agree that during the period of my employment by the Company I will
not engage in any employment or activity other than for the Company.
3. In the event of the termination of my employment by me or by the
Company for any reason, I will deliver to the Company all documents and data of
any nature pertaining to my work with the Company and I will nor take with me
any documents or data of any description or any reproduction of any description
containing or pertaining to any Proprietary Information.
4. I will promptly disclose to the Company, or any persons designated by
it, all improvements, inventions, formulae, processes, techniques, know-how,
data and ideas, whether or not patentable, made, conceived, reduced to practice,
developed, originated or learned by me, either alone or jointly with others,
either:
(a) during the period of my employment which are directly or indirectly
related to or useful in the business or industry of the Company or the research
or development of the Company, or result from tasks assigned to me by the
Company or are otherwise within the scope of my responsibilities with the
Company, or result from use of facilities, equipment, supplies or premises
owned, leased or contracted for by the Company or use or knowledge of
Proprietary Information; or
(b) within six (6) months after termination of my employment which are
directly or indirectly conceived as a result of, or are suggested or
attributable to, work done by me during such employment or result from use or
knowledge of Proprietary Information;
(all said improvements, inventions, formulae, processes, techniques, know-how,
ideas and data shall be collectively hereinafter called "Inventions").
5. I agree that all Inventions shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole owner of all
patents and other rights in connection therewith. I hereby assign to the Company
any rights I may have or acquire in all Inventions. I further agree as to all
Inventions to assist the Company in every proper way (but at the Company's
expense) to obtain and from time to time enforce patents, copyrights, trademarks
and other rights and protections relating to the Inventions in any and all
countries, and to that end
- 2 -
<PAGE>
I will execute all documents for use in applying for and obtaining such patents,
copyrights, trademarks, and other rights and protections and enforcing the same,
as the Company may desire, together with any assignments thereof to the Company
or persons designated by it. My obligation to assist the Company in obtaining
and enforcing patents, copyrights, trademarks and other rights and protections
relating to the Inventions in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me at a
reasonable rate after such termination for time actually spent by me at the
Company's request on such assistance. In the event the Company is unable, after
reasonable effort, to secure my signature on any document or documents needed to
apply for or prosecute any patent, copyright, or other right or protection
relating to an Invention, for any reason whatsoever, I hereby irrevocably
designate and appoint the Company and its duly authorized officers and agents as
my agent and attorney-in-fact to act for and on my behalf to execute and file
any such application or applications and to do all other lawfully permitted acts
to further the prosecution and issuance of patents, copyrights, or similar
protections thereon with the same legal force and effect as if executed by me.
6. As a matter of record I have identified on Exhibit A attached hereto
all inventions or improvements relevant to the subject matter of my employment
by the Company which have been made or conceived or first reduced to practice by
me alone or jointly with others prior to my engagement by the Company which I
desire to remove from the operation of this Agreement; and I represent that such
list is complete. If there is no such list on Exhibit A, I represent that I have
made no such inventions and improvements at the time of signing this Agreement.
7. I represent that my performance of all terms of this Agreement and of
my duties and as an employee of the Company does not and will nor breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any agreement either written or oral in
conflict herewith.
8. I understand that as part of the consideration for the offer of
employment extended to me by the Company and of my employment or continued
employment by the Company, I have not brought and will nor bring with me to the
Company or use in the performance of my responsibilities at the Company (a) any
materials, documents or proprietary information of a former employer which are
not generally available to the public, unless I have obtained written
authorization from the former employer for their possession and use, or (b) any
proprietary information which I know or should have known has been acquired by
improper means, or otherwise misappropriated from another person.
Accordingly, this is to advise the Company that the only material or
documents of a former employer which are nor generally available to the public
that I have brought or will bring to the Company or have used or will use in my
employment are identified on Exhibit A attached hereto, and, as to each such
item, I represent that I have obtained prior to the effective date of my
- 3 -
<PAGE>
employment with the Company written authorization for their possession and use
in my employment with the Company.
I also understand that, in my employment with the Company, I am not to
breach any obligation of confidentiality that I have to former employers, and I
agree that I shall fulfill all such obligations during my employment with the
Company.
9. I agree that in addition to any other rights and remedies available to
the Company for any breach by me of my obligations hereunder, the Company shall
be entitled to enforce my obligations hereunder by court injunction, or court
ordered affirmative action, which injunction or ordered action may restrain a
future breaking of this Agreement if there is reasonable ground to believe that
such a breach is threatened. I further agree to allow the Company to enjoin
future use or disclosure of its trade secrets if it has reasonable grounds to
believe such action is necessary to protect such trade secrets.
10. This Agreement shall be binding upon me, my heirs, executors, assigns
and administrators and shall inure to the benefit of the Company, its successors
and assigns, provided that this Agreement may not be assigned by me.
11. It is the desire and intent of the parties hereto that the provisions
of this Agreement shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Agreement shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, if 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. This Agreement does not limit any duties, responsibilities or
obligations that I may have, or any rights of the Company, under applicable law.
12. This Agreement shall be effective as of the first day of my employment
by the Company, namely: November 15, 1999.
13. This Agreement shall be governed by and construed in accordance with
the law of the State of Connecticut.
Date: 10/18/99 /s/ Louis Hernandez, Jr.
-------- ------------------------------
Louis Hernandez, Jr.
ACKNOWLEDGED AND AGREED:
- 4 -
<PAGE>
Exhibit 10.9
Confidential Treatment
Confidential Portions omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.
SOFTWARE LICENSE AND MARKETING AND DISTRIBUTION AGREEMENT
This Software License and Marketing and Distribution Agreement (the "Agreement")
is entered into as of August 20, 1997 (the "Effective Date") by and between
BISYS, Inc. ("BISYS"), a Delaware corporation with its principal place of
business at 11 Greenway Plaza, Houston, TX 77046-1102, and Open Solutions Inc.
("OSI"), a Delaware corporation with its principal place of business at 300
Winding Brook Drive, Glastonbury, CT 06033.
RECITALS
A. BISYS, through its TOTALPLUS(R) Division, is a leading provider of
comprehensive data processing outsourcing solutions to financial institutions.
B. OSI is the developer and owner of The Complete Banking Solution(TM) system
and is a leading supplier of client/server software and information services to
financial institutions.
C. The parties wish to establish an alliance whereby (i) BISYS will be the
exclusive national Outsourcing Services provider and exclusive national
Facilities Manager of The Complete Banking Solution system to Financial
Institutions in the United States; (ii) OSI will license to BISYS the OSI
Proprietary and OSI Interface Software used in connection with such system;
(iii) the parties will engage in certain marketing and selling activities; and
(iv) BISYS will be a recommended preferred provider of certain related services.
Now, therefore, in consideration of the mutual obligations set forth herein, the
parties agree as follows.
1. DEFINITIONS
1.0 Change of Control - shall mean with respect to a particular entity (i) the
consummation of a merger or consolidation of that entity with another in which
the owners of interests (shares or otherwise) of the particular entity
immediately prior to the consummation of such transaction do not own at least
65% of the ownership interests of the surviving successor, acquiring or assuming
entity; (ii) the sale of all or substantially all the assets of such entity; or
(iii) the acquisition of beneficial ownership by any person (including a group
within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended) of 35% or more of the outstanding ownership interests of such
entity. For the purposes of this agreement an initial public offering of OSI
shall not be deemed a change in control.
1.1 Conversion - shall mean the process of converting a new Customer's data to
the System.
1.2 Conversion Date - shall mean the date on which live production begins.
Live production shall mean the time when Customer uses the System or
portions thereof to execute transactions, produce reports or retrieve
information from the OSI Database Model on a regular basis in a production
non-test environment.
<PAGE>
1.3 Customer - shall mean that Financial Institution for which BISYS
contractually provides either data processing Outsourcing Services using
the System or acts as Facilities Manager of the System. BISYS shall
provide a form copy of the BISYS Customer contract for Outsourcing or
Facilities Management to OSI prior to entering into the first Customer
contract.
1.4 Documentation - shall mean all user manuals, system guides and related
publications for the OSI Proprietary Software and OSI Interface Software.
1.5 Enhancements - shall mean all upgrades, improvements, modifications and
updates to the OSI Proprietary Software and OSI Interface Software made
available to OSI customers.
1.6 Excluded Licensees - shall mean the Named Competitors and any outsourcing
service providers shown on Schedule 1.6 hereto, which may be amended from
time to time by BISYS with the written consent of OSI, which shall not be
unreasonably withheld.
1.7 Facilities Manager; Facilities Management - shall mean the provider and
operator of the System for the benefit of a Financial Institution on site
at the Financial Institution's facilities; the activity of so providing
and operating the System.
1.8 Financial Institution - shall mean all classes of banks, including those
chartered under state or federal law, commercial banks, savings banks,
mutual savings banks, thrift institutions, savings and loan associations
and credit unions, and branches thereof.
1.9 Interface Software- shall mean that software, other than the OSI Interface
Software, used to interface between and among the various application
software included in the System and between and among peripherals for use
in connection with the System.
1.10 License - shall mean the restricted non-transferable, non-assignable right
to BISYS hereunder to use the OSI Proprietary Software and OSI Interface
Software within its own data processing facilities as an Outsourcing
Services Provider, and at the Customer's facilities as Facilities Manager,
to provide data processing services to its Customers during the term of
this Agreement. The license will be for use on the Designated Hardware and
Operating Systems as defined in Schedule 17(g), as amended from time to
time.
1.11 Named Competitors - Named competitors of BISYS shall mean Fiserv, EDS, M&I
Data Services, NCR, Jack Henry, and ALLTEL/Systematics and successors
thereto, and other competitors named in Schedule 1.6 Named competitors of
OSI shall mean Phoenix International, Prologic, DCI, M&I Eastpoint, ITI
Premier 11 and NCR Autobank and others as may be amended from time to
time.
2
<PAGE>
1.12 License Fee - shall mean the list price of the OSI Proprietary Software
and OS Interface Software based on the price lists initially shown on the
attached Schedule 1.12 for a similarly situated Financial Institution,
except where OSI routinely discounts such list price in which case License
Fee shall mean such discounted list price. OSI shall have the right to
modify such License Fees annually at the beginning of each calendar year.
1.13 Master Copy - shall mean the object code form copy of the OSI Proprietary
Software and OSI Interface Software and the data base code for the OSI
Database Model to be delivered upon execution of this Agreement and
thereafter from time to time as such code is enhanced and revised by OSI
to reflect the most current versions made available by OSI for use with
the System.
1.14 OSI Database Model - shall mean the database code and resulting database
model developed by OSI and included in the System.
1.15 OSI Proprietary Software - means collectively, the version(s) of software
as set forth in object code format, and database code format with respect
to the OSI Database Model, together with the Documentation to be provided
to BISYS by OSI, for use in connection with the System, including
Enhancements to such software, database code and Documentation that may be
provided by OSI to BISYS from time to time. As listed in Schedule 1.15.
1.16 OSI Interface Software- shall mean that software developed and owned by
OSI, or licensed to OSI, used to interface between and among various
application software and between and among peripherals for use in
connection with the
System, initially identified on Schedule 1.16 hereto, as may be amended
from time to time by OSI by written notice to BISYS.
1.17 OSI Source Code - shall mean the source code in machine readable form for
the OSI Proprietary Software and the OSI Interface Software owned by OSI.
1.18 Outsourcing Services - shall mean the outsourcing by Financial
Institutions of data processing and other information processing services
from a third party that provides such services remotely from its data
center facilities.
1.19 System - shall mean OSI's The Complete Banking Solution client server,
Oracle relational data base, Microsoft Windows NT environment system
including the applicable OSI Proprietary Software, OSI Interface Software,
OSI Database Model and required Third Party Software (TPS), as it may
exist from time to time during the term of this Agreement for use on the
Designated Hardware and Operating Systems as defined in Schedule 17(g), as
amended from time to time. OSI shall provide a new Schedule 17(g) to BISYS
to reflect the authorized Designated Hardware and Operating Systems as in
effect from time to time.
3
<PAGE>
1.20 Third Party Software (TPS) - shall mean the software developed and owned
by an entity or person other than OSI used, or available for use, in
connection with the System, as initially shown on Schedule 1.19.
2. GRANT AND ACCEPTANCE OF SOFTWARE AND TRADEMARK LICENSE.
(a) Subject to the terms and conditions of this Agreement, OSI hereby grants
to BISYS and BISYS hereby accepts from OSI the License and the concurrent right
to copy and market the System during the term of this Agreement as the exclusive
national Outsourcing provider and exclusive national Facilities Manager of the
System to Financial Institutions in the United States, unmodified from the
version(s) provided by OSI from time to time, in object code form only. BISYS is
prohibited from sub-licensing any of its rights under this Agreement other than
to a direct or indirect wholly owned subsidiary of The BISYS Group, Inc., the
ultimate parent company of BISYS Title to and ownership of the OSI Proprietary
Software, the OSI Interface Software owned by OSI and the OSI Database Model and
all Enhancements other than specifically provided for in Section 13, shall at
all times remain with OSI.
(b) Subject to the terms and conditions of this Agreement, OSI hereby grants
to BISYS and BISYS hereby accepts from OSI a non-exclusive and non-transferable
right
to use the OSI trade names "OSI" or "Open Solutions Inc." and The Complete
Banking Solution trademark during the term of this Agreement for the sole
purpose of the promotion and marketing of the System. BISYS agrees to reproduce
OSI's trademarks and proprietary rights notices as necessary and appropriate on
the products and services provided by BISYS to the Customer that contain any OSI
trade secrets, trademarks or copyrights. Any and all OSI trademarks and trade
names which BISYS uses in connection with the rights granted hereunder are and
remain the exclusive property of OSI. Nothing herein shall prohibit or otherwise
limit BISYS from promoting and marketing the System as a product offered by its
TOTALPLUS(R) Division.
(c) Within 90 days of the Effective Date, and subject to any confidentiality
limitations, OSI shall deliver to BISYS a schedule (Schedule 2c)and copies of
the documentation set forth on such Schedule 2(c) hereto. OSI represents and
warrants that all agreements granting to OSI a license or other right to use
and/or sub-license the TPS, a schedule of OSI Interface Software, and all other
software or intellectual property included in the System shall be set forth on
Schedule 2(c).
3. DELIVERY OF CODE.
Upon execution of this Agreement, OSI shall deliver to BISYS a Master Copy of
the OSI Proprietary Software and OSI Interface Software in object code form, and
a Master Copy of the database code for the OSI Database Model, on disk. At all
times during the term of this Agreement, OSI shall deliver to BISYS within sixty
(60) days of a general software release to its customers new Master Copies of
the OSI Proprietary Software, OSI Interface Software and OSI Database Model as
designed for use on the Designated Hardware and
4
<PAGE>
Operating Systems as defined in Schedule 17(g), so that BISYS has available
to it. the most current version of the System, including any and all
Enhancements, offered by OSI to its customers generally or made available by
OSI to its customers generally. As part of the License granted hereunder,
BISYS shall have the right to copy such Master Copy(ies) and Documentation
for use in connection with its Outsourcing Services and Facilities Management
services to Customers and for other purposes contemplated hereunder,
including archival, testing, support backup, disaster recovery, and
demonstration.
4. EXCLUSIVITY.
(a) Subject to the limitations set forth below, BISYS shall have the
exclusive national (i.e., United States and its territories) License to use
the System to provide Outsourcing Services, and exclusive national License to
provide and operate the System as Facilities Manager, to Financial
Institutions. The foregoing notwithstanding, during the term of this
Agreement, OSI may grant and have outstanding licenses (A) to use the System
as an Outsourcing Services provider to up to ten [10] local/regional
providers (not to include BISYS) at any one time, excluding the Excluded
Licensees; provided in each case that such license (i) is limited to a single
local/regional provider, i.e., not a consortium or other arrangement whereby
a number of providers have entered into a joint venture or partnering
arrangement, (and for the first 24 months following the Effective Date for
the states of California, Oregon, Washington, Nevada and Arizona a provider
in existence as of the Effective Date) with (X) annual revenues from its
existing data processing services at the time of such license grant equal to
or less than $20 million (Y) no more than 50 clients, and (Z) the main office
of each of such clients within the same state or adjacent states as such
provider, (ii) limits such license during the first 36 months to use of the
System for such provider's then existing clients plus up to an additional ten
new clients but not more than 50 clients and after such 36-month period to
such additional licenses as mutually agreed between OSI and such provider,
and (iii) contains restrictions limiting the use of such license upon a
Change of Control of such licensee involving a Named Competitor of BISYS to
those Financial Institutions for which the licensee is providing Outsourcing
Services as of the date of the Change of Control; and (B) to use the System
as an Outsourcing provider solely to credit unions to up to an additional ten
[10] local/regional providers (not to include BISYS) at any one time,
excluding the Excluded Licensees, provided in each case that such license (i)
is limited to a single local/regional provider, i.e., not a consortium or
other arrangement whereby a number of providers have entered into a joint
venture or partnering arrangement, with annual revenues from its existing
data processing services at the time of such license grant equal to or less
than $20 million, and (ii) contains restrictions limiting the use of such
license upon a Change of Control of such licensee involving a Named
Competitor of BISYS to those credit unions for which the licensee is
providing Outsourcing Services as of the date of the Change of Control (such
providers, individually, a "Permitted Licensee" and, collectively, the
"Permitted Licensees"). The provisions of the immediately preceding sentences
shall terminate
5
<PAGE>
in the event that BISYS fails to reaffirm the Agreement within 180 days of a
Change of Control of BISYS. A breach of the terms of this subparagraph (a) by
OSI shall be deemed a material breach under the Agreement, subject to
provision for cure as provided in Section 21(b). OSI shall have the option to
convert the rights granted herein to nonexclusive in the event BISYS is
unable to achieve the following milestones for the periods indicated (or
cumulatively with prior periods) by written notice within 45 days of the end
of such period:
Year 1 Year 2 Year 3 Year 4 Year 5
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Financial Institutions entering [**] [**] [**] [**] [**]
into New Outsourcing
Services or Facilities
Management Agreements with
BISYS
Conversions [**] [**] [**] - -
Minimum Required License & [**] [**] [**] - -
Maintenance Fees pursuant to
Sections 8(a) and (b)
</TABLE>
Provided BISYS has satisfied the milestones for years 1 through 3 and that OSI
has satisfied its obligations pursuant to sections 7, 9, 10 and 11 hereof, then
BISYS agrees that the number of conversions for Year 4 and Year 5 shall be 22
and 25, respectively, and further agrees to a Minimum Required License &
Maintenance Fees pursuant to Sections 8(a) and (b) for Years 4 and 5 at amounts
to be mutually agreed that represent the retail sales rates and corresponding
fees of OSI in effect at such time. It is the intent of the parties to evaluate
the terms of this Agreement at the end of such five-year period, including the
extension thereof. The foregoing notwithstanding, OSI shall not have the right
to convert such rights to nonexclusive where BISYS has (i) entered into new
Outsourcing Services and/or Facilities Management agreements with Financial
Institutions representing at least [**] of the number required above for the
periods indicated and (ii) achieved or prepaid the above required minimum
License and Maintenance Fees within 30 days of the end of each annual period.
Provided OSI is not in breach of its obligations under this Agreement, BISYS
shall pay the minimum required fees for the periods indicated above to OSI
(i.e., a total of [**]) in consideration of the exclusivity agreement. Any
amounts paid by BISYS to OSI to satisfy the foregoing minimum obligations and
not otherwise due pursuant to Sections 8(a) and 8(b) hereof shall be treated as
prepaid License and Maintenance Fees under such Sections and shall be applied as
a credit against future amounts due and owing thereunder.
Confidential portions omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
6
<PAGE>
(b) From the date hereof, BISYS shall be the preferred Facilities Manager for
a licensed System installed at a Financial Institution's facilities (i.e., where
the Financial Institution has been granted a license to use the System in-house
at its facilities and elects to seek a Facilities Manager to operate the
System). Notwithstanding the foregoing, no provision in this agreement shall be
construed as prohibiting a Financial Institution licensed to use the System from
independently retaining a Named Competitor or Excluded Licensee to serve as its
Facilities Manager.
(c) OSI represents and warrants as of the Effective Date that it has not
granted any license for use of the System to provide Outsourcing Services or to
serve as Facilities Manager to any entity other than BISYS. Unless specifically
prohibited by contract, OSI will provide written notice to BISYS upon the grant
of any license permitted pursuant to the foregoing subparagraph (a). In
addition, OSI agrees to provide an annual certification from its independent
auditors on or before the date it files such financial statements with the
Securities and Exchange Commission and otherwise the 120th day following the end
of each of its fiscal years, in conjunction with issuance of its annual
financial statements, identifying all license grants made pursuant to
subparagraph (a) in effect as of the end of such fiscal year.
(d) MOST FAVORED CUSTOMER. OSI represents and warrants that all prices,
warranties, benefits and other terms being provided hereunder are equivalent to
or better than the terms being offered by OSI to other similarly situated
entities under similar circumstances. If, during the term of this Agreement,
OSI enters into a licensing agreement with a Permitted Licensee pursuant to and
in accordance with subparagraph (a) hereof providing such entity with more
favorable terms, then this Agreement will be deemed appropriately amended to
provide such terms to BISYS, and OSI shall promptly provide BISYS with any
refunds or credits thereby created; if applicable, calculated from the
affective date of such other agreement(s).
(e) EQUITY INVESTMENT. As a condition of the grant of exclusivity and as a
condition to any license grant by OSI to a Permitted Licensee hereunder, BISYS
and OSI shall complete the documentation necessary for BISYS to make, and BISYS
shall promptly thereupon make, the equity investment in OSI described in
Schedule 4(e) to this Agreement.
(f) REASONABLE COMMERCIAL EFFORTS & NON-COMPETE. BISYS shall use reasonable
commercial efforts in seeking agreements to provide Outsourcing Services and
services as Facilities Manager utilizing the System. Based on OSI's efforts
pursuant to Sections 7, 9, 10 and 11 hereunder, BISYS would expect to convert
an existing T0TALPLUS(TM) system host based client to the System within 12
months of the Effective Date. Successful achievement of this conversion
within the expected time frame is expected to facilitate the development and
refinement of related conversion programs, completion of required development
and the integration into the System of the BISYS provided "wrap-around"
products and services identified in the following Section 5. BISYS agrees to
provide an annual certification from its independent auditors, on or before
such time as it files its
7
<PAGE>
annual financial statements with the Securities and Exchange Commission,
certifying as to the BISYS Customers that entered into Outsourcing Services
or Facilities Management agreements with BISYS during the prior fiscal year.
BISYS recognizes that it is in the parties' best interest that the reputation
of the System be upheld and, accordingly, it shall make commercially
reasonable efforts to provide quality sales and service to its Customers.
Notwithstanding the above and without limiting BISYS right to provide its
host-based T0TALPLUS(R) system outsourcing solution, BISYS shall utilize OSI
as the exclusive provider of client/server core data processing for BISYS
during the term of this agreement. This includes development of a
client/server core processing system by BISYS or the purchase of another
product from an OSI Named Competitor as identified in Section 1.11. A breach
of the foregoing shall be deemed a material breach under the Agreement. BISYS
shall have the opportunity to cure any such breach upon notice as provided in
Section 21 herein.
5. PREFERRED PROVIDER.
OSI shall include BISYS, and its affiliates, as a recommended preferred provider
to deliver the following additional wrap-around services to OSI direct customers
of the System and as applicable to prospective customers:
(a) ATM/debit card processing.
(b) Imaging services (including check and remittance imaging) through
Document Solutions, Inc., as long as this company is owned by BISYS.
(c) Tele-services (e.g. loan and mortgage information and application
processes via telecommunication [phone/internet]) through BISYS
Creative Solutions, Inc. as long as this company is owned by BISYS.
(d) LAN/WAN services (e.g. design, implementation, consulting, program
services, server, workstation and network monitoring).
Unless inappropriate, OSI marketing and promotional material identifying
wrap-around services shall identify BISYS as a recommended preferred provider of
the foregoing services.
6. SALES AND MARKETING.
(a) TRAINING. OSI shall provide four weeks advance notice of its regularly
scheduled and periodic special internal sales training programs as well as any
other internal training programs for sales and product support, customer
service personnel and systems and software engineers. BISYS shall have the
right to include a reasonable number of its like employees in such training
programs, subject to class-size limitations, on a no-fee basis. BISYS shall be
responsible for the costs of all training materials and other out-of-pocket
costs and expenses directly or indirectly resulting from the participation of
its employees in such training programs as well as all travel and related
costs.
Confidential portions omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
8
<PAGE>
(b) TRADE SHOWS. OSI and BISYS shall provide each other with advance notice of
their scheduled participation or intent to participate in a trade show so that
the parties may jointly participate if so desired.
(c) DEMONSTRATION. Upon execution of this Agreement, OSI shall provide to
BISYS a copy of OSI's demonstration program for sales and demonstration purposes
and shall provide BISYS with the most current version of such demonstration
program as it may exist from time to time. Unless inappropriate, OSI
demonstration systems demonstrating "wrap-around" services, as described in
Section 5 hereof, shall demonstrate the "wrap around" services offered by BISYS,
(d) MARKETING MATERIALS. BISYS and OSI shall, promptly following execution of
this Agreement, develop joint marketing material and standard disclosure
relating to each other, the alliance formed hereby and the products and services
to be offered hereunder, that may be used by both parties on an ongoing
unrestricted basis until otherwise agreed. Such material may also include a new
trademark or logo to reflect the alliance. Prior to the development of such
materials, neither party may publish and distribute any materials using the
trade marks or trade names of the other without the prior written consent of the
other, which shall not be unreasonably withheld. OSI will have final approval of
all marketing materials that represent the material functional aspects of the
System. The parties also expect to engage in certain joint sales and marketing
efforts as mutually agreed. Notwithstanding the foregoing, each party reserves
the right to continue to produce non-referencing marketing materials for their
independent use.
(e) SALES SUPPORT. OSI agrees to participate directly in any sales and
marketing presentations to potential Customers and to otherwise be actively
involved in providing sales support to BISYS through the period until BISYS has
entered into Outsourcing Services agreements or Facilities Management services
agreements for its first five Customers. Thereafter, upon BISYS' reasonable
request, and subject to availability OSI shall provide appropriate sales support
to assist BISYS in its efforts to execute additional Outsourcing Services
agreement employing the System with potential Customers. BISYS shall be
responsible for the reasonable out-of-pocket costs incurred by OSI for such
support.
(f) LEAD REGISTRATION AND REFERRAL. Where either BISYS or OSI determines
after a customer sales presentation or other qualification process that the
customer has a legitimate interest in the System being provided in the mode
offered by the other (i.e., in an Outsourcing Services or Facilities
Management mode by an OSI customer prospect or in an in-house mode by a BISYS
customer prospect), such party ("Referring Party") shall provide a written
lead registration and referral notice to the other identifying the potential
customer and contact person. The party receiving the notice shall have the
right to call upon that customer either separately or together with the
Referring Party to close the sale. The parties recognize that they may
continue in competition for such business opportunity. Where the party
receiving the notice (i) has not made a sales presentation to the identified
customer within the six-month period prior to receipt of such notice and (ii)
9
<PAGE>
within six months after the notice enters into an agreement with such
customer to provide the System, the Referring Party shall be entitled to the
Referral Fee described in Section 8 hereof.
Other than the lead registration and referral process described in the foregoing
paragraph, neither party shall have an obligation to disclose to the other nor
shall either party be entitled to information relating to the potential
prospects of the other.
(g) NOTICE OF AGREEMENTS WITH CUSTOMERS. BISYS shall provide written notice
of a new Financial Institution client using the System to OSI within 30 days of
the execution of an agreement with such new client.
(h) PRESS RELEASES. The parties expect to issue a mutually agreed upon joint
press release announcing the alliance formed under this Agreement at the
appropriate time. Prior to such public announcement, neither party shall make
any public disclosure of the existence or terms of this Agreement without the
prior written consent of the other.
7. CONVERSION AND PRODUCTION SUPPORT.
OSI shall provide the Conversion, programming, operations and training resources
necessary to convert the first three Outsourcing Services Customers in
cooperation with BISYS who shall retain control of the Customer interface. In
consideration of such support, BISYS shall reimburse OSI at cost for reasonable
expenses it incurs in connection therewith. OSI shall prepare the Conversion
plans and provide a copy to BISYS. BISYS shall participate in the Conversions as
a training mechanism and shall be responsible for all subsequent Conversions. At
BISYS' reasonable request, and subject to availability, OSI shall provide
assistance for subsequent Conversions and related production. BISYS shall pay
OSI for such subsequent support services based on OSI's time and materials [**].
In addition, OSI shall provide the technical and operations support required to
establish a production environment at BISYS' initial Outsourcing Services
production facility for the System. At a minimum, OSI shall provide the support
required to deliver production for the initial Conversion from the date of such
Conversion through the 30 days post-Conversion. BISYS shall reimburse OSI its
reasonable out-of-pocket costs for such initial production support. Thereafter,
upon BISYS' request, OSI shall provide additional production/technical support
following such 30-day period and for additional Conversions, and in
consideration thereof BISYS shall pay OSI its time and materials [**].
8. FEES.
(a) LICENSE FEES:
Confidential portions omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
10
<PAGE>
i) OUTSOURCING. Upon successful completion of the Conversion of a Customer
to the System pursuant to an Outsourcing Services agreement, OSI shall be
entitled to a license fee equal to thirty percent (30%) of the OSI License
Fee payable by an OSI direct customer similarly situated as of the effective
date of such Outsourcing Services agreement. Such license fee shall be
payable in equal monthly installments over the initial term of the
Outsourcing Services agreement, not to exceed three years during the first
three years of this Agreement and, thereafter, not to exceed five years.
Payments shall commence on the first day of the month following the
Conversion Date and each month thereafter until paid in full unless the
Outsourcing Services agreement shall earlier terminate and BISYS is no longer
an Outsourcing Services provider or Facilities Manager to such Customer.
Where such agreement is renewed for an additional renewal term, OSI shall be
entitled to an additional license fee equal to thirty percent (30%) of the
difference, if any, between the License Fee payable by a similarly situated
Financial Institution as of the date of such renewal and the License Fee
payable by a similarly situated Financial Institution as of the date of the
agreement. Such additional license fee, if any, shall be payable by BISYS
over the renewal term of the agreement, not to exceed five years. Payments
shall commence on the first day of each month following the renewal date and
thereafter until paid in full unless the agreement shall earlier terminate
and BISYS is no longer an Outsourcing Services provider or Facilities Manager
to such Customer.
ii) FACILITIES MANAGEMENT. Upon successful completion of the Conversion to the
System pursuant to a Facilities Management agreement, OSI shall be entitled to
a license fee equal to [**] of the OSI License Fee payable by an OSI direct
customer similarly situated to such Customer as of the effective date of such
Facilities Management agreement. Such license fee shall be payable in equal
monthly installments over the initial term of the Facilities Management
agreement, not to exceed three years during the first three years of this
Agreement and, thereafter, not to exceed five years. Payments shall commence on
the first day of each month following the Conversion Date and thereafter until
paid in full unless the Facilities Management agreement shall earlier terminate
and BISYS is no longer an Outsourcing Services provider or Facilities Manager
to such Customer. Where such agreement is renewed for an additional renewal
term, OSI shall be entitled to an additional license fee equal to [**] of the
difference, if any, between the License Fee payable by a similarly situated
Financial Institution as of the date of such renewal and the License Fee
payable by a similarly situated Financial Institution as of the date of the
agreement. Such additional license fee, if any, shall be payable by BISYS over
the renewal term of the agreement, not to exceed five years. Payments shall
commence on the first day of each month following the renewal date and
thereafter until paid in full unless the agreement shall earlier terminate and
BISYS is no longer an Outsourcing Services provider or Facilities Manager to
such Customer.
iii) TERMINATION. In the event of termination of a Outsourcing Services
agreement or Facilities Management agreement prior to the expiration of its
initial or renewal term and the termination of the corresponding license fee,
BISYS shall pay OSI in addition to the normal ongoing fees due until
termination, a termination fee equal to the lesser of the
Confidential portions omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
11
<PAGE>
amount representing (A) the number of monthly installments remaining and (B)
the number of monthly installments set forth below based on the number of
months remaining in the initial or renewal term of such Outsourcing Services
or Facilities Management agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Months Remaining in Term Monthly Installments Payable
- --------------------------------------------------------------------------------
<S> <C>
36+ 12
- --------------------------------------------------------------------------------
24-35 6
- --------------------------------------------------------------------------------
12-23 3
- --------------------------------------------------------------------------------
</TABLE>
No further payment obligations in respect of such license fee shall be due.
(b) MAINTENANCE FEE. Upon Conversion to the System, OSI shall be entitled to
an annual maintenance fee during the initial term of the BISYS agreement with a
Customer equal to a percentage of the OSI License Fee payable by an OSI direct
customer similarly situated as of the date of the agreement as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Percentage
- --------------------------------------------------------------------------------
<S> <C>
1 and 2 5%
- --------------------------------------------------------------------------------
3 7%
- --------------------------------------------------------------------------------
4+ 10%
- --------------------------------------------------------------------------------
</TABLE>
Such annual maintenance fee shall be payable in equal monthly installments
commencing on the first day of each month following the Conversion Date through
the initial term or earlier termination of the agreement between BISYS and such
Customer. During any renewal term of the BISYS agreement with a Customer OSI
shall be entitled to an annual maintenance fee equal to 10% of the License Fee
payable by a similarly situated Financial Institution as of the date of such
renewal Such annual maintenance fee shall be payable in equal monthly
installments commencing on the first day of each month following the renewal
date through the renewal term or earlier termination of such agreement.
(c) REFERRAL FEE. Upon the conversion of a System based on the lead
registration and referral process described in Section 6(f) hereof, the party
receiving the benefit of the referral shall pay the Referring Party a
one-time referral fee equal to [**] of the License Fee payable by a similarly
situated Financial Institution, payable within 30 days of the conversion date
of the System. To the extent the referral was provided by a sales
Confidential portions omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
12
<PAGE>
representative customarily entitled to commissions, it is expected that the
Referring Party shall, subject to its internal commission policies with
respect to entitlement to commissions, pay such referral fee to such sales
representative.
(d) PREFERRED VENDOR FEES. Where through OSI's efforts BISYS secures an
agreement to provide the services set forth in Section 5 hereof to OSI direct
customers of the System, OSI shall be entitled to receive the following fees
based on such agreements during the period in which both this Agreement and such
agreement to provide such services are in effect:
[**] [**] of annual revenue
[**] [**] of initial license fee
[**] [**] of annual revenue
[**] [**] of annual revenue
Such fees, other than the fees related to [**], shall be payable monthly by the
end of the month based on the payment of the associated revenues by the customer
to BISYS in the preceding month. A summary report setting forth the calculation
of the fees shall accompany such monthly payment. The fees relating to imaging
services shall be paid within 30 days of receipt of the payment to BISYS of such
initial license fee.
9. SYSTEM SUPPORT.
Irrespective of the termination of this Agreement, so long as any Outsourcing
Services or Facilities Management agreement between BISYS and a Customer
employing the System shall be in effect, OSI shall be obligated to provide
ongoing maintenance support to BISYS for the OSI Proprietary Software and the
OSI Interface Software as provided in Attachment 1 hereto
Notwithstanding OSI's support provided under Attachment 1, BISYS agrees that it
shall provide the first line of product and technical help desk support to its
Customers. This shall include all of the day to day issues of functionality,
error correction and customer service. In no instance shall OSI provide direct
support to BISYS Customers. Said OSI services shall be provided seven (7) days
per week, twenty four (24) hours per day for Priority A errors and during normal
working hours for other errors. OSI shall furnish the names and telephone
numbers of its personnel for both normal working hours and other times (e.g.,
holidays, weekends, etc.). BISYS shall provide the names and telephone numbers
of the designated BISYS personnel assigned to work with OSI.
BISYS agrees to use its best efforts to minimize the number of support contacts
that it makes with OSI after the first five (5) outsourcing Services or
Facilities Management Services installations made under this Agreement.
10. PRODUCT DEVELOPMENT.
Confidential portions omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
13
<PAGE>
OSI shall use reasonable commercial efforts to maintain the System competitive
in its marketplace. A breach of the foregoing shall be deemed a material breach
under the Agreement. OSI shall have the opportunity to cure any such breach
upon notice as provided in Section 21 herein. Appropriate representatives of
OSI and BISYS shall meet at least semi-annually to discuss and review OSI
product development plans and for BISYS to provide input based on competitive
feature and function requirements. At any time during the term of this
Agreement, BISYS shall have the right to request certain development efforts
related to the System. To the extent it is mutually agreed that such
development efforts enhance the overall value, marketability or competitive
position of the system, such efforts shall be funded by OSI. BISYS shall be
given the opportunity to contribute to such efforts either through funding
and/or contribution of application specifications and/or certain technology to
expedite delivery or to address certain customer requirements that may not be
considered to significantly enhance the overall value, marketability or
competitive value of the system. In the event that BISYS develops and offers to
OSI an application mutually agreed to have value to the System, BISYS shall
contribute such application to OSI in consideration of a payment equal to the
lesser of 25% of the development costs of BISYS and $250,000. Payment to BISYS
for any such development shall be made quarterly over a three year period. All
products, derivative works or other intellectual property resulting from such
development efforts and incorporated into the System shall, as incorporated, be
the property of OSI regardless of the manner of funding and regardless of
whether made by OSI or BISYS. As the developer of the System, OSI acknowledges
that it will from time to time engage in certain software and hardware
benchmarking activities. OSI shall provide BISYS with written copies of the
results of all such benchmarking activities within 30 days of any such
benchmarking.
The parties recognize that BISYS has an interest in evaluating the technical
feasibility of integrating certain OSI System modules as replacements and/or
upgrades to its existing mainframe modules or otherwise developing linkages
between the OSI System modules and its mainframe modules. OSI agrees to support
and participate in any such feasibility evaluations which are expected to
include an evaluation of the integration of OSI's client server module to the
BISYS mainframe environment and/or use of the OSI System application code at the
BISYS mainframe level.
OSI, recognizing that modifications to the System designed to enhance its
performance in a multi Financial Institution processing environment will be
beneficial I to BISYS and to the Permitted Licensees and are fundamental to
such persons serving as Outsourcing providers, shall modify the System
accordingly to attain the anticipated benefits within a mutually agreeable
time-frame provided that BISYS pays for 75% of the required investment. BISYS
shall recover from OSI up to one-third of such investment(s) (i.e., 25% of the
total investment such that if fully recovered OSI and BISYS shall have each
invested 50% of the required investment) in the following manner:
(a) upon the grant of a license to a Permitted Licensee, a credit toward
License and Maintenance Fees payable pursuant to Sections 8(a) and (b) hereof
equal to the total investment made by BISYS multiplied by a fraction the
numerator of which is the number
14
<PAGE>
of clients for which the Permitted Licensee provides outsourcing services and
the denominator is the number of clients for which BISYS provides outsourcing
services; and
(b) a credit of 50% toward any License and Maintenance Fees payable in excess
of the minimum required License and Maintenance Fees pursuant to Sections 8(a)
and (b) hereof as set forth in the table in Section 4(a) hereof.
OSI reserves all right to determine the scope and nature of any and all
development activities that will be performed to the System regardless of the
source of funding.
11. CUSTOMER REQUIREMENTS.
OSI recognizes that BISYS may from time to time be requested to provide
additional features, functionality or interfaces with respect to the System in
order to secure a new, or retain an existing, Customer. OSI agrees to use
reasonable commercial efforts to deliver a feasibility assessment with respect
to such additional features, functionality or interfaces in writing within 30
days of receipt of a written request, including but not limited to an assessment
of the time period and resources necessary for, and remuneration to OSI to
satisfy such requirements. Based on such assessment, OSI and BISYS by mutual
agreement shall determine the appropriate course of action to address the
Customer requirements and, if appropriate, to set forth the specifications,
deliverables and costs in a writing mutually agreed and signed by OSI and BISYS.
OSI shall use commercially reasonable efforts to satisfy the requirements set
forth in such written agreement within the agreed time periods. BISYS shall not
make any contractual obligations with respect to such Customer requirements
except as specifically approved in writing by OSI.
12. THIRD PARTY PRODUCTS.
Subject to limitations with the agreements between OSI and third parties and
applicable law, OS shall split with BISYS on a 50/50 basis all net profit from
the sale of certain third party products, including but not limited to the TPS,
licensed or sold in conjunction with the System to support outsourcing Services
and Facilities Management services provided by BISYS.
13. SOURCE CODE. As a condition to the effectiveness of the Agreement, OSI
agrees to enter into the standard escrow agreement providing BISYS with certain
rights to the source code for the OSI Proprietary Software and the OSI Interface
Software owned by OSI as set forth as Attachment 2 hereto, and to provide
current versions of such Software to the Escrow Agent as provided in such Escrow
Agreement, with the following additional release conditions:
(a) OSI's failure to take reasonable commercial efforts to cure its material
breach within ninety (90) days of receipt of written notice of such breach;
15
<PAGE>
(b) OSI (i) becomes or is declared insolvent or bankrupt, (ii) becomes the
subject of, and fails to cause its dismissal within 180 days, any proceedings
relating to its liquidation, insolvency or for the appointment of a receiver or
similar officer for it, (iii) makes an assignment for the benefit of all or
substantially all of its creditors, or (iv) enters into an agreement for the
composition, extension, or readjustment of all or substantially all of its
obligations; or
(c) written notice of BISYS at any time during the 180 day period following a
Change of Control of OSI.
Emergency Access to Source Code: BISYS shall have immediate, temporary access to
the OSI Source Code upon written request to OSI in the event that a Customer
Emergency occurs. Such access shall last until the condition(s) requiring such
access have ceased and thereupon BISYS shall promptly return the deposit
materials to the Escrow Agent, together with a notification of the actions taken
and due documentation of all modifications, if any, made to the OSI Source Code.
Definitions: For purposes of this Section, the following definitions shall
apply:
Customer Emergency: BISYS has received notification from a Customer clearly and
convincingly demonstrating that, unless immediate, emergency corrective
modifications are made to the OSI Proprietary Software or to the OSI Interface
Software, and OSI is either incapable or refuses to make such corrective
modification, the Customer will be unable to operate in a commercially
reasonable capacity (which capacity shall include temporary off-line operations)
and material damages will be incurred by the Customer as a result thereof.
BISYS RIGHTS TO OSI SOURCE CODE UPON CHANGE OF CONTROL OF OSI. OSI shall
promptly deliver to BISYS a machine readable copy of the then current version of
the OSI Source Code upon a Change of Control of OSI. Thereafter OSI shall
deliver a new machine readable copy of the OSI Source Code within ninety (90)
days following a general release to OSI customers of any Enhancements or new
versions of the OSI Proprietary Software or OSI Interface Software developed by
OSI unless and until BISYS elects not to terminate this Agreement pursuant to
Section 21 (b)(iv) hereof, in which case BISYS shall return all copies of the
OSI Source Code to OSI or its successor and continue with the Agreement as
originally determined. In the event that BISYS chooses to terminate this
Agreement as provided in Section 21 (b)(iv) due to a Change of Control of OSI,
BISYS shall have the right to use the OSI Source Code to provide Outsourcing
Services and Facilities Management services to BISYS Customers and to maintain
and support such services, shall be free to develop additional Enhancements to
such OSI Source Code for use by BISYS Customers. It is understood that any
Enhancements, modifications or changes made by BISYS to the OSI Source Code
under this section shall be used solely for the purposes described in the
previous sentence. BISYS shall have ownership rights to only the Enhancements
made by BISYS allowable under this Section 13. OSI shall have no obligation to
16
<PAGE>
support and maintain any Enhancements made by BISYS under the conditions set
forth in Section 21(b)(iv).
14. BOARD SEAT.
During the term of this Agreement, BISYS shall be entitled to nominate a
candidate to the Board of Directors of OSI, or any parent or holding company
that may hereafter exist and OSI agrees to take steps necessary to cause the
nomination of the person so nominated.
15. EMPLOYEES.
During the term of this Agreement, each party will refrain from seeking to hire
the employees of the other and, for the one year following termination of
employment, terminated employees of the other without the prior written consent
of the other.
16. CONFIDENTIALITY.
OSI represents that the System contains trade secrets and BISYS agrees to treat
the OSI Proprietary Software, OSI Database model and OSI Interface Software as
OSI's confidential information and will not disassemble, de-compile or reverse
engineer the System. Any breach or attempted breach of the foregoing sentence
shall be considered a material breach and subject to cure as provided in Section
21 herein.
The parties further acknowledge that in the course of performing their
respective responsibilities under this Agreement, each may be exposed to or
acquire information which is proprietary to or confidential to the other party
or its clients, including computer programs, software tools, protocols, system
benchmarks, business and marketing plans, product descriptions, development
schedules, product positioning, choices of product names and financial data. All
such confidential and proprietary information, in whatever form, are hereinafter
collectively referred to as "Confidential Information".
Except as otherwise permitted hereunder, the parties agree to hold such
information in strict confidence and not to copy, reproduce, sell, assign,
license, market, transfer, give or otherwise disclose such information to third
parties or to use such information for any purposes whatsoever, without the
express written permission of the other party and to advise each of their
employees, agents and representatives of their obligations to keep such
information confidential.
The parties shall use their reasonable efforts to assist each other in
identifying and preventing any unauthorized use or disclosure of any
Confidential Information. Without limitation of the foregoing, the parties
shall use reasonable efforts to advise each other immediately in the event
that either learns or has reason to believe that any person who has had
access to Confidential Information has violated or intends to violate the
terms of
17
<PAGE>
this provision, and will reasonably cooperate in seeking injunctive relief
against any such person.
"Confidential Information" shall not include information that: (i) is, as of the
time of its disclosure, or thereafter becomes part of the public domain through
a source other than the receiving party; (ii) was known to the receiving party
as of the time of its disclosure; (iii) is independently developed by the
receiving party; (iv) is subsequently learned from a third party not under a
confidentiality obligation to the providing party; or (v) is required to be
disclosed pursuant to court order or government authority, whereupon the
receiving party shall provide notice to the other party prior to such
disclosure.
17. WARRANTIES.
(a) OWNERSHIP. OSI represents and warrants that it has the sole ownership of
and/or the right to license and sub-license the OSI Proprietary Software and the
OSI Interface Software as contemplated by this Agreement and has the full power
to grant the rights granted herein without the consent of any other person or
entity.
(b) PERFORMANCE. OSI represents, warrants and covenants that the media on
which the OSI Proprietary Software and OSI Interface Software is recorded and
delivered to BISYS hereunder is free from defects in material and workmanship
under normal use and service for a period of ninety (90) days from delivery. OSI
agrees to replace any
defective media upon return to OSI. OSI represents and warrants that it has
taken all steps necessary to test the OSI Proprietary Software and the OSI
Interface Software for Disabling Code (as defined herein) and to eliminate
Disabling Code from the OSI Proprietary Software and the OSI Interface Software.
OSI warrants that the OSI Proprietary Software and the OSI Interface Software
will be free of Disabling Code as of the date of delivery by OSI to BISYS.
OSI will continue to take such steps with respect to all Enhancements made by
OSI to keep the same and the OSI Proprietary Software and OSI Interface Software
free of Disabling Code. Disabling Code shall mean computer instructions that:
a. Alter, destroy or inhibit the OSI Proprietary Software, OSI Interface
Software or BISYS' processing environment, including without limitation, other
programs, data storage, computer libraries, and computer and communications
equipment;
b. without functional purpose, self-replicate without manual intervention; or
c. purport to perform a meaningful function but which actually perform either
a destructive or harmful function, or perform no meaningful function.
OSI agrees that it will maintain a master copy of the OSI Proprietary Software
and the OSI Interface Software and all Enhancements made by OSI thereto, and
will take such steps as are necessary to keep the same free of Disabling Code.
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(c) DISCLAIMER. THESE EXPRESS WARRANTIES TAKE THE PLACE OF AND SUPERSEDE ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED AND WHETHER OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE OR OTHERWISE, ALL OF WHICH ARE HEREBY EXPRESSLY DISCLAIMED.
EXCEPT AS EXPRESSLY PROVIDED HEREIN, OSI DOES NOT WARRANT, GUARANTEE, OR MAKE
ANY REPRESENTATIONS REGARDING THE USE, OR THE RESULTS OF THE USE, OF THE OSI
PROPRIETARY SOFTWARE, OSI INTERFACE SOFTWARE OR DOCUMENTATION. OSI DOES NOT
WARRANT THAT THE OPERATIONS OF THE OSI PROPRIETARY SOFTWARE OR OSI INTERFACE
SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE.
BISYS understands that OSI is not responsible for and will have no liability for
and does not warrant hardware, software, or other items or any services provided
by any persons other than OSI. BISYS will also indemnify and hold OSI harmless
from any misrepresentations made by BISYS or its representatives as to the
features, functions and capabilities of the System. Failure of BISYS to
indemnify or hold OSI harmless from any such misrepresentation shall be
considered a material breach of this Agreement.
(d) LIMITATION OF LIABILITY. EXCEPT FOR OSI'S INDEMNITY OBLIGATIONS UNDER
SECTION 19 (RELATING TO INTELLECTUAL PROPERTY INFRINGEMENTS), A BREACH OF ITS
CONFIDENTIALITY OBLIGATIONS UNDER SECTION 16, ANY LIABILITY OSI MAY HAVE FOR
PERSONAL INJURY OR DAMAGE OR DESTRUCTION OF REAL OR TANGIBLE PERSONAL
PROPERTY, OR LIABILITY RESULTING FROM OSI'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, OSI SHALL NOT BE LIABLE TO BISYS FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OR LOST PROFITS OR REVENUES OUT
OF THIS AGREEMENT OR IN ANY WAY RELATED TO THIS AGREEMENT, EVEN IF OSI KNOWS,
SHOULD HAVE KNOWN, OR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
EXCEPT FOR A BREACH OF ITS CONFIDENTIALITY OBLIGATIONS UNDER SECTION 16, OR
LIABILITY RESULTING FROM ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, BISYS SHALL
NOT BE LIABLE TO OSI FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES OR LOST PROFITS OR REVENUES ARISING OUT OF THIS AGREEMENT OR IN ANY WAY
RELATED TO THIS AGREEMENT, EVEN IF BISYS KNOWS, SHOULD HAVE KNOWN, OR HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(e) COMPLIANCE WITH LAWS AND REGULATIONS. OSI represents that for a period of
ninety (90) days after the date of execution of this Agreement and during any
period during which BISYS is receiving support in accordance with the terms and
conditions hereof, the OSI Proprietary Software and the OSI Interface Software
shall:
a. Function and perform substantially in accordance with the Documentation
and specifications.
b. Operate on the Designated Hardware consistent with the specifications
and Documentation.
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c. Process BISYS' Customer's data in accordance with the minimum data
processing standards promulgated by federal banking agencies which regulate
BISYS' Customers. If BISYS discovers that either the OSI Proprietary Software or
OSI Interface Software does not meet the criteria set forth above, BISYS shall
notify OSI and OSI shall promptly take commercially reasonable steps in
accordance with support terms and conditions to bring the OSI Proprietary
Software or OSI Interface Software into compliance with the criteria set forth
above.
(f) YEAR 2000 COMPLIANCE. OSI represents that the OSI Proprietary Software and
the OSI Interface Software to be utilized by BISYS and its Customers corresponds
with standards set forth in Attachment 3 to this Agreement, taking into
consideration the appropriate governmental regulatory agencies' requirements
regarding the year 2000. Upon BISYS' written request given after October 1,
1998, BISYS, at its own cost, may retain the services of a third party auditor
to review and evaluate, at a time mutually agreed, the System for the sole
purpose of determining whether the System is able to perform Year 2000
processing.
(g) COMPATIBILITY WITH DESIGNATED HARDWARE. The System, and each module and
function thereof, will be capable of operating in a commercially reasonable
manner on the Designated Hardware and operating environment specified in
Schedule 17(g).
18. [THERE IS NO SECTION 18.]
19. INDEMNIFICATION.
(a) INDEMNIFICATION BY OSI. OSI shall defend, indemnify and hold BISYS and its
officers, directors, agents and employees harmless from and against any and all
claims, suits, damages, liabilities, costs and expenses (including reasonable
attorney's fees) arising out of or resulting from any claim that BISYS' use of
the OSI Proprietary Software or OSI Interface Software infringes a presently
existing United States patent, copyright, or trademark or misappropriates a
trade secret of any third party, provided OSI is:
i) promptly notified of any and all threats, claims and proceedings related
thereto,
ii) given reasonable assistance (at OSI's sole cost and expense), and
iii) given the opportunity to assume sole control over the defense and all
negotiations for a settlement or compromise.
OSI shall not, however, enter into any settlement without BISYS' prior written
consent, which shall not be unreasonably withheld, if such settlement impairs
any material right of BISYS under the Agreement.
Notwithstanding anything to the contrary contained herein, BISYS shall have the
right to defend and settle, at OSI's expense, against any such infringement or
misappropriation claim in the event that OSI fails to assume or reasonably
pursue such defense.
In the event that the OSI Proprietary Software or OSI Interface Software, or any
portion thereof becomes the subject of a claim of infringement or
misappropriation, OSI may, at
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its option and its expense, take any of the following steps so that BISYS'
use is not subject to any claim of infringement or misappropriation and BISYS
is provided with functionally equivalent software to the reasonable
satisfaction of BISYS, provided that BISYS' use of the OSI Proprietary
Software or OSI Interface Software conforms with the provisions of the
Agreement:
i) procure for BISYS the right to continue using the OSI Proprietary Software
or OSI Interface Software; or
ii) replace or modify the infringing portion of the OSI Proprietary Software
or OSI Interface Software.
The foregoing obligations of OSI do not apply with respect to software and any
other products or portions or components thereof.
i) which are not the latest available release supplied by OSI to BISYS,
ii) which are modified by BISYS after shipment by OSI, if the alleged
infringement relates to such modification, unless OSI has consented to the
modification in writing, or such modifications is otherwise authorized,
permitted or provided for under this Agreement, or
iii) which are combined with other products, processes, hardware or materials
where the alleged infringement relates to such combination, unless OSI has
consented in writing to such combination or such combination is otherwise
authorized, permitted or provided for under this Agreement.
THE FOREGOING STATES THE ENTIRE LIABILITY OF OSI WITH RESPECT TO INFRINGEMENT OF
ANY PATENTS, COPYRIGHTS, TRADEMARKS OR MISAPPROPRIATION OF TRADE SECRETS BY THE
OSI PROPRIETARY SOFTWARE OR OSI INTERFACE SOFTWARE OR ANY PARTS THEREOF. NO
COSTS OR EXPENSES SHALL BE INCURRED FOR THE ACCOUNT OF OSI BY BISYS OR ITS
AGENTS WITHOUT THE PRIOR WRITTEN CONSENT OF OSI.
The provisions of this Section 19 do not apply to any TPS or any OSI Interface
Software licensed by OSI from a third party.
INDEMNIFICATION PROCEDURES. The OSI indemnification obligation under the
foregoing subparagraph (a) shall not apply (I) to the extent that BISYS was
responsible for giving rise to the matter upon which the claim for
indemnification is based, and (ii) unless BISYS promptly notifies OSI of any
matters in respect of which the indemnity may apply and of which BISYS has
knowledge and gives OSI the full opportunity to control the response thereto and
the defense thereof, including without limitation any agreement relating to the
settlement thereof. BISYS' failure to promptly give notice shall affect OSI's
indemnification obligation only to the extent OSI's rights are materially
prejudiced by such failure. BISYS may participate, at its own expense, in such
defense and in any settlement discussions directly or through counsel of its
choice.
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20. RIGHT TO MAKE AN OFFER UPON THIRD PARTY OFFER.
BISYS shall have the right to offer to acquire all the outstanding shares or
substantially all the assets of OSI in the event of any bona fide written Third
Party Offer to acquire all of the outstanding shares or substantially all the
assets of OSI acceptable to the Board of Directors of OSI. OSI shall notify
BISYS of such offer and
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks denote omissions.
all material terms thereof. For purposes of this Section, a "Third Party Offer"
means a written offer from any person or entity with the demonstrated financial
means to purchase all the outstanding shares or substantially all the assets of
OSI. Once BISYS receives notice of such bona fide offer and OSI's notice of
intention to duly consider such offer, BISYS shall have [**] in which to notify
OSI of its intent either to offer to acquire all of the outstanding ownership
interests in or substantially all the assets of OSI or to decline the
opportunity to make an offer. If BISYS intends to make an offer it shall do so
within [**] of its notice to OSI. Thereafter, OSI shall consider the BISYS offer
prior to acceptance of any offer. The OSI Board of Directors at its discretion
and in accordance with its fiduciary duty will consider and accept the offer
that best benefits OSI's shareholders. BISYS' right to notice shall terminate
upon completion of an initial public offering.
21. TERMINATION.
(a) TERM. This Agreement shall commence as of the Effective Date and continue
indefinitely unless terminated in accordance with provisions under this Section.
(b) TERMINATION CONDITIONS. This Agreement shall terminate upon:
(i) written agreement of the parties to terminate this Agreement;
(ii) a party failing to cure its material breach within ninety (90) days of
receipt of notice of such breach, and notice from the non-breaching party to the
breaching party of its intent to terminate this Agreement as of the date set
forth in such notice;
(iii) a party (A) becoming or being declared insolvent or bankrupt, (B) becoming
the subject of, and failing to cause its dismissal within 180 days, any
proceedings relating to its liquidation, insolvency or for the appointment of a
receiver or similar officer for it, (C) making an assignment for the benefit of
all or substantially all of its creditors, or (D) entering into an agreement for
the composition, extension, or readjustment of all or substantially all of its
obligations, and notice from the other party of its intent to terminate this
Agreement as of the date set forth in such notice; or
(iv) written notice of BISYS at any time during the 180 day period following a
Change of Control of OSI on not less than 30 days written notice; provided that
such termination date is a date not later than the last day of such 180 day
period.
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(c) DUTIES UPON TERMINATION. Upon termination of this Agreement, the
parties shall continue to perform their respective payment and support
obligations under Sections 8 and 9 hereof which obligations shall survive the
termination of this Agreement. The foregoing notwithstanding, in the event of
a termination pursuant to clause (b)(iv) above, BISYS and OSI shall have the
following rights and obligations so long as any Outsourcing Services or
Facilities Management agreement remains in effect:
i) OSI shall continue to provide all Enhancements to, and any and all new
versions of, the OSI Source Code to BISYS within 90 days following general
release to OSI customers;
ii) BISYS shall have the right to convert an unlimited number of additional
BISYS Customers to the System and in consideration thereof shall pay OSI the
License Fees as provided in Section 8(a) hereof;
iii) For the 12 month period commencing with the first full month following the
termination date, BISYS shall pay the Maintenance Fees provided in Section 8(b)
hereof for both then existing and new BISYS Customers and OSI shall provide the
support services as set forth in Attachment 1 hereto. After such 12 month
period, (Y) OSI shall no longer be obligated to provide such support services,
and (Z) in consideration of OSI's obligation in clause i) above, BISYS shall pay
OSI a maintenance fee of 3% (5% commencing with the quarter following the
date on which the number of BISYS Customers exceeds 100) of the License Fee
applicable to each BISYS Customer. The applicable License Fee for existing BISYS
Customers as of the end of such 12 month period shall be the License Fee then
being used for such Customer for the calculation of maintenance fees under
Section 8(b) hereof. The applicable License Fee for new BISYS Customers after
such 12 month period shall be the License Fee used to determine the license fee
payable by BISYS pursuant to the foregoing clause ii).
22. DISPUTE RESOLUTION.
(a) Any controversy or claim arising out of or relating to this Agreement or
the breach thereof shall be settled by arbitration before three (3) arbitrators
in accordance with the Rules of the American Arbitration Association ("AAA")
then in effect, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be
conducted in the city nearest OSI's office having an AAA regional office. The
arbitrators shall be selected from a panel of persons having experience with and
knowledge of electronic computers and the computer business, and at least one of
the arbitrators selected shall be an attorney.
(b) The arbitrators shall have no authority to award punitive damages and may
not, in any event, make any ruling, finding or award that does not conform to
the terms and conditions of this Agreement.
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(c) Either party, before or during any arbitration, may apply to a court
having jurisdiction for a temporary restraining order or preliminary or
permanent injunction where such relief is necessary to protect its interests.
(d) Neither party nor the arbitrators may disclose the existence or results
of any arbitration hereunder without the prior written consent of both Parties.
(e) Prior to initiation of arbitration or any form of legal or equitable
proceeding permitted by this agreement, the aggrieved party shall give the other
party at least thirty (30) days prior written notice describing the claim and
amount as to which it intends to initiate action, provided that nothing
contained herein shall prohibit either party from immediately seeking equitable
relief to enforce any provision of this agreement from a court of competent
jurisdiction under such circumstances as that party's interests hereunder and
its property will be otherwise comprised.
23. ASSIGNMENT. Except as specifically stated in this Agreement with regards
to Change in Control, neither this Agreement nor any of the rights, interests or
obligations of any party hereunder shall be assigned or delegated by either
party hereto without the prior written consent of the other. Such consent shall
not be withheld unreasonably. Any unauthorized assignment or delegation shall be
null and void.
24. GENERAL.
(a) NOTICES. Any notice provided pursuant to this Agreement shall be in
writing and shall be deemed given (i) if by hand delivery, upon receipt thereof;
(ii) if mailed, three (3) days after deposit in the United States mails, postage
prepaid, certified mail return receipt requested, or (iii) if sent via overnight
courier upon receipt.
If to BISYS:
Paul H. Bourke, President
BISYS, Inc.
11 Greenway Plaza, Houston, TX 77046-1102
With copies to:
General Counsel
The BISYS Group, Inc.
150 Clove Road
Little Falls, NJ 07424
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If to OSI:
Douglas Anderson, President
Open Solutions, Inc.
300 Winding Brook Drive, Glastonbury, CT 06033.
With copies to:
Christine Horrigan, Esq.
Shipman & Goodman
One American Row, Hartford, CT 06103
(b) BINDING AGREEMENT. This Agreement shall be binding upon and inure to the
benefit of the parties, their successors and permitted assigns.
(c) GOVERNING LAW AND VENUE. This Agreement and performance hereunder shall be
governed by the laws of the State of New York without regard to conflicts of
law.
(d) FORCE MAJEURE. Neither party shall be liable for delay or failure to
perform any of its obligations hereunder to the extent that such delay or
failure arises times shall be considered extended for a period of time equal to
the time lost because of such delay or failure.
(e) SEVERABILITY. If any provision of this Agreement shall be held to be
invalid, illegal or unenforceable by a court of competent jurisdiction, the
validity, legality and enforceability of the remaining provisions shall in no
way be affected or impaired thereby.
(f) REMEDIES. The rights and remedies of the parties set forth in this
Agreement are not exclusive and are in addition to any other rights and remedies
available to them in law or in equity.
(g) NO WAIVER. The waiver or failure of any party to exercise any right
provided for herein shall not be deemed a waiver of any further right hereunder.
(h) INDEPENDENT CONTRACTORS. The parties shall at all times be independent
contractors with respect to each other in carrying out this Agreement.
(i) HEADINGS. Headings used in this Agreement are for reference only and shall
not be deemed a part of this Agreement.
(j) SURVIVAL. In addition to OSI's obligations under Section 9, and BISYS'
payment obligations under section 8 and rights to obtain the source code from
escrow under Section 13, the provisions of this Agreement relating to
warranties, limitations of
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liability, indemnification, confidentiality, choice of law and dispute
resolution shall survive the termination of this Agreement.
(k) CONDUCT. Notwithstanding that OSI and BISYS may at times be in competition
for the same Customer, each party agrees to refrain from conduct intended to
disadvantage the other. Repeated violations of this section during any twelve
(12) month period after notice of such violation shall be considered a material
breach not subject to cure.
(l) TAXES. The System licensed hereunder to BISYS is basically for sublicense
to Customers and therefore should be exempt from sales, use and other similar
taxes. However, if such tax should be imposed on OSI, BISYS shall either bear
such tax by a direct payment to the taxing authority or shall reimburse OSI for
such tax. BISYS shall be responsible for any applicable customs and duties
related to its sublicensing of the System.
(m) ENTIRE AGREEMENT. This Agreement constitutes the complete understanding
and agreement of the parties with respect to the subject matter hereof and
supersedes and merges any prior understandings, statements, negotiations between
the parties, whether oral or otherwise. This Agreement may not be modified
except by a writing subscribed to by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives as of the date first set forth above.
OPEN SOLUTIONS INC. BISYS, INC.
By: /s/ Doug Anderson By: /s/ Paul Bourke
---------------------------- ---------------------------------
Name/title: Name/title:
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Exhibit 10.10
Confidential Treatment
Confidential portions omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
DEVELOPMENT AND PROMOTION AGREEMENT
THIS DEVELOPMENT AND PROMOTION AGREEMENT (this "Agreement"). dated as of
February 14, 2000, is made by and among Open Solutions Inc., a Delaware
corporation, ("Company") and Stockwalk.com. Inc., a Nevada corporation
("Stockwalk") (sometimes referred to collectively as the "Parties" and
individually as a "Party").
RECITALS
A. Stockwalk is a securities broker-dealer licensed to conduct securities
business pursuant to applicable federal and state laws; and,
B. Company is an on-line bank service provider that desires to make
available to members and customers of its correspondent credit unions and banks
("Institutions") via the Internet the broad range of Internet securities
services offered by Stockwalk within the limits of applicable statutory and
regulatory restrictions; and,
C. Stockwalk desires to provide Institution's members and customers
various Internet securities brokerage services by allowing Company to private
label and market Stockwalk's user interface to Institutions.
NOW, THEREFORE, in consideration of the mutual covenants hereafter set
forth and other valuable consideration, the receipt and efficacy of which hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. BACKGROUND
Stockwalk and COMPANY have entered into this agreement to permit Company's
clients ("Institutions") and their members and customers ("Users") to utilize
the on-line brokerage services of Stockwalk as more fully described below (the
"Stockwalk Services"). The purposes of this Agreement are:
a. to provide for the development of access to Stockwalk Services
through a Co-Branded Site,
b. to set forth the understandings and agreements of the Parties as to
promotion of the Stockwalk services by Company, and
c. to provide for payment to Company for its role in assisting in the
development of this relationship and in promoting the availability
of the Stockwalk Services to its client institutions.
Stockwalk's brokerage services will be offered as a co-branded site and
will be accessed by the members and customers ("Users") of participating
Institutions through a co-branded web site for participating Institutions
("Co-Branded Site"), which Co-Branded Site will be hosted by Stockwalk. Users
will access the Co-Branded Site via hypertext links from each participating
Institution's web sites, which are hosted by Company pursuant to a Company
Master Services Agreement by and between such Institution and Company.
<PAGE>
The Parties hereto acknowledge and agree that all on-line securities
brokerage services provided to Institutions and Users pursuant to this Agreement
shall be provided by Stockwalk. The consideration payable to Company pursuant to
this Agreement, and to Institution pursuant to the Networking/Affiliation
Agreements, shall be in compliance with all laws, rules, regulations, and other
applicable standards of conduct in regard to Institution activities and
broker-dealer activities (including, without limitation, the rules and
regulations, and interpretive guidance issued by the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., the Office of
Thrift Supervision, the Federal Reserve Board, and the Office of Comptroller of
Currency). In accordance with the terms of this Agreement the Stockwalk Services
will be offered to Company's participating Institutions and made available only
to such Institutions who have agreed to be bound by the terms and conditions set
forth in the Networking/Affiliation Agreement by and between Stockwalk and
Institution. This Agreement is made in connection with the other agreements
among the Parties and Institutions as described on Schedule 1 (collectively, the
"Other Agreements").
SECTION 2. DEFINITIONS
Many terms used in this Agreement are defined in context in Section 1,
above. The following terms used in this Agreement have the respective meanings
set forth below.
2.1 "AFFILIATE" means, with respect to any Party, any individual or entity
that directly or indirectly controls, is controlled by or is under common
control with that Party. As used in this definition, "control" means either (a)
the ownership of greater than 50% of an entity's voting securities or (b) the
ability, through contract or otherwise, to determine an entity's operating
activities.
2.2 "CO-BRANDED SITE" means, the customized version of the Stockwalk Site,
privately labeled and displayed concurrently with Company's customized Exterior
Page Frame applicable to participating Institutions, that will be hosted and
operated by Stockwalk, as described herein. The Parties acknowledge and agree
that the Stockwalk site offered to participating Institutions will be
Stockwalk's generic "Grey Label" site, and that each participating Institution
requiring a customized site shall be required to enter into a "Level II"
Networking Affiliation Agreement containing Stockwalk's normal and customary
terms and conditions.
2.3 "COMMENCEMENT DATE" means the Launch Date of the Co-Branded Site which
shall be no later than 30 days after the date Company first makes available to
Stockwalk all Exterior Page Frames, links, advertisements and other promotional
placements described in Schedule 2.3 to this Agreement.
2.4 "Company MARKS" means the trade names, trademarks, service names and
similar proprietary marks listed on Schedule 2.4 attached hereto.
2.5 "LAUNCH DATE" means the first date on which the Stockwalk Services are
made publicly available to Users via a Co-Branded Site that is linked to the
corresponding Institution's Site.
2.6 "EXTERIOR PAGE FRAMES" means Company's standard exterior framing and a
navigational bar, as revised by Company from time to time. Each Exterior Page
Frame will be hosted by Company and shall reside in Company's servers for
display on the Co-Branded Site.
2.7 "SITE" means a commercial web site on the World Wide Web portion of
the Internet.
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2.8 "STOCKWALK BANNERS" means any banner, button, text or similar ads
Stockwalk provides to Company in connection with this Agreement.
2.9 "STOCKWALK MARKS" means the trade names, trademarks, service names and
similar proprietary marks listed on Schedule 2.6 attached hereto.
2.10 "STOCKWALK SERVICES" means electronic and online brokerage services,
securities transactions and all related products available at the Stockwalk Site
during the term of this Agreement.
2.11 "STOCKWALK SITE" means the Site located at [http://www.stockwalk.com]
(or any replacement or successor address).
SECTION 3. PARTIES' OBLIGATIONS
3.1 Company Development. Company will design and develop linking
capabilities to provide access to the Co-Branded Site from the participating
Institution's Site, in accordance with the general specifications and timetable
set forth on Schedule 3 as agreed upon by both Parties.
3.2 Pre-Launch Deliverables. On or before February 20, 2000, Company shall
make available to Stockwalk the Exterior Page Frames and the other materials
specified in Schedule 3 for the Co-Branded Site. Company shall develop the
Exterior Page Frames and other materials 30 days prior to the anticipated Launch
Date of the Co-Branded Site.
3.3. Company Marketing. Company will use reasonable efforts to promote and
market the availability of the Stockwalk Services to its Institution clients as
specified on Schedule 2.3. All promotional activity shall be subject to the
prior approval of both Parties, in advance and before first use, which approval
shall not be unreasonably withheld or delayed; provided that promotional
materials, that are substantially identical to those previously approved, need
not be submitted for re-approval.
3.4 Stockwalk Services Operation. Stockwalk shall provide Stockwalk
Services through the Co-Branded Site which it will host and operate in
accordance with Performance Standards set forth in Exhibit A.
3.5 Stockwalk Development.
3.5.1 Development. Stockwalk shall develop a Co-Branded Site to be
displayed within a customized Exterior Page Frame and take all other steps
required to co-brand the Stockwalk Services in accordance with Exhibit B.
Each Institution that elects to purchase the Stockwalk Services through
Company shall execute a "Grey Label" version of Stockwalk's
Networking/Affiliation Agreement in substantially the form attached hereto
as Exhibit C. Other than disclosures required by law and as may be agreed
to by the Parties, no Stockwalk branding will be permitted on the
Co-Branded Site.
3.5.2 Control and Rebranding. Stockwalk shall have sole control over
the Co-Branded Site look and feel and Stockwalk shall use its best efforts
to implement such changes to the Co-Branded Site as may be reasonably
requested by Company. Further, Stockwalk shall use its best efforts to
notify Company if Stockwalk proposes to change or add any functionality of
the Stockwalk Services as implemented on the Co-Branded Site; provided,
however, that nothing herein shall obligate Stockwalk to provide such
notice prior to effectuating such change.
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3.5.3 Service Operation. Stockwalk shall host and operate the
Co-Branded Site and shall maintain and implement facilities and equipment
and programming, including data communication facilities and Internet
connections, collectively making up the host data center and the
Co-Branded Site accessible to the Users. Stockwalk shall use reasonable
commercial efforts to ensure that the Co-Branded Site is operational on a
"continuous" basis in accordance with the Performance Standards provided
in Exhibit A.
3.5.4 Co-Branded Site Content. During the term hereof and provided
there is no breach by Company hereunder, Stockwalk shall provide the
Stockwalk Services to Users exclusively via the Co-Branded Site. Unless
otherwise directed by Company, the Co-Branded Site shall include
substantially all of the functionality and content available on the
Stockwalk Site, and the Stockwalk Services shall be updated to keep the
Co-Branded Site in parity with the Stockwalk Site in all material
respects.
3.5.5 Navigation. Stockwalk shall not, in conjunction with the
Stockwalk Service, use any interstitials, pop-up windows, other
intermediate steps or any other technology or content which acts as a
barrier to the transition of a User from a participating Institution's
Site to the Co-Branded Site, or vice versa, nor shall Stockwalk otherwise
frame the Co-Branded Site with any frames other than Company's Exterior
Page Frames or use any other technology which materially interferes with
or affects the page layout of such pages. The Co-Branded Site shall link
back to corresponding Institution's Site.
3.6 Developmental Costs. Unless otherwise specified, each Party shall be
responsible for all development, hosting and other costs associated with the
Site residing on their servers.
3.7 User Relations. Stockwalk shall be responsible for providing all
customer support regarding the Stockwalk Services or the Co-Branded Site, and
Company or Institution shall redirect to Stockwalk any and all associated
customer support inquiries. Stockwalk shall have sole control over the user
agreement that governs the Stockwalk Service. and Stockwalk shall have the sole
responsibility for dealing with breaches of such user agreement. All Users shall
be treated at least as favorable in all material respects (including without
limitation with respect to pricing, quality of service, and customer support
responsiveness) as Stockwalk treats users of the Stockwalk Site.
3.8 Co-Branded Statement. To the extent permissible by applicable
regulations, Stockwalk shall co-brand its monthly statements and other written
materials sent to Users with the names of Company and the applicable
participating Institution provided that the inclusion of such items shall not
imply that Company or the Institution is providing any of the Stockwalk
Services.
3.9 Conformity to Specifications: Changes. The Parties acknowledge that
these creative processes are interactive and nonlinear, and that neither the
final work products nor the processes of creation will necessarily conform in
all particulars to the specifications on Schedule 3. Notwithstanding the
foregoing, the Parties agree that the final work products must perform the
functions contemplated by this Agreement and by the Other Agreements in a
manner, which complies with all applicable rules and regulations and allows for
reasonable commercial exploration of the relationship among the Parties. Each
Party shall pay for its own expense of the joint development work, subject to
Section 5.1.
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SECTION 4. IMPLEMENTATION
4.1 Links. Pursuant to the terms of the Networking/Affiliation Agreements
by and between Stockwalk and each participating Institution interested in
offering Stockwalk Services to its Users. Institution and Stockwalk will
implement Stockwalk's normal and customary promotional program through which
Institution and Stockwalk will encourage Users to use the Stockwalk Services
offered on the Co-Branded Site, as accessed through a link from the
participating Institution's Site. It is the intent of the Parties that
Institution and Stockwalk will cooperate in the development of such promotional
program, with the goal of launching the program concurrently with the
Commencement Date.
4.2 Stockwalk Banner Links. Stockwalk shall deliver to Company any
Stockwalk Banners which are to be run in accordance with Section 4.1 above. Such
banners shall comply with Company's then-current technical standards. The terms
of any insertion order or similar document regarding the Stockwalk Banners are
expressly rejected, except to the extent that they specify the location, timing
or duration of the display of the Stockwalk Banners and such terms are accepted
by Company. Unless mutually agreed otherwise, Stockwalk Banners shall link to
the applicable Co-Branded Site of the Institution on whose Site the Stockwalk
Banners are placed. Company may request that Stockwalk Banners be co-branded
with Company Marks, in which case the Parties shall work together to develop a
mutually acceptable implementation. Company may approve or reject any Stockwalk
Banner in its sole discretion; provided however that all banners shall comply
with any applicable laws, rules or regulations.
4.3 Testing. Company will test the links with respect to the Co-Branded
Site, including through the Stockwalk Banner connection, required under the
Agreement at least one week prior to the Launch Date for the Co-Branded Site and
provide Stockwalk with the results of said testing as such testing occurs.
4.4 Prior Agreements. Company will not cause any link to the Co-Branded
Site to be added without the prior written consent of Stockwalk, which may be
withheld for any or no reason, or go live prior to the applicable date agreed to
by the Parties. Further traffic from promotional links and advertising
placements will be enabled in stages; provided, however, that such staging will
not delay the Commencement Date or any Launch Date.
4.5 Time of Essence. The Parties acknowledge that time is of the essence
in the design, development and commencement of the Co-Branded Site and the links
thereto. Accordingly, the Parties will devote commercially reasonable efforts to
launch the Co-Branded Site and the links thereto as soon as reasonably possible,
in accordance with a written development plan to be negotiated by the Parties in
good faith.
SECTION 5. COMPENSATION; ADVERTISING
5.1 Development Fee. A development fee of [**] will be paid by the
Company to Stockwalk twelve (12) months after the first Institution sold
under this Agreement is in live production. Stockwalk will credit towards
this fee a one-time credit of * for each active customer account opened
through this URL. An "active account" for purposes of this Agreement shall be
defined as an account in which the customer maintains an account balance on
the one year anniversary of this Agreement of at least * (in cash and/or
securities) and conducts an annualized minimum of * securities transactions
during the one year period.
* Confidential portions omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
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5.2 Transaction Fees. During the term of this Agreement, including any
renewal term, Stockwalk will pay Institution a fee based on usage of the
Stockwalk Services by Users ("Transaction Fee"). Such Transaction Fee shall be
equal to [**] for each completed securities transaction through the Co-Branded
Site. No Transaction Fee shall be due with respect to a transaction if the
transaction by the User generates no revenue to Stockwalk. Stockwalk will pay
the Transaction Fee on a monthly basis, in arrears, within fifteen (15) days
following the end of each calendar month occurring subsequent to the
Commencement Date. Each monthly payment shall equal the number of completed
transactions in the immediately preceding calendar month multiplied by the
appropriate dollar amount. Stockwalk will deliver, together with each payment, a
report in an electronic form that is easily decoded in an automated manner for
import into a statistics database and that describes in reasonable detail
Stockwalk's calculation of the payment amount. All other fees as between
Institution and Company shall be the subject of the agreement between
Institution and Company; provided, however, that Stockwalk shall assist in any
payment arrangements reasonably requested by Institution for the convenience of
the Parties.
5.4 Advertising.
5.4.1 Advertising Content. Company shall have sole control over all
advertising and promotion inventory on the Co-Branded Site. Stockwalk
shall not introduce any advertising spots or third party branding in
conjunction with the Co-Branded Site or the Stockwalk Services without
Company's prior written approval, which shall not be unreasonably withheld
or delayed.
5.4.2 Ad Fee Split. Stockwalk Company and the participating
Institutions will share any revenue from any approved advertising
displayed on the Co-Branded Site as mutually agreed by the Parties;
provided, however, that Stockwalk shall receive at least [**] of any such
revenue.
SECTION 6. TRAFFIC DATA AND REPORTING
On the tenth (10th) day of each month during the term hereof, Company will
provide Stockwalk with mutually agreed data concerning search and browsing
behavior, to the extent that such behavior reasonably could relate to the online
promotion or usage of the Stockwalk Services. Stockwalk will hold such data in
confidence and will use it only in accordance with reasonable guidelines to be
agreed upon by the Parties. Notwithstanding anything contained in this Section,
Company will not be required to deliver to Stockwalk any User data in violation
of Company's then-existing policies regarding the protection of user
information.
SECTION 7. REPRESENTATIONS AND WARRANTIES; RESTRICTIONS
7.1 General. Company and Stockwalk each represents and warrants that (a)
it is an entity duly organized, validly existing, and in good standing under the
laws of the state of its organization, and (b) that the execution and delivery
of this Agreement and the Other Agreements (to the extent they are a party to
such agreements), and the performance of the transactions contemplated by this
Agreement and the Other Agreements (to the extent they are a party to such
agreements), are within its powers, have been duly authorized by all necessary
corporate and/or shareholder action, do not require any consent or other action
by and in respect of or filing with any third party or governmental body or
agency and do not contravene, violate or conflict with or constitute default
under any provision of applicable law, regulation, or published interpretive
guidance or ruling. Company and Stockwalk further represent and warrant that
they shall conduct the business contemplated by this Agreement and the Other
Agreements (to the extent
* Confidential portions omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
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they are a party to such agreements) only in compliance with all applicable law,
rules, regulations, industry standards and published interpretive guidance and
rulings.
7.2 Special Acknowledgements. The Parties acknowledge the following:
a. Stockwalk shall be responsible for advertising and sales
materials relative to the Stockwalk Services that are
published by Company or Institution pursuant to this
Agreement.
b. Company and Institution, and their Affiliates and employees,
will not describe the Stockwalk Services other than to
distribute promotional materials pre-approved by Stockwalk.
c. All advertising or sales materials will clearly indicate that
the user of any of Stockwalk Services will be a brokerage
customer of Stockwalk and not of any of the Institution or
Company with respect to securities transactions.
d. Company and Institution, and their Affiliates and employees,
will not recommend or endorse specific securities.
e. Company and Institution, and their Affiliates and employees,
will not take part in the Stockwalk Services (other than for
their own accounts or other than by routing information and
keeping records for Users).
f All questions regarding a User brokerage account will be
directed to Stockwalk's customer support personnel and Company
and Institution, and their Affiliates and employees, will not
answer questions or engage in negotiations involving brokerage
accounts or related securities transactions.
g. All decisions regarding the selection of broker-dealer or
market will be made by Users or by Stockwalk. Neither Company
nor Institution will accept orders, select among
broker-dealers or route orders for Users to markets for
executions.
h. Company and Institution will not handle User funds or
securities related to securities orders transmitted to
Stockwalk or effect clearance or settlement of User trades.
i. Neither Company nor Institution will extend credit to User for
the purpose of purchasing securities through or carrying
securities with Stockwalk.
j. The fees paid by Stockwalk to Institution will not vary
depending upon the number of shares or the value of the
underlying securities.
SECTION 8. INDEMNIFICATION
8.1 Stockwalk Indemnification. Stockwalk will defend and indemnify Company
and its Affiliates (and their respective employees, directors and
representatives) against any claim or action brought by a third party, to the
extent relating to (a) the operation of the Stockwalk Services and the
Co-Branded Site, (b) the violation of third-party intellectual property rights
by materials provided by Stockwalk to Company for promotion and advertising
pursuant to this Agreement and for display on the Co-Branded Site and the
Stockwalk Banners, or (c) breach by Stockwalk of any of the terms of this
Agreement or the Networking/Affiliation Agreement. Subject to Company's
compliance with the procedures described in Section 8.3. Stockwalk will pay any
award against Company or its Affiliates (or their respective employees,
directors or representatives) and any costs and attorneys' fees reasonably
incurred by Company and its Affiliates resulting from any such claim or action.
8.2 Company Indemnification. Company will defend and indemnify Stockwalk
and its Affiliates (and their respective employees, directors and
representatives) against any claim or action brought by a third Party, to the
extent relating to (a) the operation or design of Company Sites and Company
Institutions' Sites, (b) breach by Company of any of the terms contained in this
Agreement or
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its Agreements with Institutions or (a) the violation of third-party
intellectual property rights by any materials provided by Company for display on
the Co-Branded Site or promotion of the Stockwalk Services. Subject to
compliance by Stockwalk with the procedures described in Section 8.3, Company
will pay any award against Stockwalk and its Affiliates (or their respective
employees, directors or representatives) and any costs and attorneys' fees
reasonably incurred by Stockwalk and its Affiliates resulting from any such
claim or action.
8.3 Indemnification Procedures. In connection with any claim or action
described in this Section, the Party seeking indemnification (a) will give the
indemnifying Party prompt written notice of the claim, (b) will cooperate with
the indemnifying Party (at the indemnifying Party's expense) in connection with
the defense and settlement of the claim, and (c) will permit the indemnifying
Party to control the defense and settlement of the claim, provided that the
indemnifying Party may not settle the claim without the indemnified Party's
prior written consent (which will not be unreasonably withheld). Further, the
indemnified Party (at its cost) may participate in the defense and settlement of
the claim.
SECTION 9. INTELLECTUAL PROPERTY RIGHTS
9.1 Stockwalk's Grant of License. Stockwalk hereby grants to Company,
during the term of this Agreement, non-exclusive, non-transferable licenses to
use it's Stockwalk Marks as reasonably necessary for Company to perform its
obligations under this Agreement; provided, however, that use of such Stockwalk
Marks or promoting Stockwalk Services shall be subject to the prior written
approval of Stockwalk, as provided in Section 3.3.
9.2 Company's Grant of License. Company hereby grants to Stockwalk, during
the term of this Agreement, a non-exclusive, non-transferable license to use the
Exterior Page Frames and the Company Marks as is reasonably necessary for
Stockwalk to perform its obligations under this Agreement and the
Networking/Affiliation Agreements; provided, however, that any promotional
materials containing Company's proprietary marks will be subject to Company's
prior written approval.
9.3 Reservation of Rights. Subject to the limited license granted to
Stockwalk under this Section, Company reserves all of its right, title and
interest in its intellectual property rights (e.g., patents, copyrights, trade
secrets, trademarks and other intellectual property rights). Subject to the
limited license granted to Company under this Section, Stockwalk reserves all of
its right title and interest in its intellectual property rights. No Party
grants to any other Party any right, title and interest in intellectual property
rights or any licenses except as specifically set forth in this Section.
9.4 No Disparagement. No Party will use another Party's proprietary marks
in a manner that disparages the other Party or its products or services, or
portrays the other Party or its products or services in a false, competitively
adverse or poor light. A Party will comply immediately with another Party's
requests as to the use of the other Party's proprietary marks and will avoid any
action that diminishes the value of such marks. Any Party's unauthorized use of
another Party's proprietary marks is strictly prohibited.
9.5 Standards. Stockwalk shall not knowingly provide Stockwalk Services or
operate the -Branded Site in a manner, and Company Shall not knowingly provide
to Stockwalk any Exterior Page Frames, that: (a) infringe any third party's
intellectual property right or right of publicity or privacy; (b) violate any
law or regulation: (c) are defamatory, obscene, harmful to minors or
pornographic in nature; or (d) are materially false, inaccurate or misleading.
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SECTION 10. TERM AND TERMINATION
10.1 Term. The term of this Agreement will begin on the date of this
Agreement and, unless terminated or renewed in accordance with this Section,
will end upon the earlier of: (i) one (1) year from the Commencement Date, or
(ii) termination of all of the Other Agreements. Unless sooner terminated, this
Agreement shall automatically renew for additional one (1) year terms upon each
expiration.
10.2 Termination. Either Party may terminate this Agreement: (a) if the
other Party materially breaches this Agreement (other than as provided in
Section 14.7 and Exhibit A) and does not cure the breach within thirty (30) days
following its receipt of written notice from the non-breaching Party, (b) if a
Party provides notice of nonrenewal ninety (90) days before the expiration of
the then-current term, (c) if a Party ceases to carry on the portion of its
business that relates to this Agreement, (d) immediately as provided in Section
14.7. The Parties agree that all Parties shall be addressed on all
correspondence and other notices relating to breach of this Agreement. A
non-breaching Party may, but is not required to, cure a breach, in its sole
discretion (if it is capable of effecting a cure), within thirty (30)the
requisite time period after receipt of notice, and in such event, notice of
termination shall be ineffective. Recovery by the curing Party from the
breaching Party shall be governed by the Dispute Resolution procedures set forth
in this Agreement.
10.3 Effects of Termination. Upon expiration or termination, all licenses
granted hereunder shall terminate unless such licenses are expressly stated as
surviving. Stockwalk shall promptly remove all Company Marks and Exterior Page
Frames from its servers, and Company shall promptly remove all Stockwalk Marks,
Stockwalk Banners from its servers. Any obligation to pay any owed but unpaid
amounts, shall survive any expiration or termination.
SECTION 11. CONFIDENTIAL INFORMATION
11.1 The parties acknowledge and agree that the terms of this Agreement
and all information provided to or in connection with either Party's performance
under this Agreement shall be considered confidential and proprietary
information ("Confidential Information") and shall not be disclosed to any third
party without the prior written consent of the Party providing the Confidential
Information (the "Disclosing Party"). Confidential Information shall include,
without limitation: (i) names, addresses, and demographic, behavioral, and
credit information relating to Users or potential Users; (ii) Stockwalk's
communication materials and issuance strategies or methods; (iii) each Party's
trade secrets, including but not limited to, financial business objectives,
assets and properties, processes, formulas, specifications, programs,
instructions, source code, technical know-how, methods and procedures for
operation, benchmark test results, information about employees, customers,
strategies, services, business or technical plans and proposals in any form; and
(iv) programming techniques and technical, development, cost and processing
information.
11.2 The Party receiving such Confidential Information (the "Receiving
Party") shall use Confidential Information only for the purpose of performing
the terms of this Agreement and shall not accumulate in any way or make use of
Confidential Information for any other purpose. The Receiving Party shall ensure
that only its employees, authorized agents, or subcontractors who need to know
Confidential Information to perform this Agreement will receive Confidential
Information and that such persons agree to be bound by the provisions of this
Paragraph and maintain the existence of this Agreement and the nature of their
obligations hereunder strictly confidential.
11.3 The obligations with respect to Confidential Information shall not
apply to Confidential Information that: (i) either Party or its personnel
already know at the time it is disclosed as shown by
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their written records; (ii) is publicly known without breach of this Agreement;
(iii) either Party received from a third party authorized to disclose it without
restriction; (iv) either Party, its agents or subcontractors, developed
independently without use of Confidential information; or (v) either Party is
required by law, regulation or valid court or governmental agency order or
request to disclose, in which case the Party receiving such an order or request,
to the extent practicable, must give notice to the other Party, allowing them to
seek a protective order.
11.4 Each Party agrees that any unauthorized use or disclosure of
Confidential Information may cause immediate and irreparable harm to the
Disclosing Party for which money damages may not constitute an adequate remedy.
In that event, each Party agrees that injunctive relief may be warranted in
addition to any other remedies the Disclosing Party may have. In addition, the
Receiving Party agrees promptly to advise the Disclosing Party in writing of any
unauthorized misappropriation, disclosure or use by any person of the
Confidential Information which may come to its attention and to take all steps
at its own expense reasonably requested by the Disclosing Party to limit, stop
or otherwise remedy such misappropriation, disclosure or use.
11.5 Upon either Party's demand, or upon the termination of this
Agreement, the Parties shall comply with each other's reasonable instructions
regarding the dispositions of Confidential Information, which may include return
of any and all Confidential Information (including any copies or reproductions
thereof). Such compliance shall be certified in writing, including a statement
that no copies of confidential information have been kept.
11.6 Except as necessary for its performance under this Agreement, a Party
shall not use the name of any other Party or its Affiliates in connection with
any representation, publication or advertisement, or make any public statement
relating to any other Party or its Affiliates without the prior full disclosure
of same to the named Party, and the prior written consent of the named Party.
11.7 Except as may be required by law, regulation or any governmental
authority, no Party nor any of its Affiliates shall issue a press release or
make public announcement or any disclosure to any third party related to the
transactions contemplated by this Agreement without the prior consent of each
other Party, which consent shall not be unreasonably withheld or delayed.
11.8 The obligations of Sections 11.1 through 11.5 shall survive the
termination of this Agreement for a period of two (2) years.
SECTION 12. DISPUTE RESOLUTION
12.1 In all discussions and activities relating to this Agreement, the
Parties will cooperate in good faith to accomplish the objectives specified in
this Agreement. If any dispute arises relating to either Party's rights or
obligations under this Agreement, and the Parties are unable to resolve the
dispute in the ordinary course of business, the Parties will use good-faith
efforts to resolve the matter by informal means, as set forth in Section 12.2
prior to commencing a formal dispute resolution proceeding or legal action in
accordance with this Section.
12.2 Any controversy or claim between or among the Parties, arising from
or in connection with this Agreement whether based on contract, tort, common
law, equity, statute, regulation, order or otherwise ("Dispute") shall be
resolved as follows:
(a) Upon written request of any Party, a duly appointed representative(s)
of each Party will meet for the purpose of attempting to resolve such Dispute.
Should they be unable to resolve the Dispute,
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a senior executive of each Party (the "Executives") will meet in an effort to
resolve the Dispute. Said meeting shall be in person or by telephone.
(b) The Executives shall meet as often as the Parties agree to discuss the
problem in an effort to resolve the Dispute without the necessity of any formal
proceeding.
(c) Formal proceedings for the resolution of a Dispute may not be
commenced until the earlier of:
(i) the Parties concluding in good faith that amicable resolution
through the procedures set forth in subsections (a) - (b) hereof does not
appear likely; or
(ii) the expiration of the fifteen (15) business day period
immediately following the initial request to negotiate the Dispute;
provided, however, that this Section 12.2 will not be construed to prevent a
Party from instituting formal proceedings earlier to avoid the expiration of any
applicable limitations period, to preserve a superior position with respect to
other creditors, or to seek temporary or preliminary injunctive relief.
SECTION 13. DISCLAIMERS, LIMITATIONS AND RESERVATIONS.
13.1 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE PARTIES HERETO DO
NOT MAKE, AND HEREBY DISCLAIM, ANY REPRESENTATIONS OR WARRANTIES REGARDING THE
SERVICES TO BE PROVIDED PURSUANT HERETO OR ANY PORTION THEREOF, INCLUDING
(WITHOUT LIMITATION) IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
PARTIES HERETO SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY REGARDING
(A) THE AMOUNT OF REVENUE THAT THE OTHER PARTY HERETO MAY RECEIVE DURING THE
TERM, AND (B) ANY ECONOMIC OR OTHER BENEFIT THAT THE OTHER PARTY HERETO MIGHT
OBTAIN THROUGH ITS PARTICIPATION IN THIS AGREEMENT.
13.2 NO PARTY WILL BE LIABLE TO ANY OTHER PARTY FOR CONSEQUENTIAL DAMAGES
(INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOST DATA) ARISING OUT OF THIS
AGREEMENT.
13.3 Stockwalk will be solely responsible for the operation of the
Stockwalk Services and subject to the specific terms of this Agreement, shall
retain sole right and control over the programming, content and conduct of
transactions occurring on the Co-Branded Site.
SECTION 14. MISCELLANEOUS
14.1 Relationship of Parties. The Parties are entering this Agreement as
independent contractors, and this Agreement will not be construed to create a
partnership, joint venture, franchise or employment relationship between them.
Neither Party will represent itself to be an employee or agent of the other or
enter into any agreement on the other's behalf of or in the other's name.
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14.2 Press Release. Following the execution of this Agreement, the
Parties will prepare and distribute a joint press release (or coordinated press
releases) announcing the transaction. The contents and timing of the release (or
releases) shall be as mutually agreed by the Parties. Neither Party will issue
any further press releases or make any other disclosures regarding this
Agreement or its terms without the other Party's prior written consent.
14.3 Compliance With Law. In its performance of this Agreement, each Party
will comply with all applicable laws, regulations, orders and other
requirements, now or hereafter in effect, of governmental authorities having
jurisdiction. Without limiting the generality of the foregoing, each Party will
pay, collect and remit such taxes as may be imposed upon it with respect to any
compensation, royalties or transactions under this Agreement. At its own
expense, Stockwalk shall comply with all applicable laws and governmental and
SRO regulations regarding providing and operating the Stockwalk Services.
Without limiting the foregoing, Stockwalk and Company shall use their best
efforts to (a) obtain all governmental and SRO approval, permits and licenses,
and make all governmental and SRO filings and registrations, necessary for the
marketing and performance of the Stockwalk Services in every United States
jurisdiction, and (b) promptly resolve any assertions that the Stockwalk or
Company's services are illegal or violating a protected third party interest.
14.4 Notices. Notices deliverable under this Agreement shall be given in
writing, addressed to the Parties and shall be deemed to have been given either
one (1) day after being given to an express overnight carrier with a reliable
system for tracking delivery; or when sent by a confirmed facsimile with another
copy sent by any other mains specified in this paragraph; or three (3) business
days after having been mailed postage prepaid by United States registered or
certified mail.
14.5 Attorneys Fees. If any litigation or arbitration is commenced to
enforce any provision of this Agreement or to seek a declaration of rights of
the Parties hereunder or as a result of any breach of any provisions of this
Agreement, the prevailing Party will be entitled to recover from the
non-prevailing Party all of its costs and expenses incurred in connection with
such litigation, including without limitation reasonable attorneys' fees.
14.6 Records: Audits. Each Party shall keep detailed records of all
activities reasonably relating to its performance under this Agreement
("Records"). Either Party (the "Auditing Party"), upon thirty (30) days' prior
written notice to the other Party (the "Audited Party"), may conduct an audit of
the Audited Party's Records for the purpose of verifying the accuracy and
completeness of any report or other information provided by the Audited Party
under this Agreement. Any such audit will be conducted (a) in a manner that will
not unreasonably interfere with the Audited Party's operations, and (b) by an
independent certified public accounting firm that is reasonably acceptable to
the Audited Party and that has agreed in writing to protect the confidentiality
of the Audited Party's Records and other information. A Party may conduct an
audit under this Section no more than once during any 12-month period. The costs
of any such audit will be borne by the Auditing Party; provided however, that if
any audit determines that the report or other information subject to the audit
is inaccurate or incomplete by greater than ten percent (10%) (as measured by an
appropriate measure reasonably determined by the auditor), the Audited Party
will promptly reimburse the Auditing Party for all reasonable expenses incurred
to conduct the audit.
14.7 Force Majeure. No Party will be liable for, or will be considered to
be in breach of or default under this Agreement on account of, any delay or
failure to perform as required by this Agreement as a result of any causes or
conditions that are beyond such Party's reasonable control and that such Party
is unable to overcome through the exercise of commercially reasonable diligence.
If any force majeure event occurs, the affected Party will give prompt written
notice to the other Party and will use commercially reasonable efforts to
minimize the impact of the event. However, if a force majeure event
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detrimentally affects a Party's performance of a material covenant set forth in
Section 3 and Exhibit A for ten (10) days or more, the other Patty can terminate
this Agreement, as provided in Section 10.2 above.
14.8 Assignment. This Agreement may not be assigned, in whole or in part,
by either Party or by operation of law, (including an assignment to (a) any
corporation resulting from any merger, consolidation or other reorganization
involving the assigning Part. (b) any of its Affiliates, or (c) any individual
or entity to which the assigning Party may transfer substantially all of its
assets; provided that the assignee agrees in writing to be bound by all the
terms and conditions of this Agreement) unless the other Party consents to the
assignment, which consent shall not be unreasonably withheld or delayed. Subject
to the foregoing, this Agreement will be binding on and enforceable by the
Parties and their respective successors and permitted assigns. Notwithstanding
the foregoing, either Party hereto may assign this Agreement to (a), (b) or (c)
provided.
14.9 No Waiver. The failure of either Party to enforce any provision of
this Agreement will not constitute a waiver of the Party's rights to
subsequently enforce the provision. The remedies specified in this Agreement are
in addition to any other remedies that may be available at law or in equity.
14.10 Severability. If any provision of this Agreement is declared null,
void or otherwise unenforceable, such provision will be deemed to have been
severed from this Agreement to the minimal extent if necessary, which Agreement
will otherwise be and remain in full force and effect to its remaining
provisions.
14.11 Integration. This Agreement (a) represents the entire agreement
between the Parties with respect to the subject matter hereof and supersedes any
previous or contemporaneous oral or written agreements regarding such subject
matter and (b) may be amended or modified only by a written instrument signed by
a duly authorized agent of each Party.
14.12 Choice of Law. This Agreement will be interpreted, construed and
enforced in all respects in accordance with the laws of the State of Minnesota
without reference to its choice of law rules. If any provision of this Agreement
is held to be invalid, such invalidity will not effect the remaining provisions.
The Parties have executed this Agreement on the date first written above.
Open Solutions, Inc.
By /s/ Michael D. Nicastro
----------------------------
Its Vice President of Marketing
---------------------------
300 Winding Brook Drive
-------------------------------
Glastonbury, CT 06033
-------------------------------
Facsimile: (860) 652-3156
STOCKWALK.COM, INC.
By /s/ Robert J. Vosburgh
----------------------------
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Its Chief Operating Officer
---------------------------
5500 Wayzata Blvd.
Suite 620
Minneapolis, MN 55416
Facsimile: (877)482-0540
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Exhibit 10.11
STRATEGIC ALLIANCE AGREEMENT
THIS STRATEGIC ALLIANCE AGREEMENT is made as of April 12, 1999, by and
between Open Solutions Inc. ("OSI"), a Delaware corporation with its principal
place of business at 300 Winding Brook Drive, Glastonbury, Connecticut 06033,
and HNC SOFTWARE INC. ("HNC"), a Delaware corporation with its principal place
of business at 5930 Cornerstone Court West, San Diego, California 92121-3728.
RECITALS
A. OSI is a software development company specializing in application
software for transaction processing in financial institutions. HNC is a software
development company specializing in the application of neural network technology
and other techniques of computational intelligence to advanced decision software
solutions.
B. The Parties desire to establish a worldwide strategic alliance for the
cooperative development, marketing and exploitation of products and services
uti1izing the technological capabilities of OSI and HNC.
NOW, THEREFORE, in consideration of the premises and intended to be
legally bound hereby, the Parties agree as follows:
1. DEFINITIONS. Capitalized terms used in this Agreement will have the following
meanings:
"Affiliate" means, with respect to OSI or HNC, any other Person which, whether
directly or indirectly, is controlled by or is under common control with OSI or
HNC, as the case may be.
"Agreement" means this Strategic Alliance Agreement.
"Control" means the ownership, directly or indirectly, of more than fifty
percent (50%) of the voting shares of an entity, or otherwise the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of an entity.
"Disclosing Party" means either Party, when disclosing information to the other
Party.
"Effective Date" means April 12, 1999.
"Joint Project" means any Project that is jointly conceived by the Parties, as
evidenced by a written agreement signed by both of the parties.
"Parties" means OSI and HNC.
1
Confidential and Proprietary Information
<PAGE>
"Party" means either of OSI or HNC.
"Person" means an individual, partnership, joint venture, association,
corporation, limited liability company, trust or any other legal entity.
"Project" means each joint development, joint marketing, joint licensing or
other joint undertaking of the Parties (including Joint Projects) with respect
to a discrete product or service, or group of related products or services,
during the term of this Agreement, evidenced by a writing signed by both Parties
and specifically providing that it is to be covered by this Agreement.
"Project Agreement" means a written agreement or a project addendum to this
Agreement, executed by an authorized representative of each Party, and which
specifies the relative obligations of the Parties as to the planning,
development, marketing and implementation tasks required to commercially exploit
a Project, as well as the respective rights of each Party in and to the
underlying intellectual property and resulting proceeds.
"HNC Software" means the HNC Software identified in any Project Addendum
attached hereto, and includes all updates, documentation, enhancements and new
versions of the HNC Software released during the term of the Project Addendum.
"OSI Software" means the OSI Software identified in any Project Addendum
attached hereto, and includes all updates, documentation, enhancements and new
versions of the OSI Software released during the term of the Project Addendum.
"Receiving Party" means either Party, when receiving information from the other
Party.
2. SCOPE AND PURPOSE OF AGREEMENT. The purpose of this Agreement is to establish
a non-exclusive, worldwide strategic alliance in which the Parties will
cooperate in the development, marketing and exploitation of products utilizing
HNC's software and technological expertise and OSI's software and technological
expertise. Because the Parties acknowledge that it would be impractical to
specify in advance the precise terms and conditions applicable to any or all of
the particular products or services to be developed and marketed over the course
of this alliance, the Parties have instead established the following general
terms, which will serve as the legal and procedural foundation for discussing
and reaching agreement on the projects to be undertaken by them. Accordingly,
during the term of this Agreement, each Project will be subject to the terms and
conditions of this Agreement, except to the extent that a written agreement
regarding that Project, signed by an authorized representative of each Party,
specifically identifies and expressly supersedes any given term of this
Agreement.
3. CONFIDENTIALITY; PROPRIETARY RIGHTS.
3.1 All information disclosed by a Disclosing Party to a Receiving Party
during the term of this Agreement will be deemed to be confidential unless
specifically designated as nonconfidential at the time of disclosure.
Notwithstanding the foregoing, information will not be
2
Confidential and Proprietary Information
<PAGE>
deemed confidential if it (i) was known to the Receiving Party, and such
information was acquired through proper methods, prior to its receipt from the
Disclosing Party, as evidenced by written records of the Receiving Party; (ii)
is now or (through no act or failure on the part of the Receiving Party) later
becomes generally known in the information services industry through no breach
of this Agreement by the Receiving Party; (iii) is supplied to the Receiving
Party by a third party that the Receiving Party in good faith believes is free
to make that disclosure without restriction on disclosure; (iv) is disclosed by
the Disclosing Party to a third party generally, without restriction on
disclosure; or (v) is independently developed by the Receiving Party without use
of any confidential information provided by the Disclosing Party.
3.2 Except as provided in this subsection 3.2, the Receiving Party agrees
that it will (i) treat all confidential information received from the Disclosing
Party with at least the same degree of care which it applies to its own
proprietary information, (ii) not divulge any confidential information, directly
or indirectly, to any other Person, for any purpose whatsoever, and (iii) not
make use of or copy such confidential information, except for the purposes
permitted under this Agreement or an applicable Project Agreement. Such
confidential information may be disclosed only to those employees, consultants,
and permitted subcontractors of the Receiving Party who require access to such
information for the purpose for which it was disclosed and who have
nondisclosure obligations to the Receiving Party. In each case of permitted
disclosure, each employee, consultant, or permitted subcontractor will be given
only that limited portion of the confidential information that is necessary for
the fulfillment of that Person's responsibilities consistent with this Agreement
or the applicable Project Agreement. The Receiving Parry shall promptly report
to the Disclosing Party any actual or suspect violation of this subsection and
shall take further steps as may reasonably be requested by the Disclosing Party
to prevent or remedy any such violation.
3.3 Each Party agrees that the injury from any disclosure or unauthorized
use of the other's confidential information will be of such a character that it
cannot be adequately compensated by monetary damages. Accordingly, if a
Receiving Party breaches this Agreement, the Disclosing Party may, in addition
to pursuing its other remedies under the law, seek to obtain from any court
having jurisdiction over the subject matter and the Parties an injunction
restraining any violation, without (i) having to prove the inadequacy of
monetary damages or (ii) posting bond or other security.
3.4 If the Receiving Parry becomes legally compelled (by interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process) to disclose any confidential information, the Receiving Party
will provide the Disclosing Party with prompt notice of that request(s) so that
it may seek an appropriate protective order or other appropriate remedy and/or
waive the Receiving Party's compliance with the provisions of this Agreement. If
the Disclosing Party waives compliance with the applicable provisions of this
Agreement or fails to obtain a protective order or other remedy, the Receiving
Party agrees to furnish only that portion of the confidential information that
it is legally required to furnish in the reasonable opinion of its counsel.
3
<PAGE>
3.5 As soon as any item of confidential information ceases to be necessary
or useful to the Receiving Parry for the purpose for which it was disclosed, the
Disclosing Party may, subject to any rights that the Receiving Party may have
acquired in or to that information pursuant to a Project Agreement, request its
return or destruction, and the Receiving Party will promptly return to the
Disclosing Party or destroy all documents or other media consisting of that
confidential information, without retaining any copies, and will confirm in
writing that it has done so.
3.6 Notwithstanding any provision to the contrary contained in this
Agreement, it is understood and agreed by the parties that:
any HNC products and technology existing as of the Effective Date or as of
the date of the applicable Project Agreement Effective Date and used in
connection with HNC's provision of services and performance hereunder
and/or incorporated into any items developed with respect to any Project
undertaken hereunder (the "HNC Technology") is, and will remain, the sole
and exclusive property of HNC, and, except as otherwise specifically
provided in this Agreement and/or any Project Agreement, no license,
right, title, interest in and/or to such HNC Technology is granted to OSI
by virtue of this Agreement and/or any Project Agreement and/or HNC's
performance hereunder. As such, HNC will continue to have the unfettered
right to utilize the HNC Technology (and any portion or portions thereof)
in any manner as determined by HNC in its sole and absolute discretion.
any OSI products and technology existing as of the Effective Date or as of
the date of the applicable Project Agreement Effective Date and used in
connection with OSI's provision of services and performance hereunder
and/or incorporated into any items developed with respect to any Project
undertaken hereunder (the "OSI Technology") is, and will remain, the sole
and exclusive property of OSI, and, except as otherwise specifically
provided in this Agreement and/or any Project Agreement, no license,
right, title, interest in and/or to such OSI Technology is granted to HNC
by virtue of this Agreement and/or any Project Agreement and/or OSI's
performance hereunder. As such, OSI will continue to have the unfettered
right to utilize the OSI Technology (and any portion or portions thereof)
in any manner as determined by OSI in its sole and absolute discretion.
Unless otherwise specifically provided in a Project Agreement attached to this
Agreement:
HNC will retain all right, title and interest to any modifications made to
the HNC Technology, derivative works derived from the HNC Technology,
and/or incorporating the HNC Technology pursuant to this Agreement and/or
any Project Agreement (including, without limitation, any source code for
said modifications and the right to own all patents and copyrights
relating thereto) including, but not limited to, modifications to enable
the HNC Technology to function on a different operating system.
OSI will retain all right, title and interest to any modifications made to
the OSI Technology, derivative works derived from the OSI Technology,
and/or incorporating the OSI Technology pursuant to this Agreement and/or
any Project Agreement (including,
4
<PAGE>
without limitation, any source code for said modifications and the right
to own all patents and copyrights relating thereto) including, but not
limited to, modifications to enable the OSI Technology to function on a
different operating system.
4. NONSOLICITATION. Neither Party will, during the term of this Agreement and
for six (6) months after its termination or expiration, without the prior
written consent of the other Party, for its own account or jointly with another,
directly or indirectly, for or on behalf of any Person, as principal, agent or
otherwise, solicit or induce, or in any manner attempt to solicit or induce, any
Person employed or engaged by the other Party (including, without limitation, as
an employee or independent contractor or agent known to be exclusively engaged
by the other party), to leave that Person's employment or engagement.
Notwithstanding the foregoing, this Section 4 shall not preclude either Party
from hiring any Person employed by the other Party where such Person
independently responds to an employment opportunity broadcast by the Party to
the general public (e.g., via newspaper, magazine, broadcast, Internet, etc.)
and has not otherwise been in direct contact with the Party as a key person
during the course of performance of this Agreement.
5. PROJECT AGREEMENTS.
5.1 Joint Projects.
(A) Each time the Parties conceive of a Joint Project, they will
work in good faith to negotiate, prepare and execute a Project Agreement as soon
as reasonably practicable.
(B) If the Parties are unable to agree upon the terms of a Project
Agreement governing a Joint Project, each Party may proceed to develop and
market the underlying products and services independently, provided no
proprietary and/or Confidential Information of the other party is used with
respect to such independent undertaking.
5.2 Preservation of Intellectual Property Rights. Nothing in subsection
5.lB permitting the independent development and marketing of information, goods
or services that would otherwise be subject to this Agreement is intended to
permit either Party to violate the provisions of this Agreement, including
without limitation subsections 3.1 and 3.2.
5.3 Standard Clauses for Project Agreements. The confidentiality
provisions of subsections 3.1 through 3.6 and the standard clauses in Exhibit A
attached hereto will be included in each Project Agreement, with only those
changes that are necessary to reflect the form of the underlying transaction
while preserving the intent of such terms. Every Project Agreement that involves
the licensing of software by one Party to the other will include, as an
ancillary agreement, a source code escrow agreement, the terms and conditions of
which will be negotiated in good faith by the Parties on a case-by-case basis.
5
<PAGE>
6. GRANT OF MARKETING LICENSE
6.1 OSI grants to HNC a non-exclusive, non-transferable, worldwide,
paid-up, unlimited, royalty free, right and license without the right to
sub-license, to use, reproduce and distribute (internally) copies of the OSI
Software for use in internal and customer non-billable external training,
proof-of-concept activities, presentations, prototyping, benchmarking, OSI
Software evaluations, demonstrations and other marketing and services
activities.
6.2 HNC grants to OSI a non-exclusive, non-transferable, worldwide,
paid-up, unlimited, royalty free, right and license, without the right to
sub-license, to use, reproduce and distribute (internally) copies of the HNC
Software for use in internal and customer non-billable external training,
proof-of-concept activities, presentations, prototyping, benchmarking, HNC
Software evaluations, demonstrations and other marketing and services
activities.
6.3 The Receiving Party shall not alter or remove any patent, copyright,
trademark and/or other notices contained on or in copies of the software
received under this Agreement and/or any Project Agreement. The existence of any
such copyright notice shall not be construed as an admission or deemed to create
a presumption, that publishing of such material has occurred.
7. END-USER LICENSES/RESPONSIBILITY FOR PRODUCTS
7.1 Except as otherwise agreed, HNC or its agents will be responsible for
providing and executing end-user license agreements for the HNC Software with
the end users; and OSI or its agents will be responsible for providing and
executing end-user license agreement for the OSI Software with the end-users.
7.2 Except as otherwise set forth in a Project Agreement, HNC is responsible for
the promotion, sale, installation and maintenance of the HNC Software, and OSI
is responsible for the promotion, sale, installation and maintenance of the OSI
Software.
7.3 If a third party complains or brings a complaint against HNC in relation to
the OSI Software, or against OSI in relation to the HNC Software, OSI and HNC,
respectively, will (i) resolve the complaint; and (ii) defend the claim at its
expense and pay any damages awarded, provided it is given prompt notice and full
control of the defense.
8. IP INDEMNIFICATION
8.1 HNC will defend and indemnify OSI against any third-party claim alleging
that the HNC Software infringes any patent, or copyright, trade secret or other
proprietary right, provided that HNC is given prompt notice of the claim and
full control of the defense. HNC will not be
6
<PAGE>
obligated to defend or indemnify OSI if such claim is based on a modification of
the HNC Software by OSI, or a combination of the HNC Software with other
products not supplied by HNC nor authorized by HNC to be combined with its
software, if the HNC Software would not have infringed absent such modification
or combination.
8.2 OSI will defend and indemnify HNC against any third-party claim alleging
that the OSI Software infringes any patent, or copyright, trade secret or other
proprietary right, provided that OSI is given prompt notice of the claim and
full control of the defense. OSI will not be obligated to defend or indemnify
HNC if such claim is based on a modification of the OSI Software by HNC, or a
combination of the OSI Software with other products not supplied by OSI nor
authorized by OSI to be combined with its software, if the OSI Software would
not have infringed absent such modification or combination.
9. MEDIA RELEASES
Except for any announcement intended solely for internal distribution or any
disclosure required by legal, accounting, or regulatory requirements beyond the
reasonable control of the parties, all media releases, public announcements, or
public disclosure for general distribution (including, but not limited to,
promotional or marketing material) by either party, or by their employees or
agents, relating to this Agreement and/or any Project Agreement or its subject
matter, other than general statements that a contractual relationship exists
between the parties, will be coordinated with and approved in writing by the
other party prior to its release.
10. TERM AND TERMINATION.
10.1 Termination Without Cause. Unless earlier terminated by either Party
pursuant to Section 10.2 below, this Agreement will be in effect for an initial
term of one (1) year from the Effective Date, at which time this Agreement will
automatically renew for one or more subsequent renewal terms of one (1) year
each on each anniversary of the Effective Date unless either Party sends thirty
(30) days written notice to the other Party of its intent not to renew this
Agreement prior to the end of (i) the initial term or (ii) any subsequent
renewal term.
10.2 Termination for Cause. Either Party may terminate this Agreement upon
the occurrence of any of the following events:
(A) Breach by the other Party of any of the material terms,
obligations, covenants, representations or warranties under this Agreement
(including, but not limited to, those contained in Section 3 of this Agreement)
and the failure of the breaching Party to cure that breach within thirty (30)
days from receipt of written notice from the non-breaching Party identifying the
breach; provided that if the breach is not reasonably capable of cure within a
thirty (30) day period, the breaching party may avoid termination under this
subsection 10.2 by promptly commencing efforts to cure the breach and diligently
prosecuting the cure to completion as soon as practicable, but not later than
one hundred and twenty (120) days from the receipt of notice from the
non-breaching Party; or
7
<PAGE>
(B) The other Party is declared insolvent or bankrupt, or makes an
assignment of substantially all of its assets for the benefit of creditors, or a
receiver is appointed or any proceeding is demanded by, for or against the other
Party under any provision of the federal Bankruptcy Act or any amendment to that
Act (provided, however, that termination will not be permitted if such a
proceeding is brought against a Party and is terminated by that Party within
thirty (30) days); or
(C) The other Party attempts to assign this Agreement within the
meaning of subsection 12.1 without obtaining the prior written consent of the
terminating Party.
10.3 Continuing Validity of Project Agreements. Notwithstanding anything
in this Agreement that may be construed to the contrary, the termination or
expiration of this Agreement will not rescind or otherwise terminate any Project
Agreement then in effect, unless a Project Agreement specifically provides that
it will terminate upon termination or expiration of this Agreement.
10.4 Survival. The obligations of subsections 3.1 through 3.6, and 7.3,
and Section 4, 5, 8 and 11 will continue in effect after termination of this
Agreement.
10.5 Return of Licensed Materials. Upon any termination of the license
granted under this Agreement and/or any Project Agreement, each Party shall
return to the other Party (or at the option of the other Party, destroy and
certify in writing that it has destroyed) the original and all copies of the OSI
Software or HNC Software, as the case may be, including partial copies, if any.
11. LIMITATION OF LIABILITY.
NEITHER HNC NOR OSI SHALL BE LIABLE TO THE OTHER FOR INDIRECT, CONSEQUENTIAL,
SPECIAL OR ECONOMIC DAMAGES OF ANY TYPE, INCLUDING LOST PROFITS. NEITHER PARTY
SHALL BE LIABLE TO THE OTHER FOR PUNITIVE DAMAGES. THE REMEDIES SET FORTH IN
THIS AGREEMENT ARE EXCLUSIVE.
12. PROVISIONS OF GENERAL APPLICABILITY.
12.1 Assignment. Neither Party may assign or subcontract its rights or
obligations under this Agreement without the prior written consent of the other
Party. Such consent will not be unreasonably withheld.
12.2 Non-Waiver. Neither Party will, by the lapse of time, and without
giving written notice, be deemed to have waived any of its rights under this
Agreement. No waiver of a breach of this Agreement will constitute a waiver of
any prior or subsequent breach of this Agreement or of any similar or related
provision in any Project Agreement.
12.3 Entire Agreement: Amendment. This Agreement and the exhibits attached
hereto constitute the entire understanding of the Parties with respect to the
overall strategic alliance and
8
<PAGE>
the individual cooperative ventures to be carried out by the Parties and
supersedes all prior communications regarding its subject matter, although the
Parties understand and agree that subsequent Project Agreements will provide
further terms and conditions applicable to particular Projects. This Agreement
will not be more strongly construed against either Party, regardless of who is
more responsible for its preparation. This Agreement may not be amended except
by a written agreement that acknowledges modification of this Agreement and
which is signed by authorized representatives of OSI and HNC. No Project
Agreement will be construed as an amendment of this Agreement unless the
Parties' intent to amend this Agreement is clearly stated in such Project
Agreement.
12.4 Notices. Notices given under this Agreement must be in writing and
must be (i) served personally, or (ii) delivered by first class U.S. mail,
certified or registered, postage prepaid and addressed to the addressees set
forth below, or (iii) delivered by overnight courier service, addressed to the
addressees as set forth below. Notices will be deemed received at the earlier of
actual receipt in the case of personal service, overnight courier, or U.S. Mail
delivery. The Parties may change their addresses by giving notice of such change
to the other Party as provided in this subsection 12.4.
If to OSI:
Mr. Michael D. Nicastro
Vice President
Open Solutions Inc.
860-652-3155
860-652-7482 (FAX)
If to HNC: Mr. Raymond V. Thomas, Vice President, Finance and
Administration; Chief Financial Officer
HNC Software Inc.
5930 Cornerstone Court West
San Diego, California 92121-3728
Telephone: 619-546-8877
Facsimile: (619) 452-6524
12.5 Severability. If any part of this Agreement and/or any Project
Agreement are found to be illegal or unenforceable, then that part will be
curtailed only to the extent necessary to make it, and the remainder of the
Agreement and/or any Project Agreement, legal and enforceable.
12.6 Applicable Law. This Agreement and or any Project Agreement will be
governed solely by the internal laws of the State of Connecticut, without regard
to principles of conflicts of law.
9
<PAGE>
12.7 Independent Contracting Parties. Nothing in this Agreement creates a
joint venture, partnership, principal-agent or mutual agency relationship
between the Parties. No Party has any right or power under this Agreement to
create any obligation, expressed or implied, on behalf of the other Party. No
employee of a Party will be deemed to be an employee of the other Party by
virtue of this Agreement.
12.8 Headings. The titles or captions used in this Agreement are for
convenience only and will not be used to construe or interpret any provision
hereof.
12.9 Authority. Each person signing below represents and warrants that he
or she has the necessary authority to bind the principal set forth below. OSI
and HNC represent and warrant that they have the authority to bind each of their
subsidiaries to this Agreement to the same extent as if such subsidiaries had
executed this Agreement.
12.10 Counterparts. This Agreement may be signed in any number of
counterparts, each of which will be an original, with the same effect as if the
signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the Effective Date.
OPEN SOLUTIONS INC., HNC SOFTWARE INC.,
a Delaware corporation a Delaware corporation
By: /s/ Douglas K. Anderson By:
------------------------- ----------------------------
Douglas K. Anderson Michael Thiemann
Chairman & CEO President, HNC Financial Solutions
10
<PAGE>
behalf of the other Party. No employee of a Party will be deemed to be an
employee of the other Party by virtue of this Agreement.
12.8 Headings. The titles or captions used in this Agreement are for
convenience only and will not be used to construe or interpret any provision
hereof.
12.9 Authority. Each person signing below represents and warrants that he
or she has the necessary authority to bind the principal set forth below. OSI
and HNC represent and warrant that they have the authority to bind each of their
subsidiaries to this Agreement to the same extent as if such subsidiaries had
executed this Agreement.
12.10 Counterparts. This Agreement may be signed in any number of
counterparts, each of which will be an original, with the same effect as if the
signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the Effective Date.
OPEN SOLUTIONS INC., HNC SOFTWARE INC.,
a Delaware corporation a Delaware corporation
By: By: /s/ Michael Thiemann
------------------------- ----------------------------
Douglas K. Anderson Michael Thiemann
Chairman & CEO President, HNC Financial Solutions
10
<PAGE>
Exhibit 10.12
OFFER/EMPLOYMENT AGREEMENT
February 16, 2000
[LOGO]
Mr. John S. Wieczorek
25 Lookout Landing
Bolton, CT 06043
Dear John:
I am pleased to extend this offer to join OSI as Vice President--Chief
Financial Officer at a salary of $6,250.00 per semimonthly pay period
(equivalent to $150,000 on an annualized basis). You will be paid on the 15th
and 30th of each month. The effective date of your employment will be
Wednesday, February 16, 2000.
You will be granted 100,000 shares at $4.00 strike price. These options will
vest over a four-year period and are subject to the standard terms of The
Company's 1994 Stock Option Plan; and the unvested balance is 100%
accelerated on a change of control. Additional terms of this offer agreement
are as follows:
- Upon successful IPO, you will be granted additional options for
25,000 shares with a strike price at the IPO price vesting over a
four-year period and subject to the standard terms of The Company's
1994 Stock Option Plan.
- Ability to purchase up to $100,000 of preferred Series F stock in
anticipated financing round concluding in mid to late March, 2000.
- DISCRETIONARY BONUS: Target 50% of base. 60-70% based on Company
performance, assuming the company meets a minimum level of
performance as set forth in the 2000 strategic plan document. 30-40%
based on individual performance as determined by OSI Chief Financial
Officer.
- SEVERANCE: Should OSI terminate you for any reasons other than
cause within the first six months of commencement, you will be
entitled to six months base salary as severance. Should you be
terminated for reasons other than cause after six months, you will
be entitled to thirty days base salary as severance. Should you be
terminated for cause, you will be entitled to no severance. For
these purposes only, "cause" will mean your willful failure to
follow directives of the CEO or the Board of Directors; conduct
rising to the level of illegality or fraud; or gross misconduct in
the performance of your duties, including any violation of the
Proprietary Information and Inventions, Non-Solicitation, and
Non-Competition Agreement.
- BENEFITS: BENEFITS including health insurance, should you require
it, will commence beginning the first day of employment, at a
pre-tax cost based on the following schedule:
<TABLE>
<CAPTION>
PARTICIPATION CONTRIBUTION
------------- ------------
<S> <C>
Employee ................................. $ 75
Employee & Spouse ........................ $160
Employee & Children ...................... $165
Employee & Family ........................ $200
</TABLE>
[letterhead]
Office Letter--John S. Wieczorek
<PAGE>
OFFER/EMPLOYMENT AGREEMENT
The eligibility for enrollment in the OSI 401(K) plan is the next calendar
quarter after thirty days of employment. Information about the company's
employee insurance benefits programs and our other company benefits along
with guidelines concerning employment are contained in OSI's employee
handbook, a copy of which will be issued to you during our employee's
orientation program.
You will be required to sign OSI's Proprietary Information and Inventions,
Non-Solicitation and Non-Competition Agreement as a condition and prior to
your employment. We have attached an original of this agreement to this offer
letter and request that you sign it and return it to us prior to commencing
employment.
You also will be required to successfully complete the company's I-9 U.S.
employment verification process. You will be required to pass a drug
screening test--we will arrange this screening with an affiliate of Foley Lab
Services in your geographical area.
OSI is an employment-at-will employer. Therefore, this letter does not
constitute any contract or obligation on the part of the company and does not
guarantee your employment for any specific duration. You and the company
remain free to chose to end your employment relationship at any time, for
any reason, with or without notice or cause. The company does not recognize
any contract of employment, unless it is reduced to writing and signed by you
and the President and/or CEO of the company.
Kindly indicate your acceptance of this offer by signing in the space
provided below and returning (by mail) one fully executed copy.
Thank you for your interest in employment with Open Solutions Inc. We are
looking forward to having you contribute to our future success. Should you
have any questions prior to your start date, please do not hesitate to
contact me.
Sincerely, Accepted:
/s/ Louis L. Hernandez, Jr. /s/ John S. Wieczorek 2/16/00
- ---------------------------- ---------------------------
Louis L. Hernandez, Jr. Signature/Date
Chief Executive Officer
[letterhead]
Office Letter--John S. Wieczorek 2
<PAGE>
Exhibit 10.15
GROSS LEASE
Landlord
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
and
Tenant
OPEN SOLUTIONS, INC.
Dated:
February 29, 1996
Premises:
300 WINDING BROOK DRIVE
GLASTONBURY, CONNECTICUT
<PAGE>
Table of Contents
Article Page
------- ----
1. PREMISES ......................................................... 1
2. DEFINITIONS ...................................................... 1
3. TERM ............................................................. 2
4. USE OF PREMISES .................................................. 2
5 RENT ............................................................. 3
6. CONSTRUCTION ..................................................... 3
7. ADDITIONAL RENT .................................................. 4
8. INCREASE IN REAL ESTATE TAXES .................................... 5
9. ALTERATIONS, IMPROVEMENTS, ETC ................................... 6
10. REPAIRS .......................................................... 6
11. PARKING .......................................................... 6
12. UTILITIES AND SERVICES ........................................... 6
(a) HVAC ....................................................... 6
(b) Water ...................................................... 6
(c) Electricity ................................................ 6
(d) Cleaning ................................................... 7
(e) Security ................................................... 7
(f) Interruption of Services ................................... 7
13. INSURANCE ........................................................ 8
14. SUBORDINATION .................................................... 8
15. DESTRUCTION, FIRE OR OTHER CAUSES ................................ 9
16. EMINENT DOMAIN ................................................... 10
17. SUBLETTING ....................................................... 10
18. FEES AND EXPENSES ................................................ 11
19. NO REPRESENTATIONS BY LANDLORD, ETC .............................. 11
20. QUIET ENJOYMENT .................................................. 12
21. DEFAULT .......................................................... 12
22. REMEDIES OF LANDLORD ............................................. 13
23. RIGHT TO EXHIBIT PREMISES AND ACCESS TO PREMISES ................. 14
i
<PAGE>
Article Page
------- ----
24. RULES AND REGULATIONS ............................................ 14
25. BROKERAGE ........................................................ 14
26. FORCE MAJEURE .................................................... 14
27. SECURITY DEPOSIT ................................................. 15
28. LEASE STATUS AND NOTICE .......................................... 15
29. ASSIGNS .......................................................... 16
30. OPTION TO EXTEND ................................................. 16
31. EXPANSION OPTION ................................................. 17
32. SIGNAGE .......................................................... 18
33. SEVERABILITY ..................................................... 18
34. SURRENDER OF PREMISES ............................................ 18
35. GOVERNING LAW .................................................... 18
36. LITIGATION EXPENSES .............................................. 18
Exhibits
A -- Description of Demised Premises (Floor Plan)
B -- Property Description
C -- Work Letter/Tenant Improvement Allowance
D -- Building Rules and Regulations
ii
<PAGE>
Lease dated the 29 day of February, 1996, by and between Principal Mutual
Life Insurance Company, an Iowa Corporation, with an office at 711 High Street,
Des Moines, Iowa, 50392 ("Landlord") and Open Solutions, Inc., with an office at
300 Winding Brook Drive, Glastonbury, Connecticut ("Tenant").
WITNESSETH:
1. PREMISES. Landlord hereby leases to Tenant, for the terms and upon the
rentals hereinafter specified, the following premises: approximately 14,275
rentable square feet (the "Premises") on the 1st floor in the building known as
300 Winding Brook Drive, Glastonbury, Connecticut (the "City"). The Premises are
described on Exhibit A attached hereto and made a part hereof. Said building and
the land shown on Exhibit B hereto are herein collectively referred to as the
"Building".
2. DEFINITIONS. Terms used in this Lease shall have the following
meanings:
(i) Base Rent: $1,191,010.83
Lease Years Annual Base Rent Monthly Installment
----------- ---------------- -------------------
1 $ 83,270.83 $11,895.83
2 $149,173.75 $12,431.15
3 $163,448.75 $13,620.73
4 $177,723.75 $14,810.31
5 $185,575.00 $15,464.58
6 $214,125.00 $17,843.75
7 $217,693.75 $18,141.15
(ii) Tax Base Year: Calendar Year 1996
Base Year: Calendar Year 1996
(iii) Tenant's Proportionate Share: 46.2%
(iv) Number of parking spaces available for Tenant's use: 56, based
upon four spaces per 1,000 rentable square feet leased.
(v) The Brokers: William Raveis Real Estate
Servus Management Corporation
(vi) Lease Year: Consecutive 12 month periods during the Term, with
the first Lease Year commencing on the first day of the month
in which the Commencement Date falls.
<PAGE>
2
3. TERM. TO HAVE AND TO HOLD the Premises for a term (the "Term"),
commencing on a date (the "Commencement Date") which shall be the earlier of (a)
May 1, 1996 or (b) the date premises will be made availabe for tenant's
occupancy, and ending on April 30, 2003. thereafter (the "Expiration Date"),
unless the Term shall sooner terminate pursuant to any of the terms, covenants
or conditions of this Lease or pursuant to law. Anything herein to the contrary
notwithstanding, the first monthly installment of Base Rent shall be payable on
the execution hereof. If the Tenant occupies the space earlier than May 1, 1996,
an addendum will be attached to this lease which will define the amended
Commencement Date and Expiration Date.
4. USE OF PREMISES. (a) Tenant shall use the Premises only for general and
administrative offices and for no other purpose. Except as provided herein, no
signs of any kind shall be installed or maintained on the exterior of the
Building, or in the Premises which shall be visible form outside the Building,
without the prior written consent of Landlord and without conforming said sign
to local ordinances. Such consent shall not be unreasonably withheld. Tenant
will not interfere with the conduct of business by other tenants or occupants of
the Building or permit actions constituting a private nuisance, including
without limitation, the occupation by Tenant or its employees, agents or
invitees of more than the number of parking places allocated to Tenant. In
connection with, and incidental to, Tenant's use of the Premises as provided in
this subsection, Tenant, at its sole cost and expense and upon compliance with
all applicable legal requirements, may install a microwave or convection ovens,
kitchenettes and dishwashers in the Premises for the purpose of warming or
re-heating food for the employees and business guests of Tenant (but not for use
as a public restaurant), provided that Tenant shall obtain all permits required
by any governmental authorities for the operation thereof and such installation
shall comply with the provisions of this Lease.
(b) Tenant, at its expense, shall comply with all laws, orders and
regulations of Federal, State and municipal authorities and with any direction
of any public officer or officers, pursuant to law, which shall impose any
violation, order or duty upon Landlord or Tenant with respect to the Premises or
the use or occupancy thereof; including without limitation the Americans With
Disabilities Act (as amended from time to time and as may be superseded from
time to time, the "Act") and any environmental laws, including without
limitation structural changes. Anything in the preceding sentence to the
contrary notwithstanding, if alterations to the Premises are required under the
Act because of the type of business of another tenant of the Building,
alterations made to its space by another tenant of the Building or alterations
to the common areas of the Building (the "Common Areas") made by Landlord, then
Landlord shall, at its expense, make the alterations to the Premises required
under the Act. To the best of Landlord's knowledge, the Common Areas comply with
applicable laws, codes and regulations, including the Act.
(c) Tenant shall not do or permit to be done any act or thing upon
the Premises which will invalidate or be in conflict with fire, public liability
or other insurance policies covering the Building. Tenant, at its expense, shall
comply with all rules, orders, regulations and requirements of the Board of Fire
Underwriters or other similar body or authority having jurisdiction and shall
not do or permit anything to be done in or upon the Premises or the Building, or
bring or keep anything
<PAGE>
3
therein, which is prohibited by the fire department or any of such Boards of
Fire Underwriters or other body or authority or which would increase the rate of
fire insurance applicable to the Building over that in effect on the
Commencement Date of this Lease. If, by reason of failure to comply with the
provisions of the Section 4, any insurance rate for the Building shall, on the
Commencement Date or at any time thereafter, be higher than it otherwise would
be, then Tenant upon demand shall reimburse Landlord, as Additional Rent
hereunder, for that part of all insurance premiums thereafter paid by Landlord
which shall have been charged because of such failure by Tenant.
(d) Tenant shall, at Tenant's expense, keep and maintain the
Premises in compliance with all local, state and Federal environmental laws,
ordinances and regulations, including without limitation ss.ss. 22a-448 through
22a-457 of the Connecticut General Statutes, 42 U.S.C. ss.9601 et seq., 42
U.S.C. ss.6901 et seq., 49 U.S.C. ss.1801 et seq., and the regulations
promulgated thereunder, (all of the foregoing being referred to collectively as
the "Environmental Laws"). During the Lease term, Tenant shall permit no spills,
discharges, or releases of any hazardous, radioactive or polluting substances,
including without limitation any oil or petroleum products or any chemical
liquids or solids (all of the foregoing being referred to collectively as
"Hazardous Materials"). In addition to the matters provided for in subsection 13
(c), Tenant will indemnify, defend and hold harmless Landlord, its successors
and assigns from and against any claim, liability, cost, damage, expense,
response or remedial action costs (including without limitation attorneys' fees,
and costs of investigation or audit) relating to: (i) the presence, use or
storage on or under the Premises, or any spill, discharge or release from the
Premises, of any Hazardous Material during the Lease term; (ii) any failure of
the Premises to comply with any applicable Environmental Law, unless such
noncompliance results from the conduct of Landlord and/or a prior occupant; or
(iii) any loss of value of the Premises, including without limitation any loss
of value arising from the imposition of any lien against the Premises, unless
such loss of value of the Premises, including without limitation any loss of
value arising from the imposition of any lien against the Premises, unless such
loss of value results from the conduct of Landlord and/or a prior occupant. The
foregoing indemnity shall survive the expiration or termination of this Lease,
and any claim hereunder must be made within five years after such expiration or
termination.
5. RENT. Commencing on the Commencement Date, Tenant receives a rent
concession in months 1, 2, 3, 6 and 7 in year 1 by Landlord. Tenant shall begin
paying rent to Landlord in months 4 and 5, and then resume regular monthly
payments in month 8. Tenant shall pay to Landlord the Base Rent without demand
and without setoff or deductions of any kind, in equal monthly installments, in
advance, on the first day of each calendar month of the Term at the address of
Landlord stated above or such other place as Landlord may designate in writing
form time to time, with payment in advance of appropriate fractions of a monthly
payment for any portion of a month at the expiration or prior termination of the
Term. Every amount payable by Tenant hereunder in addition to Base Rent and
Additional Rent are herein collectively referred to as the "Rent". Any Rent not
paid by Tenant on or before the due date thereof shall thereafter be payable
with a late charge equal to 5% of the unpaid installment, payable as Additional
Rent.
6. CONSTRUCTION.
See Exhibit C attached hereto.
<PAGE>
4
7. ADDITIONAL RENT. (a) After the expiration of the Base Year and of each
succeeding calendar year ("Operating Year"), Landlord shall furnish Tenant a
written statement prepared by Landlord of the Operating Expenses of the
Building, as defined in paragraph 7.(b) herein, incurred for such year. During
the period of 60 days after receipt of Landlord's statement, Tenant may inspect
and audit the records of the material reflected in said Landlord's statement at
a reasonable time mutually agreeable to Landlord and Tenant. Failure of Tenant
to challenge any item in such statement within 90 days after receipt shall be a
waiver of Tenant's right to challenge such item for such year. Within 30 days
after receipt of such statement for any Operating Year setting forth any
increase of Operating Expenses during such Operating Year over the Operating
Expenses in the Base Year (said increase being referred to herein as the "Cost
Increase", Tenant shall pay Tenant's Proportionate Share of the Cost Increase
(less the amount of Tenant's projected share paid by Tenant on account thereof)
to Landlord as Additional Rent.
(b) The Operating Costs of the Building are hereby defined to
include all charges for management fees, all charges for security, heat, air
conditioning, utilities, insurance, janitorial and cleaning services; all
salaries, wages, payroll taxes, and other personnel costs of engineers,
superintendents, watchmen and other building workers or employees; all charges
under maintenance, and service contracts or for on-call services for chillers,
boilers, controls and/or elevators; all charges for landscaping, window
cleaning, and building grounds, plaza and parking lot maintenance; all charges
for personal property taxes (if any) in connection with personal property used
in the operation of the Building; all costs of licenses and permits of Building
operation and maintenance; and all other maintenance operation, services or
repair, excluding major component replacement, expenses and costs of supplies
expended in connection with the Building, the suites therein, or the real
property, which charges are or may be deducted (and not capitalized) for Federal
Income Tax purposes; and also including straight line depreciation intention of
lowering of Operating Costs.
(c) Commencing with the first Operating Year, Tenant shall pay to
Landlord, as Additional Rent, Tenant's projected share. Such projected share
shall be equal to Landlord's Increase for the Operating Year. On the first day
of each month of each Operating Year during the Term, and within 30 days after
Tenant's receipt of Landlord's written estimate, Tenant shall pay to Landlord
one-twelfth of its projected share of the estimated Cost Increase for such
Operating Year. If Landlord's statement after the end of an Operating Year shall
indicate that Tenant's projected share exceeded Tenant's Proportionate Share of
Cost Increase, Landlord shall forthwith, at Landlord's option, either (i) pay
the amount of excess directly to Tenant concurrently with the notice or (ii)
permit Tenant to credit the amount of such excess against the subsequent
payments of Additional Rent due hereunder. If Landlord's statement shall
indicate that Tenant's Proportionate Share of Cost Increase exceeded Tenant's
projected share for the completed Operating Year, Tenant shall, subject to the
provisions of subsection 7 (a) herein, pay the amount of such excess to Landlord
within 30 days after demand. If said Landlord's statement is furnished to Tenant
after the commencement of a subsequent Operating Year, there shall be promptly
paid by Tenant to Landlord or vice versa, as the case may be, an amount equal to
the portion of such payment or credit allocable to the part of such Operating
Year which shall have elapsed prior to the first day of the calendar month next
succeeding the calendar month in which said Landlord's statement is furnished to
Tenant.
<PAGE>
5
(d) Landlord's failure to render Landlord's statement with respect
to any Operating Year or Tax Year, or Landlord's delay in rendering said
statement beyond a date specified herein, shall not prejudice Landlord's right
to render a Landlord's statement with respect to that or any subsequent
Operating Year or Tax Year; provided, however, that Landlord's failure to render
a statement within two years after the end of any Operating Year or Tax Year
shall be deemed a waiver of Landlord's right to render a Landlord's statement
for such year. The obligations of Landlord and Tenant under the provisions of
this Section with respect to any Additional Rent, which obligations have accrued
prior to the expiration or sooner termination of the Term, shall survive the
expiration or any sooner termination of the Term. Any dispute under this Section
shall be determined by arbitration in Hartford, Connecticut, under the then
commercial rules of the American Arbitration Association, and any award shall be
binding upon the parties.
8. INCREASE IN REAL ESTATE TAXES. (a) If Real Estate Taxes with respect to
the Building are increased, during any year subsequent to the Tax Base Year,
over Real Estate Taxes paid by Landlord during the Tax Base Year, then Tenant
shall pay to Landlord, without setoff or deductions of any kind, except as
specified in this Lease, as Additional Rent, an amount equal to Tenant's
Proportionate Share of such increase. Payment of such increase shall be made in
the installments provided by the taxing authority within 30 days after Tenant
receives from Landlord notice of such tax increase and a bill for Tenant's
Proportionate Share thereof; together with a copy of the applicable bill
received by Landlord from the taxing authority. "Real Estate Taxes" shall mean
all taxes or assessments and governmental charges, whether Federal, State or
municipal, which are levied or charged against real estate, personal property
within the Building or rents, or on the right or privilege of leasing real
estate or collecting rents thereon and any other taxes and assessments
attributable to the Building or its operation, excluding, however, Federal,
State or other general income taxes not limited to real property. If the
Building shall not be assessed as if it were 95% occupied during the Tax Base
Year, then for the Tax Base Year and each subsequent year, Real Estate Taxes
shall be adjusted as if the Building were 95% occupied during each such year. If
Landlord shall be required under a mortgage or other creditor arrangement to
make real estate tax deposits monthly or otherwise, Tenant shall make the same
installment payments to Landlord of its share of same.
(b) Notwithstanding anything to the contrary set forth in this
Lease, Real Estate Taxes shall not include (i) any excess profit taxes,
franchise taxes, gift taxes, capital stock taxes, inheritance and succession
taxes, estate taxes, general federal and state income taxes, and other taxes to
the extent applicable to Landlord's general or net income (as opposed to rents
or receipts); (ii) penalties incurred as a result of Landlord's negligence,
inability or unwillingness to make payments of, and/or to file any tax or
informational returns with respect to, any Real Estate Taxes, when due; (iii)
any other taxes or assessments charged or levied against Landlord which are not
directly incurred as a result of the ownership or operation of the Building; and
(iv) any real estate taxes directly payable by Tenant or any other tenant in the
Building under the applicable provisions in their respective leases.
<PAGE>
6
9. ALTERATIONS. IMPROVEMENTS. ETC. (a) Alterations, improvements or
additions made by Landlord or Tenant upon the Premises or in or on the Building
outside the Premises, except furniture, light fixtures, equipment, or movable
partitions or trade fixtures installed at the expense of Tenant, shall be the
property of Landlord and shall remain and be surrendered with the Premises as a
part thereof at the termination of this Lease, without compensation to Tenant,
unless Landlord shall require Tenant to remove same.
(b) Tenant shall not make any alterations, installations or
improvements in the Premises without Landlord's prior written consent, which
consent shall not be unreasonably withheld.
10. REPAIRS. (a) The exterior (excluding windows) and structure of the
Building and all parts of the heating, plumbing, electrical and air conditioning
systems, except those portions within the Premises (and any supplemental HVAC
units installed by or for Tenant), shall be maintained and repaired by Landlord,
except if necessitated by the excess use (i.e., greater than normal office use)
by, or the negligence or wrongful act of Tenant, its employees, agents or
invitees, in which event Tenant shall be responsible for repair or replacement
as necessary.
(b) Tenant, at its expense, shall repair, maintain in good order and
condition and replace, if necessary, the interior of the Premises and the
Building systems therein. Tenant shall keep the Premises clean and orderly in
accordance with Landlord's standards for the Building.
11. PARKING. Landlord shall maintain the Building's parking lot to be used
by Tenant in common with other tenants of the Building. Tenant shall have the
right to use the number of unreserved parking spaces specified in Section 2
hereof. Landlord shall have the right, at any time and from time to time during
the Term, to designate the parking spaces to be used by Tenant, in which event
Tenant shall limit its employee and invitee parking to its assigned spaces and
will post markings designating its spaces. Landlord shall have no liability to
Tenant if others park in Tenant's assigned spaces. Landlord shall maintain the
parking lot and sidewalks in good and orderly condition, including but not
limited to reasonably prompt snow removal.
12. UTILITIES AND SERVICES. (a) HVAC. Mondays through Fridays from 8:00
a.m. to 6:00 p.m. and Saturdays from 8:00 a.m. to 12:00 p.m. (except the days
observed by the Federal or the Connecticut state governments as legal holidays),
Landlord shall furnish and distribute to the Premises air conditioning and heat
with a system designed to maintain an indoor condition of 78(degree) F dry bulb
when the outdoor condition is 100(degree) F dry bulb and an indoor condition of
68(degree) F dry bulb when the outdoor condition is 0(degree) F dry bulb.
(b) Water. Landlord shall supply reasonably adequate quantities of
hot and cold water to the Premises for ordinary lavatory and drinking purposes
and for Tenant's kitchen area.
(c) Electricity. (i) Landlord shall cause electric service to be
supplied for lighting the Premises and for the operation of ordinary office
equipment, with a capacity of seven watts per rentable square foot, and for
HVAC, the cost of which shall be included in Operating Expenses.
<PAGE>
7
(ii) Landlord shall have the exclusive right, at Tenant's
expense, to make any replacement of lamps, fluorescent tubes and lamp ballasts
in the Premises. Landlord may adopt a system of relamping and ballast
replacement periodically on a group basis in accordance with good management
practice, and the charges for same shall be reasonable.
(iii) Landlord shall have the right at any time to install one
or more check meters in the Premises at Landlord's expense and to bill Tenant
for electrical consumption above seven watts per rentable square foot, at the
rate charged to Landlord by the utility company.
(d) Cleaning. Landlord, at its expense, shall cause the Premises to
be cleaned, including the exterior and the interior of the windows thereof
(subject to Tenant maintaining unrestricted access to such windows), but
excluding any portions of the Premises used for the storage, preparation,
service or consumption of food or beverages. Tenant shall pay to Landlord,
Landlord's reasonable charges for any special or unusual cleaning work in the
Premises, including without limitation, the cleaning of private baths, interior
glass, pantries, kitchens, lounge areas, panelled and fabric walls, and wood
floors.
(e) Security. In no event shall Landlord be required to provide any
security services to the Building. Tenant shall supply such security services to
the Premises as Tenant requires, subject to Landlord's prior approval of plans,
which shall not be unreasonably withheld.
(f) Interruption of Services. Landlord does not warrant that any
service will be free from interruptions caused by repairs, renewals,
improvements, changes of service, alterations, strikes, lockouts, labor
controversies, accidents, inability to obtain fuel, water, or supplies, or other
cause beyond the reasonable control of Landlord. No such interruption of service
shall be deemed an eviction or disturbance of Tenant's use and possession of the
Demised Premises, or render Landlord liable to Tenant for damages by abatement
of Rent or otherwise, or relieve Tenant from performance of Tenant's obligations
under this Lease. Tenant hereby waives and releases all claims against Landlord
for damages for interruption or stoppage of service.
Anything in this Lease to the contrary notwithstanding, if: (i) any
Essential Service (as defined below) is discontinued to the Premises for more
than seven consecutive business days; (ii) Tenant promptly gives Landlord notice
of such discontinuance; (iii) such discontinuance does not result from the
negligent or willful act or omission of Tenant or Tenant's employees or agents,
or from a requirement of Governmental Authority; and (iv) such discontinuance
renders any portion of the Premises untenantable shall thereupon abate until
such discontinuance is remedied. "Essential Service" means any of the following:
heating, ventilating, or cooling (as seasonally required), office electricity,
elevator service or plumbing services to the Premises. The abatement provided
for in this subsection shall not apply to any discontinuance of an Essential
Service caused by casualty or condemnation, which shall be governed respectively
by Section 15 and 16 herein. During any period in which the fee owner of the
Complex is any superior mortgagee or its affiliate claiming or succeeding to fee
title thereunder by foreclosure or deed in lieu of foreclosure of the successor
to such superior mortgagee, the provision for abatement in this paragraph shall
not be effective.
<PAGE>
8
13. INSURANCE. (a) Tenant shall, at its expense, secure and maintain
General Liability Insurance written on a so-called "Comprehensive" General
Liability Form with single limit coverage of at least $3,000,000, with no
deductible, naming Landlord as an additional insured under the policy. Tenant
shall deliver to Landlord duplicate certificates of such insurance prior to
taking occupancy of the Premises and shall delivery new certificates at least 30
days prior to the expiration of the existing coverage. Such certificates shall
provide that in the event of termination or material change in coverage,
Landlord shall be given ten days' advance notice in writing sent by certified
mail to the address of Landlord. Such insurance shall contain a waiver of the
insurer's right of subrogation against Landlord.
(b) Landlord shall carry and maintain throughout the Term,
comprehensive "all-risk" fire and casualty insurance covering the Building and
other improvements on the Land in an amount necessary to avoid coinsurance, and
comprehensive general liability insurance coverage in amounts held by reasonably
prudent commercial landlords of comparable first-class office properties in the
City. Landlord shall maintain such insurance throughout the Term, subject to
changes in amounts which its institutional mortgagee(s) require.
(c) Landlord and Tenant hereby waive all rights to recover against
each other for any loss or damage arising from any cost covered by any casualty
insurance required under the Lease, or otherwise actually carried by each of
them. Landlord and Tenant will diligently attempt to cause their respective
insurers to issue appropriate waiver of subrogation right endorsements to all
policies and insurance carried in connection with the Premises or the contents
of either of them. Landlord and Tenant hereby agree to look first to the
proceeds of their respective insurance policies before proceeding against each
other in connection with any claim relating to any matter covered by the Lease.
(d) Notwithstanding the foregoing, Tenant shall be entitled to self
insure its insurance requirements as set forth in this Lease. Any self-insurance
shall be deemed to contain all of the terms and conditions applicable to such
insurance as required in this Lease, including, a full waiver of subrogation. If
Tenant elects to self-insure as aforesaid, with respect to any claims which may
result from incidents occurring during the term of this Lease, such
self-insurance obligation shall survive the expiration or earlier termination of
this Lease to the same extent as the insurance required hereunder would survive.
14. SUBORDINATION. (a) This Lease is and shall be subject and subordinate
to (i) any and all mortgages now or hereafter affecting the fee title of the
Building, and to any and all present and future extensions, modifications,
renewals, replacements and amendments thereof; and (ii) any and all ground
leases now or hereafter affecting the Building or any part thereof and to any
and all extensions, modifications, renewals, replacements and amendments
thereof. Such subordination is subject to Landlord obtaining a non-disturbance
agreement from each mortgagee or ground lessor in the standard form used by such
party and which agreement shall provide, inter alia, that Tenant's occupancy of
the Premises shall not be disturbed so long as Tenant has and is performing all
of its obligations under this Lease, and in the case of a ground lessor, that
such ground lessor shall in no event have any rights with respect to Tenant and
this Lease other than rights held by Landlord, and
<PAGE>
9
that such ground lessor cannot affect Tenant's rights under this Lease so long
as Tenant is performing all of its obligations under this Lease. Such agreement
shall not relieve the mortgagee or ground lessor from liability for payment of
the unpaid portion, if any, of the Allowance payable under Exhibit C hereto.
Tenant will execute and deliver promptly to Landlord any reasonable
certificate or instrument which Landlord, from time to time, may request for
confirmation of the provisions of this Section.
(b) Neither the foreclosure of a superior mortgage nor the
termination of a superior ground lease, nor the institution of any suit, action,
summary or other proceedings by Landlord or any successor landlord under such
ground lease or by the holder of any such mortgage, shall, by operation of law,
result in the cancellation or termination of the obligations of Tenant
hereunder, and Tenant agrees to attorn to and recognize Landlord and any
successor landlord under such ground lease or the holder of any such mortgage,
or the purchaser of the Building in foreclosure or any subsequent owner of the
fee, as the case may be, as Tenant's landlord hereunder in the event that any of
them shall succeed to Landlord's interest in the Premises.
15. DESTRUCTION, FIRE OR OTHER CAUSES. (a) If the Premises or the Building
shall be partially damaged by fire or other casualty so that the damage can
reasonably be repaired by Landlord within 120 days from the date of the damage,
then the damage shall be diligently repaired by and at the expense of Landlord
(to the extent of net insurance proceeds received by Landlord for restoration),
subject to applicable laws and insurance requirements, and the Rent until such
repairs shall be apportioned according to the part of the Premises which is
tenantable.
(b) If the Premises are destroyed or are rendered wholly
untenantable by fire or other cause, or are partially damaged so that the damage
cannot reasonably be repaired by Landlord within 120 days of the date of the
damage, or if the Building shall be so damaged that Landlord shall elect not to
restore the same but to demolish it or rebuild it, then in any of such events
Landlord may, within 45 days after such casualty, give Tenant a notice in
writing of intention to terminate this Lease, and thereupon the Term shall
expire, effective the date of the casualty, and Tenant shall vacate the Premises
and surrender the same to Landlord within a reasonable time after receipt of
Landlord's notice. If Landlord does not elect to terminate this Lease, the
provisions of subsection (a) shall govern.
(c) Each of Landlord and Tenant hereby releases the other from any
and all liability or responsibility (to the releasor or anyone claiming through
or under the releasor by way of subrogation or otherwise) for any loss or damage
to property of the releasor, or anyone claiming through or under the releasor,
caused by fire or any of the extended coverage casualties, to the extent of
insurance proceeds received by the releasor.
(d) Landlord shall not be liable for any damage to, or be required
(under any provision of this Lease or otherwise) to repair, restore or replace,
any property in the Premises or be liable to Tenant for damage arising from rain
or snow or from the bursting, overflowing or leakage of water,
<PAGE>
10
steam or gas pipes or defect in the plumbing, HVAC, mechanical or electrical
systems of the Building, except for Landlord's negligence or breach of this
Lease, or from any act or neglect of any other tenant or occupant in the
Building.
16. EMINENT DOMAIN. (a) If the whole of the Premises shall be acquired or
condemned by eminent domain for any public or quasi-public use or purpose, or if
any substantial part thereof of the Building is so acquired or condemned as to
render the Premises untenantable, or so that Landlord elects not to restore the
Building but to demolish or rebuild it, then and in that event, the Term shall
cease and terminate from the date of taking, Tenant shall have no claim against
Landlord or the condemning authority for the value of the unexpired Term, nor a
claim to any part of an award in such proceeding, and rent shall be adjusted and
paid to the date of such termination; provided, however, that Tenant may claim
against the authority for Tenant's moving costs and the value of Tenant's
property taken.
(b) In the event of any other condemnation of a part of the Building
or Premises, this Lease shall remain in effect, but the Rent shall be prorated
based on that portion of the Premises which remains tenantable and Landlord
shall diligently repair the damage to the Building (to the extent of net
condemnation proceeds received by Landlord for restoration), subject to
applicable laws and insurance requirements.
17. SUBLETTING. (a) Tenant shall not sublease all or any part of the
Premises, or suffer or permit the Premises or any part thereof to be subleased
to or used by others, without the prior written consent of Landlord in each
instance. If the Premises or any part thereof be sublet to or occupied by
anybody other than Tenant, Landlord may, at Landlord's option, collect rent from
the subtenant or occupant, and apply the net amount collected to the rent herein
reserved, but no such subletting, occupancy or collection shall be deemed a
waiver of this covenant, or the acceptance of the subtenant or occupants, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The consent by Landlord to sublet shall not be
construed to relieve Tenant from obtaining the express consent in writing of
Landlord to any further subletting.
(b) If Tenant desires to sublease all or substantially all of the
Premises, Tenant shall first give notice to Landlord of the proposed transaction
and the term thereof, and Landlord shall have the right, by notice to Tenant
within 30 days after receipt of Tenant's notice, to terminate this Lease. If
Tenant desires to sublease less than substantially all of the Premises, Tenant
shall first give notice to Landlord as aforesaid, and Landlord shall have the
right to terminate this Lease with respect to the portion of the Premises
proposed to be subleased, as of the intended effective date of the proposed
sublease; provided however that upon receipt of a termination notice under this
sentence, Tenant may, by notice to Landlord within ten days thereafter, withdraw
its partial subleasing request, in which event the termination notice shall be
deemed rescinded. If Landlord exercises its right to terminate this Lease with
respect to such portion of the Premises, then (i) the Base Rent and Tenant's
Proportionate Share shall be proportionally reduced, and an adjustment shall be
made for amounts, if any, paid in advance and applicable to the portion of the
Premises no longer leased by Tenant, and (ii) the number of parking spaces
available for Tenant's use pursuant to Section 11 hereof shall be
<PAGE>
11
proportionally reduced. If Landlord elects not to so terminate this Lease, then
Landlord shall not unreasonably withhold its consent to the proposed subletting.
(c) Anything herein to the contrary notwithstanding, without
Landlord's prior consent but upon at least ten days' prior notice to Landlord,
Tenant may sublease part or all of the Premises to an entity, which controls, is
controlled by or under common control with Tenant, as the term "control" is
construed under the Federal securities laws.
18. FEES AND EXPENSES. (a) If Tenant shall default in the observance or
performance of any term or covenant of this Lease, Landlord may, after ten days'
notice to Tenant to cure the default and failure of Tenant to cure the same
within such period, or at any time thereafter without notice in event of
emergency, perform the same for the account of Tenant. If Landlord makes any
expenditures or incurs any obligations in connection with a default by Tenant,
including, but not limited to, reasonable attorneys' fees in instituting,
prosecuting or defending any action or proceeding against Tenant, such sums paid
or obligations incurred, with interest (as provided below) and costs, shall be
deemed to be Additional Rent hereunder and shall be paid by Tenant to Landlord
within ten days of rendition of any bill or statement to Tenant hereunder.
(b) Any Rent not paid by Tenant within 20 days after the due date
thereof, shall thereafter be payable with interest at the rate of 2% per annum
in excess of the prime or base rate of The Chase Manhattan Bank of Connecticut
(or its successor) in effect from time to time, from the due date to the date of
payment.
19. NO REPRESENTATIONS BY LANDLORD, ETC. (a) Landlord and Landlord's
agents have made no representations or promises with respect to the Building or
the Premises, including the uses permitted under applicable law, except for
representations herein expressly set forth.
(b) Tenant shall defend, indemnify and hold harmless Landlord, its
employees, agents and contractors against and from all liabilities, including
reasonable attorneys' fees, which may be imposed upon or incurred by or asserted
against Landlord or such other persons by reason of any of the following
occurring during the Term or prior thereto when Tenant has been given access to
the Premises: (i) any work or thing done in the Premises by or at the request of
Tenant, its employees or agents; (ii) any negligence or wrongful act or omission
of Tenant, its employees or agents; (iii) any accident, injury, loss or damage
to any person or property occurring in the Premises, except if due to the
negligence of Landlord, its employees or agents; and (iv) any failure on the
part of Tenant to comply with any of the terms of this Lease.
(c) Any provision of this Lease which requires Landlord not to
unreasonably withhold its consent shall never be the basis for an award of
damages or give rise to a right of setoff or termination to Tenant, but may be
the basis for a declaratory judgment or specific injunction with respect to the
matter in question.
<PAGE>
12
(d) Tenant shall look solely to the estate and interest of Landlord,
its successors and assigns, in the Building for the collection of a judgment in
the event of a default by Landlord hereunder, and no other property or assets of
Landlord or any officer, director or partner of Landlord shall be subject to
levy, execution or other enforcement procedure for the satisfaction of Tenant's
remedies.
(e) The failure of Landlord to insist in any one or more instances
upon the strict performance of any one or more of the agreements, terms,
covenants, conditions or obligations of this Lease, or to exercise any right,
remedy or election herein contained, shall not be construed as a waiver or
relinquishment for the future of the performance of such one or more obligations
of this Lease or of the right to exercise such election, but the same shall
continue and remain in full force and effect with respect to any subsequent
breach, act or omission, whether of a similar nature or otherwise.
(f) Each party's obligations under this Lease shall survive the
Expiration Date or sooner termination of the Term, as same may be extended
hereunder.
(g) The Building may be designated and known by any name Landlord
may choose, and such name or designation may be changed from time to time in
Landlord's sole discretion.
20. QUIET ENJOYMENT. (a) Upon Tenant paying the Rent and observing and
performing all the terms, covenants and conditions on Tenant's part to be
observed and performed, Tenant may peaceably and quietly enjoy the Premises
hereby demised, free from any interference, molestation or acts of Landlord or
of anyone claiming by, through or under Landlord, subject, nevertheless, to the
terms and conditions of this Lease and to any ground lease and mortgages as
hereinbefore provided.
(b) If Tenant retains possession of the Premises or any part thereof
after the Expiration Date or earlier termination date without the written
consent of Landlord, Tenant's occupancy shall be under all of the terms and
conditions of this Lease, except that (i) the tenancy shall be at will,
terminable by either party on ten days' written notice; (ii) the Base Rent shall
be equal to the greater of (x) 150% of the Base Rent payable at the termination
date, and (y) the then fair market rent for the Premises; and (iii) Tenant shall
indemnify and hold Landlord harmless for all damages sustained and liabilities
incurred by Landlord as a result of Tenant's continued occupancy beyond ten days
after Landlord's notice to Tenant under this subsection.
21. DEFAULT. (a) If (i) Tenant defaults in the payment when due of any
installment of Rent, or (ii) Tenant defaults in fulfilling any other covenant of
this Lease and Tenant fails to remedy such default within 20 days after notice
by Landlord to Tenant specifying the nature of such default (or if the said
default cannot be completely cured or remedied within said 20-day period and
Tenant shall not have diligently commenced curing such default within such
20-day period and shall not thereafter in good faith diligently proceed to
remedy or cure such default), then Landlord may, by notice to Tenant, cancel
this Lease, and this Lease and the Term hereunder shall end and expire as fully
and completely as if the date of cancellation were the day herein definitely
fixed for the end and
<PAGE>
13
expiration of this Lease and the Term hereof. Tenant shall then quit and
surrender the Premises to Landlord, but Tenant shall remain liable as
hereinafter provided.
(b) If (i) the notice provided for in subsection (a) above shall
have been given and the Term shall expire as aforesaid, or (ii) Tenant shall
make default in payment of the Base Rent or any part of same or in making any
other payment herein provided for a period of ten days after notice by Landlord
to Tenant of such default, then and in any of such events, Landlord may, without
notice, re-enter the Premises, and dispossess Tenant, and the legal
representative of Tenant or other occupant of the Premises, by summary
proceedings or otherwise, and remove their effects and hold the Premises as if
this Lease had not been made, but Tenant shall remain liable for damages as
hereinafter provided.
22. REMEDIES OF LANDLORD. In case of any such default, re-entry,
expiration and/or dispossess by summary proceedings or otherwise, (a) the Rent
shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration, together with such expenses as Landlord may incur
for reasonable counsel fees, brokerage and/or putting the Premises in good
order, or for preparing the same for re-rental; (b) Landlord may re-let the
Premises or any part or parts thereof; either in the name of Landlord or
otherwise, for a term or terms, which may at Landlord's option be less than or
exceed the period which would otherwise have constituted the balance of the
Term, and may grant concessions of free rent; and/or (c) Tenant or the legal
representatives of Tenant shall also pay Landlord any deficiency between (i) the
Rent hereby reserved and/or covenanted to be paid, and (ii) the net amount, if
any, of the rents collected on account of the lease or leases of the Premises
for each month of the period which would otherwise have constituted the balance
of the Term. There shall be added to such deficiency such expenses as Landlord
may incur in connection with re-letting the Premises, including without
limitation, counsel fees, brokerage commissions and expenses incurred in
maintaining the Premises in good order and in connection with renovating and
preparing the same for re-letting. Any such rent deficiency shall be paid in
monthly installments by Tenant on the rent day specified in this Lease, and any
suit brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Landlord to collect the deficiency for any
subsequent month or months by a similar proceeding. In addition, Landlord shall
have the alternative of commencing suit against Tenant at any time for an amount
equal to the Rent reserved for the balance of the Term less the fair rental
value of the Premises for the same period. Landlord, at its option, may make
such alterations, repairs, replacements and/or decorations in the Premises as
Landlord considers advisable for the purpose of re-letting the Premises; and the
making of such alterations and/or decorations shall not operate or be construed
to release Tenant from liability hereunder as aforesaid. The failure of Landlord
to re-let the Premises or any part thereof shall not release or affect Tenant's
liability for continued rent or damages hereunder nor shall Landlord in any
event be liable in any way whatsoever for failure to re-let the Premises;
provided, however, that, to the extent required by Connecticut law, Landlord
shall make commercially reasonable efforts to re-let the Premises. In the event
of a breach by Tenant of any of the covenants or provisions hereof; Landlord
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity, as if re-entry, summary proceedings and other remedies were
not herein provided for. Mention in this Lease of any particular remedy shall
not preclude Landlord from any other remedy, in law or in equity.
<PAGE>
14
23. RIGHT TO EXHIBIT PREMISES AND ACCESS TO PREMISES. (a) Landlord
reserves the right to enter the Premises and exhibit same at any reasonable time
and upon reasonable notice (i) to prospective mortgagees, purchasers and ground
lessees, and (ii) to prospective tenants at any time within 180 days prior to
the expiration of the Term.
(b) Landlord reserves the right to have its employees and agents
enter the Premises at any reasonable time (and at any time in case of emergency)
in order to gain access to any utility area, which utility area contains
equipment and systems for the Building, and in order to effect necessary repairs
and replacements.
(c) Landlord shall exercise all access rights to the Premises
available under this Lease, in each instance, upon reasonable advance notice to
Tenant, in a manner consistent with Tenant's reasonable security requirements
and in a manner which does not unreasonably interfere with Tenant's business
operations, except in any event in case of emergency.
24. RULES AND REGULATIONS. Tenant and Tenant's servants, employees,
agents, visitors, invitees and licensees shall observe faithfully and comply
strictly with such Rules and Regulations as Landlord's's agents may, from time
to time, adopt.
25. BROKERAGE. Tenant warrants and represents it has not had or dealt with
any realtor, broker or agent in connection with the negotiation of this Lease,
except for the Broker, and agrees to pay and to hold Landlord harmless from any
cost, expense or liability (including costs of suit and attorneys' fees) for any
compensation, commission or charges claimed by any realtor, broker or agent with
respect to this Lease and the negotiation thereof, other than a claim of the
Broker and a claim based upon any written agreement between such person and
Landlord. Landlord represents that it has not entered into a written agreement
with any broker other than the Broker, with respect to the leasing of the
Building and which is in effect this date. Landlord shall indemnify and hold
Tenant harmless from any claim of the Broker (except for a claim based on an
agreement between Tenant and the Broker) and of any other broker with whom
Landlord has an agreement, all with respect to this Lease.
26. FORCE MAJEURE. Landlord and Tenant, respectively, shall not be in
default hereunder if such party is unable to fulfill or is delayed in fulfilling
any of its obligations hereunder, including, without limitation, any obligations
to supply any service hereunder, or any obligations to make repairs or
replacements hereunder, if such party is prevented from fulfilling or is delayed
in fulfilling such obligations by reason of fire or other casualty, strikes or
labor troubles, governmental preemption-emption in connection with a national
emergency, shortage of supplies or materials, or by reason of any rule, order or
regulation of any governmental authority, or by reason of the condition of
supply and demand affected by war or other emergency, or any other cause beyond
its reasonable control. Such inability or delay by Landlord or Tenant in
fulfilling any of their respective obligations hereunder shall not affect,
impair or excuse the other party hereto from the performance of any of the
terms, covenants, conditions, limitations, provisions or agreements hereunder on
its part to be performed, nor result in any abatement of rents or Additional
Rents payable hereunder. Tenant shall not, however, be excused hereunder from
the prompt and full payment of Base Rent or Additional Rent for any cause
specified in this Section.
<PAGE>
15
27. SECURITY DEPOSIT. Tenant will deposit a security deposit with the
Landlord in the amount of $11,895.83, which is not to be applied toward the
tenant's rent.
28. LEASE STATUS AND NOTICE. (a) Upon request of Landlord from time to
time, Tenant will execute and deliver to Landlord an instruments prepared by
Landlord stating, if the same be true, that this Lease is a true and exact copy
of the Lease between the parties hereto, that there are no amendments hereof (or
stating what amendments there may be), that the same is then in full force and
effect and that, to the best of Tenant's knowledge, there are then no offsets,
defenses or counterclaims with respect to the payment of rent reserved hereunder
or in the performance of the other terms, covenants and conditions hereof on the
part of the Tenant to be performed, and that as of such date no default has been
declared hereunder by either party hereto and that Tenant at the time has no
knowledge of any facts or circumstances which it might reasonably believe would
give rise to a default by either party. Such estoppel certificate required by
any party with whom Landlord is dealing may be in somewhat altered form from the
above terms.
(b) Any notice, demand, consent, approval, directions, agreement or
other communication required or permitted hereunder or under any other documents
in connection herewith shall be in writing and shall be directed as follows:
If to Landlord: Principal Mutual Life Insurance Company
c/o Northeast Equity Asset Management Team
711 High Street
Des Moines, Iowa 50392
With Copies to: Servus Management Corporation
Manager for Principal Mutual Life Insurance Company
One Financial Plaza
Hartford, CT 06103
If to Tenant: Open Solutions, Inc.
300 Winding Brook Drive
Glastonbury, Connecticut 06033
With a copy to: N/A
or to such changed address or facsimile number as a party hereto shall designate
to the other parties hereto from time to time in writing. Notices shall be (i)
personally delivered (including delivery by Federal Express or other comparable
nation-wide overnight courier service) to the offices set forth above, in which
case they shall be deemed delivered on the date of delivery (or first business
day thereafter if delivered other than on a business day or after 5:00 p.m.
Eastern Standard Time to said offices); (ii) sent by certified mail, return
receipt requested, in which case they shall be deemed delivered on the date
shown on the receipt unless delivery is refused or delayed by the addressee in
which event they shall be deemed delivered on the date of deposit in the U. S.
Mail; or (iii) sent by means of a facsimile transmittal machine, in which case
they shall be deemed delivered at the time and
<PAGE>
16
on the date of receipt thereof confirmed by telephonic acknowledgement on first
business day thereafter if receipted other than on a business day or after 5:00
p.m. Eastern Standard Time.
29. ASSIGNS. The covenants, conditions and agreements contained in this
Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors and,
except as otherwise provided in this Lease, their assigns.
The word Landlord as used in this Lease means only the owner for the
time being of Landlord's interest in this Lease. In the event of any assignment
of Landlord's interest in this Lease, the assignor in each case shall no longer
be liable for the performance or observance of any agreements or conditions on
the part of the Landlord to be performed or observed.
30. OPTION TO EXTEND. (a) Tenant shall have one option to extend the Term
for an additional period of five years upon all of the terms and conditions of
this Lease, except that (i) the Base Rent during the extension Term shall be 95%
of the fair rental value of the Premises at the date three months prior to the
commencement of the extension Term; and (ii) there shall be no further option to
extend beyond the expiration of such extension Term.
(b) Tenant's option may be exercised only by notice of exercise
given by Tenant to Landlord at least twelve months prior to the expiration of
the then current Term. Failure to so exercise within such period shall render
any subsequent attempted exercise void and of no effect, any principles of law
to the contrary not withstanding. Tenant shall have no right to exercise its
option to extend the Term, and any attempted exercise shall be void and of no
effect, if: (i) the named Tenant has assigned this Lease or has at any time
subleased, in the aggregate, more than 50% of the Premises to a party other than
one controlling, controlled by or under common control with Tenant; or (ii)
Tenant shall be in default hereunder and such default shall not have been cured
at the time of the attempted exercise or, if such default occurs after Tenant's
attempted exercise of the option, at the time of the proposed commencement of
the extension Term.
(c) In the event that the parties have not agreed upon the fair
rental value of the Premises prior to the date three months before the
commencement of the extension Term, such value shall be determined by
arbitration in the City before a single arbitrator as follows:
(i) Landlord and Tenant shall have 15 days within which to
select one mutually agreeable arbitrator. If Landlord and Tenant fail to agree
on one arbitrator within the 15 day period, either party may promptly request
the president of the local Board of Realtors to appoint an arbitrator for the
matter, and said president's selection shall be binding upon Landlord and
Tenant. Said president shall appoint as arbitrator an individual with the
following qualifications: MAI credentials; ten years' experience in the business
of appraising commercial real estate; generally recognized competence in the
valuation of commercial rental properties in Hartford County; and has never been
a direct or indirect employee or agent of either Landlord or Tenant.
(ii) Landlord and Tenant shall each submit to the arbitrator,
in writing, a good faith determination of the fair rental value of the Premises.
<PAGE>
17
(iii) The appraiser selected must choose either Landlord's or
Tenant's good faith determination of the fair rental value of the Premises and
the appraiser's choice shall be final and binding upon the parties. In
determining the fair rental value of the Premises and which of Landlord's or
Tenant's determinations to select, the appraiser shall consider all relevant
factors. From the date of appointment, the arbitrator shall have 30 days within
which to render a decision as to the fair rental value of the Premises. If the
arbitrator fails to render a decision within the applicable 30-day period,
either party shall have the right to apply to the American Academy of
Arbitrators for a decision.
Judgement upon the award rendered by the arbitrator shall be binding
upon the parties and may be entered in any court of competent jurisdiction. The
arbitrator shall determine the liability of the parties for the costs of the
arbitration and may allocate counsel fees, witness fees and other costs between
the parties.
31. EXPANSION OPTION. (a) If, at any time during the Term, any space
becomes available in the Building and if another tenant of the Building has not
exercised a superior right to lease such space, Landlord shall so notify Tenant
in writing and, provided that Tenant is not in default hereunder, Tenant shall
have the right, exercisable upon written notice give to Landlord within 15 days
after receipt of Landlord's notice, to lease such additional space (the
"Expansion Space") upon all the terms and conditions contained herein, except
that (i) Base Rent for the Expansion Space shall be the fair rental value of the
Expansion Space as of the date of Landlord's notice; and (ii) Tenant's
Proportionate Share shall be increased, based upon the ratio of the rentable
square footage of the Expansion Space to the rentable square footage of the
Building. Landlord's notice shall include a statement of Landlord's reasonable
estimate of the fair rental value of the Expansion space. If the parties have
not agreed upon the fair rental value of the Expansion Space at the time Tenant
exercises its option to lease same, such value shall be determined by
arbitration, as provided in Section 30 hereof.
(b) If Tenant fails to exercise its option to lease the Expansion Space
within the 15-day period as set forth above, Landlord shall be free to lease the
Expansion Space to any party upon any terms and conditions Landlord shall
determine, from time to time during the Term, without any further obligation to
Tenant under the Section. Subsequent to Tenant's failure to exercise its option,
Tenant shall, within ten days after demand thereof by Landlord, confirm in
writing that Tenant has declined to exercise such right.
(c) Tenant shall have no right to exercise its option to lease the
Expansion Space, and any attempted exercise shall be void and of no effect, if:
(i) the named Tenant has assigned this Lease or has at any time subleased, in
the aggregate, more than 50% of the Premises to a party other than one
controlling, controlled by or under common control with Tenant; or (ii) Tenant
shall be in default hereunder and such default shall not have been cured at the
time of the attempted exercise or, if such default occurs after Tenant's
attempted exercise of the option, at the time of the proposed commencement of
the lease of the Expansion Space.
<PAGE>
18
32. SIGNAGE. Tenant shall have the right to a listing in the lobby
directory of the Building and on the entrance door of the Premises. Tenant shall
have exterior signage on brick exterior or brick pedestal at the entrance, per
approval of the Town of Glastonbury and prior approval of Landlord.
33. SEVERABILITY. Each covenant and agreement in this Lease shall be
construed to be a separate and independent covenant and agreement, and the
breach of any such covenant or agreement by Landlord shall not discharge or
relieve Tenant from Tenant's obligations to perform every covenant and agreement
of this Lease to be performed by Tenant. If any term of provision of this Lease
or any application thereof shall be invalid or unenforceable, the remainder of
this Lease and any other application of such term shall not be affected thereby.
The use of the term "herein" shall mean "in this Lease" unless the context
clearly indicates otherwise.
34. SURRENDER OF PREMISES. At the expiration of the Term, Tenant will
peacefully yield up to Landlord the Premises, broom clean, in as good order and
repair as when delivered to Tenant, damage by fire, casualty and ordinary wear
and tear excepted. Any property left by Tenant in the Premises shall be deemed
abandoned by Tenant.
35. GOVERNING LAW. This Lease shall be governed in all respects by the
laws of the State of Connecticut.
36. LITIGATION EXPENSES. If any action, suit or proceeding is commenced
under or in connection with this Lease, the losing party shall pay to the
prevailing party, and the prevailing party shall be entitled to an award for,
attorneys' fees, court costs and other litigation expenses incurred by the
prevailing party in connection with such action, suit or proceeding.
<PAGE>
19
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seal the year and day first above written.
LANDLORD:
Principal Mutual Life Insurance Company
WITNESSES: an Iowa Corporation
/s/ Suzanne M. Baushouk /s/ Michael S. Duffy /s/ Ronald B. Franklin
- ----------------------------- -----------------------------------------------
/s/ Marianne McCarty Its:
- ----------------------------- Michael S. Duffy Ronald B. Franklin
Assistant Director Director
Commercial Real Estate/ Commercial Real Estate
Equities Loan Administration
WITNESSES: TENANTS:
Open Solutions, Inc.
/s/ Katherine Holbrook /s/ Clifford I. Waggoner
- ----------------------------- -----------------------------------------------
Clifford I Waggoner
Vice President
- -----------------------------
- -----------------------------
- ----------------------------- -----------------------------------------------
<PAGE>
EXHIBIT A
[GRAPHIC: Floor Plan]
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION OF REAL PROPERTY
A certain parcel of land situated in the Town of Glastonbury, County of
Hartford and State of Connecticut shown as lot No. 2 and 12' Right of Way on a
map filed in the Town Clerk's office in Glastonbury, Connecticut, titled: Salmon
Brook Corporate Park Subdivision Map, Glastonbury, Connecticut, sheet 1 of 3 No.
A-SI-59-S-1, scale 1" - 40', dated 1/12/82, rev. 8/3/82 by Luchs & Beckerman,
C.E.'s and also shown on a map to be filed in the Town Clerk's office in
Glastonbury, Connecticut, titled: Map prepared for Coeur d'Alene Development,
Inc., Glastonbury, Connecticut, No. A-84-60, scale 1" - 40', dated 7/18/84,.
rev. 9/17/84 by Luchs & Beckerman, C.E.'s to which maps reference is taken
herein, being more particularly bounded and described as follows:
Beginning at a point on the southeasterly line of Winding Brook Drive on
the division line between land now or formerly of Amica Mutual Insurance Company
and the land described, said point being the northeasterly corner of the within
described parcel;
thence running S10(degree) 27' 42"E 15.53 feet to a point, thence
S10(degree) 24' 36"E 673.51 feet to a point, and thence S80(degree)18' 27"W 7.84
feet, all along land now or formerly of said Amica Mutual Insurance Company, to
a point on the northerly line of Connecticut Route 94 also known as Hebron
Avenue;
thence running in general westerly direction following an arc having a
radius of 1,004.93 feet and an interior angle of 3(degree) 32' 05", said arc
turning to the left, for a distance of 62.00 feet along said northerly line of
Connecticut Route 94 also known as Hebron Avenue to a point;
thence running N54(degree) 46' 12"W 114.29 feet to a point, and thence in
general northwesterly direction following an arc having a radius of 1,044.00
feet and an interior angle of 16(degree) 23' 34", said arc turning to the left,
for a distance of 298.70 feet, all along northeasterly line of Connecticut Route
2, State of Connecticut o a point;
thence running N19(degree) 21' 00"E 248.00 feet to a point, and thence
N10(degree) 33' 14"W 181.11 feet, all along lot No. 1, now or formerly of
Chinook Salmon Associates Limited Partnership, to a point on the southerly line
of Winding Brook Drive;
thence running in general easterly direction following an arc having a
radius of 1,001.65 feet and an interior angle of 9(degree) 25' 10", said arc
turning to he left, for a distance of 164.67 feet to a point, and thence in
general northeasterly direction following an arc having a radius of 600.00 feet
at an interior angle of 9(degree) 37' 02", said arc turning to the left, for a
distance of 100.71 feet, all along said southerly and southeasterly line of
Winding Brook Drive to the point of beginning.
<PAGE>
EXHIBIT C
TENANT IMPROVEMENT ALLOWANCE
1. (a) Tenant shall, at Tenant's expense, submit to Landlord final and
complete dimensioned and detailed plans and drawings of partition layouts
(including openings, ceiling and lighting layouts, colors, mechanical and
electrical circuitry plans and any and all other information as may be
reasonably necessary to complete the construction of the Premises in accordance
with this Exhibit C (such plans are collectively referred to herein as "Tenant's
Plans"). The partition layout, and ceiling and lighting layout plans shall be
l'0" = 1/8" scale. Tenant shall submit Tenant's Plans and any other plans
required by this Exhibit C to Landlord in form, quality and quantity acceptable
for the purposes of filing for a building permit with the Building Department of
the City, and such plans shall be signed and sealed by an architect licensed in
the State of Connecticut;
(b) Within ten days after receipt thereof, Landlord shall approve
Tenant's Plans or designate by notice to Tenant the specific changes required to
be made to Tenant's Plans. This procedure shall be repeated until Tenant's Plans
are finally approved by Landlord, which approval shall not be unreasonably
withheld or delayed.
(c) All plans, drawings and specifications with respect to the
Premises required to be submitted by Tenant to Landlord shall comply with and
conform with the Building plans filed with the Department of Buildings and with
all the rules, regulations and/or other requirements of any governmental
department having jurisdiction over the construction of the Building and/or
Premises. Tenant shall prepare drawings in accordance with pre-existing
conditions and field measurements.
(d) Landlord's review of Tenant's Plans is solely to protect the
interests of Landlord in the Building and the Premises, and Landlord shall be
neither the guarantor of, nor responsible for, the correctness or accuracy of
Tenant's Plans or the compliance of Tenant's Plans with applicable requirements
of Governmental Authority.
(e) All visible office space from the building lobby must be
builtout and completed within the first three months of occupancy in a Class A
manner.
2. (a) Tenant shall select a general contractor (the "Contractor"),
subject to the approval of Landlord, which approval will not be unreasonably
withheld and shall be granted within five business days of request for such
approval.
The construction contract will require that before starting work,
the Contractor shall obtain and deliver to Landlord final and unconditional
waivers of mechanic's liens concerning the work for all labor and services to be
performed and all material to be furnished in connection with the work, signed
by the Contractor and all subcontractors, suppliers, and laborers to become
involved in the work.
(b) Landlord shall provide Tenant access to the premises before the
commencement date for the purpose of tenant improvements.
All provisions shall be in effect except rent which is not due
untile the commencement date.
<PAGE>
(c) In the event that Tenant requests any changes to Tenant's Plans,
Landlord shall not unreasonably withhold its consent to any such changes,
provided the changes do not adversely affect the Building's structure, systems,
equipment or appearance.
(d) The "Allowance" will be applied to the cost of construction of
the Tenant Improvements and for no other purpose. The Allowance shall be an
amount up of $16,880.00. Landlord shall pay Tenant $16,880.00 upon Tenant's
verification that Tenant paid at least $16,880.00 toward ceiling and lighting
retrofit.
3. (a) All the Tenant Improvements shall be in accordance with the rules
and regulations of any governmental department or bureau having jurisdiction
thereover and shall not conflict with, or be in violation or cause any violation
of; Landlord's basic Building plans and/or the construction of the Building, and
all the Tenant Improvements shall be completed free of all liens and
encumbrances. All permits which may be required by Landlord for the Tenant
Improvements shall be procured and paid for by Tenant.
(b) Upon completion of the Tenant Improvements, Tenant will remove
all debris and excess materials from the Building and the Premises.
(c) In the event Tenant or the Contractor shall enter upon the
Premises or any other part of the Building, as may be permitted by Landlord,
Tenant shall indemnify and save Landlord free and harmless from and against any
and all claims arising from or out of any entry thereon or the performance of
the Tenant Improvements and from and against any and all claims arising from or
claimed to arise from any act or neglect of Tenant or Tenant's Representatives
or from any failure to act, or for any other reason whatsoever arising out of
said entry or such work. As a condition to Landlord's permission to Tenant to
make any of the Tenant Improvements in the Premises, Landlord may require that
Tenant agree with Landlord as to the fixing of the Commencement Date of this
Lease.
4. Tenant accepts the Premises in its "as is" condition and acknowledges
that it has had an opportunity to inspect the Premises before executing this
Lease.
<PAGE>
EXHIBIT D
BUILDING RULES AND REGULATIONS
300 WINDING BROOK DRIVE
1. The sidewalks, entries, passages, court corridors, stairways and
elevators shall not be obstructed by Tenants, their employees or agents, or used
by them for purposes other than ingress and egress to and from their respective
suites.
2. All safes or other heavy articles shall be carried up or into the
premises only at such times and in such manner as shall be prescribed by the
Landlord and the Landlord shall in all cases have the right to specify the
proper weight and position of any such safe or other heavy article. Any damage
done to the Building by taking in or removing any equipment or from overloading
any such safe or other heavy article. Any damage done to the Building by taking
in or removing any equipment or from overloading any floor in any way shall be
paid by the Tenant. Defacing or injuring in any way any part of the Building by
the Tenant, his invitees, agents or employees, shall be paid for by the Tenant.
3. Tenant will refer all contractors, contractors' representatives
and installation technicians rendering any service to the premises for Tenant to
Landlord for Landlord's approval and supervision before performance of any
contractual service. This provision shall apply to all work performed in the
Building, including installation of telephones, telegraph equipment, electrical
devices and attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings, equipment or any other physical portion of
the Building. Such approval, if given, shall in no way make Landlord, a party to
any contract between Tenant and any such contractor, and Landlord shall have no
liability therefor.
4. No sign, advertisement or notice shall be inscribed, painted, or
affixed on any part of the inside or outside of the Building unless of such
color, size and style and in such place as shall first be designated by
Landlord, there shall be no obligation or duty on Landlord to allow any sign,
advertisement or notice to be inscribed, painted or affixed on any part of the
inside or outside of the Building. Tenant suite identification on or adjacent to
entry doors will conform to standards established by Landlord and must be
installed by Landlord at Tenant's expense. A directory in a conspicuous place,
with the names of the Tenants, will be provided by Landlord, any necessary
revision in Tenant's name shall be made by Landlord within a reasonable time
after notice from the Tenant, and upon payment of a standard fee. No furniture
shall be placed in front of the Building or in any lobby or corridor without
written consent of Landlord. Landlord shall have the right to remove all other
signs and furniture, without notice to Tenant at the expense of Tenant.
5. Tenant shall have the non-exclusive use in common with the
Landlord, other tenants, their guests and invitees, of the automobile parking
areas, driveways and footways, subject to reasonable rules and regulations for
the use thereof as prescribed from time to time by Landlord. Landlord shall have
the right to designate parking areas for the use of the building tenants and
their
<PAGE>
employees, and the tenants and their employees shall not park in parking areas
not so designated, specifically including driveways, fire lanes,
loading/unloading areas, walkways and building entrances. Tenant agrees that
upon written notice from Landlord, it will furnish to Landlord, within five (5)
days from receipt of such notice, the state automobile license numbers assigned
to the automobiles of the Tenant and its employees. Landlord shall not be liable
for any vehicle of the Tenant or its employees that the Landlord shall have
towed from the premises when illegally parked. Landlord will not be liable for
damage to vehicles in the parking areas or for theft of vehicles, personal
property from vehicles, or equipment of vehicles. Tenant agrees that Tenant and
employees of Tenant shall not park on off-site surrounding property, whether
publicly or privately owned, without the written consent of the owner of such
surrounding property.
6. No Tenant shall do or permit anything to be done in said
premises, or bring or keep anything therein, which will in any way increase the
rate of fire insurance on said Building, or on property kept therein, or
obstruct or interfere with the rights of other Tenants, or in any way injure or
annoy them, or conflict with the laws relating to fire, or with any regulations
of the fire department, or with any insurance policy upon said buildings or any
part thereof, or conflict with any rules and ordinances of the local Board of
Health or any governing bodies.
7. The janitor of the Building may at all times keep a pass key, and
he and other agents of the Landlord shall at all times be allowed admittance to
said Demised Premises.
8. No additional locks shall be placed upon any doors without the
written consent of the Landlord. All keys to the Demised Premises and the
Building Security Card Keys (if any) shall be furnished by the Landlord in a
reasonable number commensurate with the square footage leased. Additional keys
and Building Security Card Keys (if any) shall be furnished at Tenant cost. Upon
termination of this lease, all keys and Building Security Card Keys (if any)
shall be surrendered, and the Tenant shall then give the Landlord or his agents
explanation of the combination of all locks upon the doors and vaults.
9. No windows or other openings that reflect or admit light into the
corridors or passageways, or to any other place in said Building, shall be
covered or obstructed by any of the Tenants.
10. No person shall disturb the occupants of the Building by the use
of any musical instruments, radios, televisions, phonographs, tape players,
etc., the making of unreasonable noises, odors, vibrations or any other
unreasonable use of the Building. No dogs or other animals or pets of any kind
will be allowed in the Building.
11. The water closets and other fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
resulting to them from misuse, or the defacing or injury of any part of the
Building, shall be borne by the person who shall occasion it.
12. No bicycles or similar vehicles will be allowed in the Building.
13. Nothing shall be thrown out the windows of the Building or down
the stairways
<PAGE>
or other passages.
14. Tenant shall not be permitted to use or to keep in the Building
any flammable or explosive materials.
15. If any Tenant desires, at his cost, telegraphic, telephonic, or
other electric connections, Landlord or its agents will direct the electricians
(which must be approved in advance by Landlord) as to where and how the wires
may be introduced, and without such directions, no boring or cutting for wires
will be permitted.
16. If Tenant desires shades, draperies or other window treatment,
they must be of such shape, color, material and make as shall conform with other
window treatment within the Building, shall be purchased and installed at the
sole cost and expense of Tenant, and shall be approved in advance by Landlord.
17. Landlord or its agents shall have the right to enter the
premises to examine the same or to make such repairs, alterations or additions
as Landlord shall deem necessary for the safety, preservation or improvement of
the Building.
18. Landlord or its agents may show said premises and may place on
the windows or doors thereof; or upon the bulletin board, a notice "For Rent"
for six (6)months prior to the expiration of the lease.
19. All glass, locks and trimmings in or about the doors and windows
and all electric fixtures belonging to the Building shall be kept whole, and
whenever broken shall be immediately replaced or repaired by Landlord at the
sole cost and expense of Tenant.
20. Tenant shall not install or authorize the installation of any
vending machines, food or beverage preparation machines or dispensing devices,
nor shall Tenant authorize the delivery of food or beverage to the Building,
without Landlord's prior written approval. Landlord shall have the right to
rescind this approval, if given, without liability to Tenant for reimbursement
of any Tenant costs or expenses.
21. Landlord reserves the right at any time to take one elevator out
of service to Tenants for exclusive use by the Building management in servicing
the Building.
22. No cooking shall be done or permitted by any tenant on the
Demised Premises, nor shall the Demised Premises be used for the storage of
merchandise, for washing clothes, for lodging, or for any unlawful, improper,
objectionable or immoral purpose.
23. Tenant shall not disturb any occupant of the Building, or canvas
or conduct surveys within the Building (without the prior written consent of
Landlord), and shall cooperate to prevent same.
24. Landlord reserves the right to exclude or expel from the
Building any person
<PAGE>
FIRST AMENDMENT TO LEASE
This FIRST AMENDMENT TO LEASE (this "Amendment"), is dated as of January
27, 1998, by and between PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa
corporation having an office at 711 High Street, Des Moines, Iowa ("Landlord"),
and OPEN SOLUTIONS, INC. a Connecticut corporation having an office at 300
Winding Brook Drive, Glastonbury, Connecticut ("Tenant').
R E C I T A L S:
A. Pursuant to a certain Lease dated February 29, 1996 (the "Lease"),
between Landlord and Tenant, Landlord leased to Tenant certain space in the
building located at 300 Winding Brook Drive, Glastonbury, Connecticut (the
"Property").
B. Landlord has agreed to expand the parking area at the Property, and
Tenant has agreed to bear its proportionate cost of such expansion by agreeing
to increase its existing Annual Base Rent (as defined in the Lease). In
consideration therefor, Tenant shall be permitted to use the expansion parking
area in accordance with the terms of the Lease.
C. Landlord and Tenant wish to amend the Lease to provide for such
increase in Annual Base Rent, all as more particularly provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Lease, Landlord and Tenant agree as follows:
1. Amendments to Lease, Effective as of November 1, 1997, Landlord and
Tenant hereby amend the Lease as follows:
(a) The following definition of "Additional Parking Rent" is added to the
Lease as Section 2(vii):
(vii) Additional Parking Rent:
Period Annual Additional Parking Rent Monthly Installment
------ ------------------------------ -------------------
December 1, 1997- $2,569.50 $214.13
November 1, 2002
<PAGE>
(b) The following language is added to the end of Section 5:
Tenant shall pay to Landlord Additional Parking Rent without demand and
without setoff or deductions of any kind, in the monthly installments set
forth in Section 2(vii), in advance, on the first day of each calendar
month of the Term commencing on the first to occur of (i) December 1,1997,
or (ii) the Additional Parking Completion Date (as defined below), in
either case, at the address of Landlord stated above or such other place
as Landlord may designate in writing from time to time. In the event of
the termination of the Term prior to November 1, 2002, all unpaid
installments of Additional Parking Rent shall become immediately due and
payable. For purposes of this Lease, the "Additional Parking Completion
Date" shall mean the date on which the 42-space addition to the existing
parking area at the Property is substantially completed and available for
use by Tenant. If the Additional Parking Commencement Date shall be any
day other than the first day of a calendar month, then, Tenant shall pay
Additional Parking Rent for such calendar month prorated on a per diem
basis, and the final payment of Additional Parking Rent shall be reduced
by the amount of such prorated payment.
2. Miscellaneous.
(a) Except as expressly provided herein, nothing in this Amendment shall
be deemed to waive or modify any of the provisions of the Lease. In the event of
any conflict between the terms of the Lease and this Amendment, the terms of
this Amendment shall prevail. Except as amended specifically by this Amendment,
all of the terms, covenants and conditions of the Lease shall remain unmodified
and in full force and effect, and are hereby ratified and affirmed by Landlord
and Tenant.
(b) This Amendment shall be binding upon and inure to the benefit of the
heirs, executors, administrators, successors and assigns of the respective
parties thereto.
(c) All terms capitalized herein and not defined herein shall have the
meanings ascribed to such terms in the Lease.
(d) This Amendment may be executed in several counterparts, each of which
may be deemed an original, but all of which together shall constitute one and
the same agreement.
(e) The recitals set forth at the beginning of this Amendment and the
schedules attached hereto are incorporated in and made a part of this Amendment
by this reference.
(f) Landlord and Tenant each represent and warrant that they have the
authority to enter into this Amendment without the consent, joinder or approval
of any other party.
(Remainder of Page Intentionally Left Blank; Signature Page Follows)
2
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to be
duly executed as of the day and year first written above.
Witnesses: LANDLORD:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
/s/ Katie M. Michael By: /s/ Scott D. Harris
- ------------------------------ ------------------------------------
Name: Scott D. Harris
Title: Assistant Director
Commercial Real Estate/Equities
/s/ [Illegible] By: /s/ R. L. Minear
- ------------------------------ ------------------------------------
Name: R. L. Minear
Title: Director
Corporate Real Estate
- ------------------------------
TENANT:
Witnesses: OPEN SOLUTIONS, INC.
/s/ [Illegible] By: /s/ Debra M. Dubrowski
- ------------------------------ ------------------------------------
Name: Debra M. Dubrowski
Title: Controller
- ------------------------------
3
<PAGE>
STATE OF IOWA )
) ss. Des Moines
COUNTY OF )
On this the 27th day of January, 1998, before me, Susan Wieland, the
undersigned officer, personally appeared Scott D. Harris, who acknowledged
himself to be the Asst. Director of PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, a
corporation, and that he/she, in such capacity being authorized so to do
executed the foregoing instrument as his/her free act and deed and the free act
and deed of the corporation for the purposes contained therein by signing the
name of such corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand.
/s/ Susan Wieland
------------------------------
Notary Public
My Commission expires: _______
[Affix Notarial Seal]
[LOGO] SUSAN WIELAND
MY COMMISSION EXPIRES
July 28, 2000
STATE OF IOWA )
) ss. Des Moines
COUNTY OF )
On this the 27th day of January, 1998, before me, Susan Wieland, the
undersigned officer, personally appeared R.L. Minear, who acknowledged himself
to be the Director of PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, a corporation,
and that he/she, in such capacity being authorized so to do executed the
foregoing instrument as his/her free act and deed and the free act and deed of
the corporation for the purposes contained therein by signing the name of such
corporation by himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand.
/s/ Susan Wieland
------------------------------
Notary Public
My Commission expires: _______
[Affix Notarial Seal]
[LOGO] SUSAN WIELAND
MY COMMISSION EXPIRES
July 28, 2000
4
<PAGE>
STATE OF )
) ss.
COUNTY OF )
On this the ___ day of _____________,1997, before me, ________________ the
undersigned officer, personally appeared ______________________ who acknowledged
himself/herself to be the _____________________________ of OPEN SOLUTIONS, INC.
a Connecticut corporation, and that he/she, in such capacity being authorized so
to do, executed the foregoing instrument as his/her free act and deed and the
free act and deed of such corporation for the purposes contained therein by
signing the name of the partnership by himself/herself as such
_________________________
IN WITNESS WHEREOF, I hereunto set my hand.
____________________________________
Commissioner of the Superior Court
Notary Public
My Commission expires:_________
[Affix Notarial Seal]
5
<PAGE>
SECOND AMENDMENT TO LEASE
This SECOND AMENDMENT TO LEASE (this "Amendment"), is dated as of May 25,
1999, by and between PRINCIPAL LIFE INSURANCE COMPANY, formerly known as
Principal Mutual Life Insurance Company, an Iowa corporation, having an address
at c/o Principal Capital Management, LLC, 801 Grand Avenue, Des Moines, Iowa
50392-1450 ("Landlord"), and OPEN SOLUTIONS, INC. a Connecticut corporation
having an office at 300 Winding Brook Drive, Glastonbury, Connecticut
("Tenant").
RECITALS:
A. Pursuant to a certain Lease dated February 29,1996, as amended by First
Amendment to Lease dated July 1, 1998 (the "Lease"), between Landlord and
Tenant, Landlord leased to Tenant certain space consisting of approximately
14,275 rentable square feet in the first floor of the building (the "Original
Space") located at 300 Winding Brook Drive, Glastonbury, Connecticut (the
"Property").
B. Landlord and Tenant wish to amend the Lease to increase the size of the
leased premises and in certain other particulars.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Lease, Landlord and Tenant agree as follows:
1. Additional Space. In addition to the Original Space leased to Tenant
under the Lease, Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord effective as of August 1, 1999, for the terms and upon the rentals set
forth in the Lease, except as otherwise set forth in this Second Amendment, the
premises consisting of approximately 3,032 rentable square feet on the second
(2nd) floor of the Property (the "Additional Space") as shown on Exhibit A-1
attached hereto and made a part hereof. Tenant agrees to accept the Additional
Space as is, in the condition presently existing, and Landlord shall have no
obligation to make any repairs, alterations or improvements with respect to the
Additional Space.
2. Space Layout. The Lease is hereby amended to add Exhibit A-1 to Exhibit
A of the Lease so that all references in the Lease to Exhibit A shall be deemed
to be references to Exhibit A and Exhibit A-1.
3. Premises. The definition of "Premises" set forth in Paragraph 1. of the
Lease is hereby amended to include for all purposes the Original Space and the
Additional Space.
4. Additional Space Rent. The following definition of "Additional Space
Rent" is added to the Lease as Paragraph 2, Section (vii):
(vii) Additional Space Rent:
Period Annual Additional Space Rent Monthly Installment
------ ---------------------------- -------------------
August 1, 1999 - $57,608.00 $4,800.67
April 30, 2003
<PAGE>
5. Rent. All references to Base Rent in the Lease and herein shall for all
purposes include Additional Space Rent (so that Base Rent, Additional Space
Rent, Additional Rent and every other amount payable by Tenant under the Lease
and hereunder shall be collectively referred to as "Rent").
6. Tenant's Proportionate Share. The Tenant's Proportionate Share as
defined in Section 2 (iii) of the Lease is hereby amended to be 56.04% for the
purpose of determining the Additional Rent under the Lease and for every other
purpose. The Tax Base Year and the Base Year with respect to the Additional
Space shall be the same as for the Original Space.
7. Effective Date. The amendments and agreements set forth in Sections 1
through 7 above shall be effective as of August 1, 1999.
8. Term. The term for the Additional Space shall commence on August 1,
1999 and shall expire on the Expiration Date (April 30, 2003).
9. Brokerage. Section 25 of the Lease is hereby amended by the addition of
the following: For the purpose of the Second Amendment and the leasing of the
Additional Space, the reference to Broker in this Section 25 shall mean Servus
Brokerage Company, LLC.
10. Miscellaneous.
(a) Except as expressly provided herein, nothing in this Amendment
shall be deemed to waive or modify any of the provisions of the Lease. In the
event of any conflict between the terms of the Lease and this Amendment, the
terms of this Amendment shall prevail. Except as amended specifically by this
Amendment, all of the terms, covenants and conditions of the Lease shall remain
unmodified and in full force and effect, and are hereby ratified and affirmed by
Landlord and Tenant.
(b) All terms capitalized herein and not defined herein shall have
the meanings ascribed to such terms in the Lease.
(c) This Amendment may be executed in several counterparts, each of
which may be deemed an original, but all of which together shall constitute one
and the same agreement.
(d) The recitals set forth at the beginning of this Amendment and
the schedules attached hereto are incorporated in and made a part of this
Amendment by this reference.
(e) Landlord and Tenant each represent and warrant that they have
the authority to enter into this Amendment without the consent, joinder or
approval of any other party.
(f) This Amendment shall be binding upon and inure to the benefit of
the heirs, executors, administrators. successors and assigns of the respective
parties thereto.
2
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to be
duly executed as of the day and year first written above.
Witnesses: LANDLORD:
PRINCIPAL LIFE INSURANCE COMPANY,
an Iowa corporation
By: Principal Capital Management, LLC, a
Delaware limited liability company, its
authorized signatory
/s/ Judy Cline By: /s/ George Vogt Jr.
- ------------------------------- --------------------------------
Name: Name: Jay Vogt
Its: Vice President
/s/ [Illegible] Equity Asset Management
- -------------------------------
Name:
By:
- ------------------------------- --------------------------------
Name: Name:
Its:
TENANT:
Witnesses: OPEN SOLUTIONS, INC.
/s/ Kathleen H. Callahan By: /s/ John L. Person
- ------------------------------- --------------------------------
Name: Kathleen H. Callahan Name: John L. Person
Its: President
/s/ Lauren S. Wright
- -------------------------------
Name: Lauren S. Wright
- -------------------------------
3
<PAGE>
STATE OF IOWA )
) ss. Des Moines
COUNTY OF Polk )
On this the 16 day of June, 1999, before me, Nancy S. Niece, the
undersigned officer, personally appeared George Vogt, Jr., who acknowledged
himself/herself to be the Vice President of Principal Capital Management, LLC, a
Delaware limited liability company, authorized signatory of PRINCIPAL LIFE
INSURANCE COMPANY, an Iowa corporation, and that he/she, in such capacity being
authorized so to do, executed the foregoing instrument as his/her free act and
deed and the free act and deed of the limited liability company for the purposes
contained therein by signing the name of such limited liability company by
himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand.
/s/ Nancy S. Niece
------------------------------
[Affix Notarial Seal]
Notary Public
[LOGO] NANCY S. NIECE
MY COMMISSION EXPIRES
June 23, 2001
STATE OF IOWA )
) ss. Des Moines
COUNTY OF )
On this the ___ day of __________, 1999, before me, ________________, the
undersigned officer, personally appeared _____________________, who acknowledged
himself/herself to be the _______________ of Principal Capital Management, LLC,
a Delaware limited liability company, authorized signatory of PRINCIPAL LIFE
INSURANCE COMPANY, an Iowa corporation, and that he/she, in such capacity being
authorized so to do, executed the foregoing instrument as his/her free act and
deed and the free act and deed of the limited liability company for the purposes
contained therein by signing the name of such limited liability company by
himself/herself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand.
------------------------------
[Affix Notarial Seal]
Notary Public
4
<PAGE>
STATE OF Connecticut )
) ss. Glastonbury
COUNTY OF Hartford )
On this the 25th day of May, 1999, before me, Kathleen H. Callahan, the
undersigned officer, personally appeared John L. Person, who acknowledged
himself to be the President of OPEN SOLUTIONS, INC. a Connecticut corporation,
and that he, in such capacity being authorized so to do, executed the foregoing
instrument as his free act and deed and the free act and deed of such
corporation for the purposes contained therein by signing the name of the
partnership by himself as such President.
IN WITNESS WHEREOF, I hereunto set my hand.
/s/ Kathleen H. Callahan
------------------------------
Commissioner of the Superior Court
Notary Public My Commission Exp. Oct. 31, 2000
My Commission expires: ______________
[Affix Notarial Seal]
5
<PAGE>
EXHIBIT A-1
ADDITIONAL SPACE
Exhibit A-1-1
<PAGE>
EXHIBIT "A"-1
[GRAPHIC: Floor Plan]
<PAGE>
COPY
THIRD AMENDMENT TO LEASE
This THIRD AMENDMENT TO LEASE (this "Amendment"), is dated September 16,
1999, by and between FOSTER PROPERTIES, LLC, a Connecticut Limited Liability
Company, having an address at 100 Western Boulevard, Glastonbury, Connecticut.
06033 ("Landlord"), and OPEN SOLUTIONS, INC. a Connecticut corporation having an
office at 300 Winding Brook Drive, Glastonbury, Connecticut, 06033 ("Tenant").
RECITALS:
A. Pursuant to a certain Lease dated February 29, 1996, as amended by
First Amendment to Lease dated July 1, 1998, as amended by Second Amendment to
Lease dated May 25, 1999 (the "Lease"), between Landlord and Tenant, Landlord
leased to Tenant certain space consisting of approximately 14,275 rentable
square feet on the first floor of the building (the "Original Space") and
additional space consisting of approximately 3,032 rentable square feet on the
second floor of the building (the "First Additional Space") located at 300
Winding Brook Drive, Glastonbury, Connecticut (the "Property").
B. Landlord and Tenant wish to amend the Lease to increase the size of the
leased premises and in certain other particulars.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and in the Lease, Landlord and Tenant agree as follows:
1. Additional Space. In addition to the Original Space and the First
Additional Space leased to Tenant under the Lease, and its amendments, Landlord
hereby leases to Tenant and Tenant hereby leases from Landlord effective as of
November 1, 1999, for the terms and upon the rentals set forth in the Lease,
except as otherwise set forth in this Third Amendment, the premises consisting
of approximately 3,240 rentable square feet and 1,128 rentable square feet on
the second (2nd) floor of the Property (the "Second Additional Space") as shown
on Exhibit A-2 attached hereto and made a part hereof. Tenant agrees to accept
the Additional Space as is, in the condition presently existing, and Landlord
shall have no obligation to make any repairs, alterations or improvements with
respect to the Second Additional Space.
2. Space Layout. The Lease is hereby amended to add Exhibit A-2 to Exhibit
A of the Lease and Exhibit A-1 of the Second Amendment To Lease, so that all
references in the Lease to Exhibit A, shall be deemed to be references to
Exhibit A, Exhibit A-1, and Exhibit A-2.
3. Premises. The definition of "Premises" set forth in Paragraph 1. of the
Lease is hereby amended to include for all purposes the Original Space, the
First Additional Space and the Second Additional Space.
<PAGE>
4. Additional Space Rent. The following definition of "Second Additional
Space Rent" is added to the Lease as Paragraph 2, Section (vii):
(vii) Second Additional Space Rent:
Period Annual Second Additional Rent Monthly Installment
- ------ ----------------------------- -------------------
January 1, 2000 - $82,992.00 $6,916.00
April 30, 2003
5. Rent. All references to Base Rent in the Lease and herein shall for all
purposes include Second Additional Space Rent (so that Base Rent, First
Additional Space Rent, Second Additional Space Rent, Additional Rent and every
other amount payable by Tenant under the Lease and hereunder shall be
collectively referred to as "Rent").
6. Tenant's Proportionate Share. The Tenant's Proportionate Share as
defined in Section 2 (iii) of the Lease is hereby amended to be 70.19% for the
purpose of determining the Additional Rent under the Lease and for every other
purpose. The Tax Base Year and the Base Year with respect to the Additional
Space shall be the same as for the Original Space and First Additional Space.
7. Effective Date. The amendments and agreements set forth in Sections 1
through 7 above shall be effective as of November 1, 1999.
8. Term. The Term for the Additional Space shall commence on November 1,
1999 and shall expire on the Expiration Date (April 30, 2003).
9. Brokerage. Section 25 of the Lease is hereby amended by the addition of
the following: For the purpose of the Third Amendment and the leasing of the
Additional Space, the reference to Broker in this Section 25 shall mean Servus
Brokerage Company, LLC.
10. Miscellaneous.
(a) Except as expressly provided herein, nothing in this Amendment
shall be deemed to waive or modify any of the provisions of the
Lease. In the event of any conflict between the terms of the Lease
and this Amendment, the terms of this Amendment shall prevail.
Except as amended specifically by this Amendment, all of the terms,
covenants and conditions of the Lease shall remain unmodified and in
full force and effect, and are hereby ratified and affirmed by
Landlord and Tenant.
(b) All terms capitalized herein and not defined herein shall have
the meanings ascribed to such terms in the Lease.
<PAGE>
(c) This Amendment may be executed in several counterparts, each of
which may be deemed an original, but all of which together shall
constitute one and the same agreement.
(d) The recitals set forth at the beginning of this Amendment and
the schedules attached hereto are incorporated in and made a part of
this Amendment by this reference.
(e) Landlord and Tenant each represent and warrant that they have
the authority to enter into this Amendment without the consent,
joinder or approval of any other party.
(f) This Amendment shall be binding upon and inure to the benefit of
the heirs, executors, administrators, successors and assigns of the
respective parties thereto.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to be duly
executed as of the day and year first written above.
Witnesses: LANDLORD:
FOSTER PROPERTIES, LLC.
a Connecticut Limited Liability
Company
___________________________ By:______________________
Name: Name:
Its:
___________________________
Name:
TENANT:
Witnesses: OPEN SOLUTIONS, INC.
/s/ Lauren S. Wright By: /s/ Jack Person
- ------------------------------- -----------------------------
Name: Lauren S. Wright 9-16-99 Name: Jack Person
Its: President
/s/ Debra Dubrowski Rooney
- -------------------------------
Debra Dubrowski Rooney
<PAGE>
STATE OF CONNECTICUT )
) ss. Glastonbury
COUNTY OF HARTFORD )
On this the _____ day of ____________, 1999, before me,
_____________________, the undersigned officer, personally appeared
_____________________________, who acknowledged himself to be the
___________________________ of Foster Properties, LLC, a Connecticut limited
liability company, and that he, in such capacity being authorized so to do,
executed the foregoing instrument as his free act and deed and the free act and
deed of the limited liability company for the purposes contained therein by
signing the name of such limited liability company by himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand.
__________________________
[Affix Notarial Seal}
Notary Public
STATE OF CONNECTICUT )
) ss. Glastonbury
COUNTY OF HARTFORD )
On this the _____ day of ____________, 1999, before me,
_____________________, the undersigned officer, personally appeared
_____________________________, who acknowledged himself to be the
___________________________ of Open Solutions Inc., a Connecticut Corporation,
and that he, in such capacity being authorized so to do, executed the foregoing
instrument as his free act and deed and the free act and deed of the limited
liability company for the purposes contained therein by signing the name of such
limited liability company by himself as such officer.
__________________________
[Affix Notarial Seal)
Notary Public
<PAGE>
Exhibit A-2
2nd Floor
300 Winding Brook Drive
[GRAPHIC: Floor Plan]
<PAGE>
OPEN SOLUTIONS INC.
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
---------------------------------
Dated as of April 12, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
1. Purchase and Sale of Stock and Warrants.......................................................... 1
1.1 Sale and Issuance of Series E Preferred Stock........................................... 1
1.2 Closing................................................................................. 1
2. Representations and Warranties of the Company.................................................... 1
2.1 Organization; Good Standing; Qualification.............................................. 1
2.2 Authorization........................................................................... 2
2.3 Valid Issuance of Preferred Stock....................................................... 2
2.4 Governmental Consents .............................................................. 2
2.5 Capitalization and Voting Rights........................................................ 3
2.6 Subsidiaries .................................................................... 4
2.7 Contracts and Other Commitments......................................................... 4
2.8 Related-Party Transactions.............................................................. 4
2.9 Registration Rights..................................................................... 4
2.10 Permits................................................................................. 4
2.11 Compliance with Other Instruments....................................................... 5
2.12 Litigation.............................................................................. 5
2.13 Disclosure.............................................................................. 5
2.14 Offering................................................................................ 5
2.15 Title to Property and Assets............................................................ 6
2.16 Financial Statements.................................................................... 6
2.17 Changes................................................................................. 6
2.18 Patents and Trademarks.................................................................. 6
2.19 Manufacturing and Marketing Rights...................................................... 7
2.20 Employees; Employee Compensation........................................................ 7
2.21 Proprietary Information and Inventions Agreements....................................... 7
2.22 Tax Returns, Payments, and Elections.................................................... 8
2.23 Insurance............................................................................... 8
2.24 Environmental and Safety Laws........................................................... 8
2.25 Indemnification......................................................................... 8
3. Representations and Warranties of the Investors.................................................. 8
3.1 Authorization........................................................................... 9
3.2 Purchase Entirely for Own Account....................................................... 9
3.3 Reliance Upon Investor's Representations................................................ 9
3.4 Receipt of Information.................................................................. 9
3.5 Investment Experience................................................................... 9
3.6 Accredited Investor..................................................................... 9
3.7 Restricted Securities................................................................... 10
3.8 Legends................................................................................. 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Page
4. Conditions of Investor's Obligations at Closing.................................................. 10
4.1 Representations and Warranties.......................................................... 10
4.2 Performance............................................................................. 10
4.3 Compliance Certificate.................................................................. 10
4.4 Qualifications.......................................................................... 10
4.5 Proceedings and Documents............................................................... 11
4.6 Board of Directors...................................................................... 11
4.7 Opinion of Company Counsel.............................................................. 11
4.8 Investor's Rights Agreement............................................................. 11
4.9 Management Rights Letter................................................................ 11
5. Conditions of the Company's Obligations at Closing............................................... 11
5.1 Representations and Warranties.......................................................... 11
5.2 Qualifications.......................................................................... 11
5.3 Investors' Rights Agreement............................................................. 12
5.4 Mutual Release Agreement................................................................ 12
5.5 Strategic Alliance Agreement............................................................ 12
6. Right To Put Securities....................................................................... 12
6.1 Definitions............................................................................. 12
6.2 Right to Put............................................................................ 14
6.3 Method of Exercise...................................................................... 14
6.4 Time of Exercise........................................................................ 14
6.5 Closing Date............................................................................ 14
6.6 Closing Procedures...................................................................... 14
7. Miscellaneous.................................................................................... 14
7.1 Entire Agreement........................................................................ 14
7.2 Survival of Warranties.................................................................. 14
7.3 Successors and Assigns.................................................................. 15
7.4 Governing Law........................................................................... 15
7.5 Counterparts............................................................................ 15
7.6 Titles and Subtitles.................................................................... 15
7.7 Notices................................................................................. 15
7.8 Finder's Fees........................................................................... 15
7.9 Attorneys' Fees......................................................................... 16
7.10 Amendments and Waivers.................................................................. 16
7.11 Severability............................................................................ 16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SCHEDULE A Schedule of Exceptions
EXHIBIT A Restated Certificate of Incorporation
EXHIBIT B Amended and Restated Investors' Rights Agreement
EXHIBIT C List of Common Stock Shareholders and Number of
Shares Held by Each Common Stock Shareholder
EXHIBIT D Opinion of Company Counsel
EXHIBIT E Form of Proprietary Information and Inventions Agreements
EXHIBIT F Form of Management Rights Letter
EXHIBIT G Form of Mutual Release Agreement
EXHIBIT H Form of Strategic Alliance Agreement
EXHIBIT I Form of Notice of Put
</TABLE>
<PAGE>
OPEN SOLUTIONS INC.
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES E PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is made as of the 12th day of April, 1999, by and between Open
Solutions Inc., a Delaware corporation (the "Company"), and HNC Software Inc., a
Delaware corporation (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1. SALE AND ISSUANCE OF SERIES E PREFERRED STOCK.
(a) The Company shall adopt and file with the
Secretary of State of Delaware on or before the Closing (as defined below) a
Restated Certificate of Incorporation in the form attached hereto as EXHIBIT A
(the "Restated Certificate").
(b) Subject to the terms and conditions of
this Agreement, the Investor shall purchase at the Closing and the Company shall
sell and issue to the Investor at the Closing 746,157 shares ("Shares") of the
Company's Series E Preferred Stock ("Series E Preferred Stock") for the purchase
price of $8.00 per share.
1.2. CLOSING.
(a) The purchase and sale of the Series E
Preferred Stock shall take place at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts on the 12th day of April, 1999, or at such other
time and place as the Company and Investor shall mutually agree, either orally
or in writing (which time and place are designated as the "Closing").
(b) At the Closing, the Company shall deliver
to the Investor a certificate representing the shares of Series E Preferred
Stock that the Investor is purchasing, under this Agreement, against payment of
the purchase price therefor by wire transfer of immediately available funds.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Investor that, except as set forth
on SCHEDULE A (the "Schedule of Exceptions") hereto specifically identifying the
relevant subparagraph(s) hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1. ORGANIZATION; GOOD STANDING; QUALIFICATION. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware, has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted, to execute
<PAGE>
and deliver this Agreement and the Amended and Restated Investors' Rights
Agreement, of even date herewith, among the Company, the Investor and certain
other stockholders of the Company, in substantially the form attached hereto as
EXHIBIT B (the "Rights Agreement"), to issue and sell the Series E Preferred
Stock and the Common Stock issuable upon conversion thereof, and to carry out
the provisions of this Agreement, the Rights Agreement and the Restated
Certificate. The Company is qualified to transact business as a foreign
corporation in the State of Connecticut.
2.2. AUTHORIZATION. All corporate or other action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization, execution, and delivery of this Agreement and the Rights
Agreement, the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance (or reservation for issuance) and
delivery of the Series E Preferred Stock being sold hereunder and the Common
Stock issuable upon conversion of the Series E Preferred Stock, has been taken
or will be taken prior to the Closing, and this Agreement and the Rights
Agreement, constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Rights Agreement may be limited by
applicable federal or state securities laws.
2.3. VALID ISSUANCE OF PREFERRED STOCK. The Series E
Preferred Stock which is being purchased by the Investor hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer (i) under this Agreement, (ii) under the Rights
Agreement, and (iii) under applicable state and federal securities laws. The
Common Stock issuable upon conversion of the Series E Preferred Stock (the
"Conversion Shares") purchased under this Agreement have been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Restated Certificate shall be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Rights Agreement and under
applicable state and federal securities laws.
2.4. GOVERNMENTAL CONSENTS. No consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority is required on the part of the Company in
connection with the Company's valid execution, delivery, or performance of this
Agreement and the Rights Agreement, or the offer, sale or issuance of the Series
E Preferred Stock by the Company or the issuance of Common Stock upon conversion
thereof, except (i) the filing of the Restated Certificate with the Secretary of
State of the State of Delaware and (ii) such filings as have been made prior to
the applicable Closing, except that any notices of sale required to be filed
with the Securities and Exchange Commission under Regulation D of the Securities
Act of 1933, as amended (the "Securities Act"), or such post-closing filings as
may be required under applicable state securities laws, which will be timely
filed within the applicable periods therefor by special counsel for the
Investor.
<PAGE>
2.5. CAPITALIZATION AND VOTING RIGHTS. The authorized
capital of the Company consists, or will consist prior to the Closing, of:
(a) PREFERRED STOCK. Six Million Six Hundred
Ninety Thousand Seven Hundred Forty (6,690,740) shares of Preferred Stock (the
"Preferred Stock"), One Million (1,000,000) shares of which have been designated
Series A-1 Preferred Stock, all of which are issued and outstanding, Five
Hundred Eighty-Three Thousand Three Hundred Thirty-Three (583,333) shares of
which have been designated Series A-2 Preferred Stock, all of which are issued
and outstanding, One Million Seven Hundred Thirty-Six Thousand Two Hundred Fifty
(1,736,250) shares of which have been designated Series B Preferred Stock, One
Million Six Hundred Twenty-Seven Thousand Nine Hundred Seventeen (1,627,917) of
which are issued and outstanding, One Million Three Hundred Seventy-Five
Thousand (1,375,000) shares of which have been designated Series C Preferred
Stock, One Million Two Hundred Sixty-Three Thousand Eight Hundred Eighty-Nine
(1,263,889) of which are issued and outstanding, One Million Two Hundred Fifty
Thousand (1,250,000) shares of which have been designated Series D Preferred
Stock, Eight Hundred Thirty-Three Thousand Thirty-Three (833,333) of which are
issued and outstanding, and Seven Hundred Forty-Six Thousand One Hundred
Fifty-Seven (746,157) shares of which have been designated Series E Preferred
Stock, none of which have been issued.
(b) COMMON STOCK. Twenty Million (20,000,000)
shares of common stock ("Common Stock"), of which Two Million Two Hundred
Thirty-Six Thousand Thirteen (2,236,013) shares are issued and outstanding.
(c) The outstanding shares of Common Stock and
Preferred Stock are owned by the shareholders and in the numbers specified in
EXHIBIT C hereto.
(d) The outstanding shares of Common Stock and
Preferred Stock have been issued in accordance with the registration or
qualification provisions of the Securities Act and any relevant state securities
laws or pursuant to valid exemptions therefrom.
(e) Except for (A) the conversion privileges of
the Series A-1 Preferred Stock, the Series A-2 Preferred Stock the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and
the Series E Preferred Stock, (B) the rights provided in Section 2.9 of the
Rights Agreement, (C) the options to purchase an aggregate of 1,589,696 shares
of Common Stock outstanding under the Company's 1994 Stock Option Plan (the
"Option Plan"), and (D) warrants to purchase 108,333 shares of Series B
Preferred Stock, warrants to purchase 111,111 shares of Series C Preferred Stock
and warrants to purchase 416,667 shares of Series D Preferred Stock, there are
not outstanding any options, warrants rights (including conversion or preemptive
rights and rights of first refusal) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. A total of
2,868,988 shares of Common Stock are reserved for issuance under the Option
Plan. Except for the Rights Agreement, the Company is not a party or subject to
any agreement or understanding, and, to the best of the Company's knowledge,
there is no agreement or understanding between any persons
<PAGE>
that affect or relate to the voting or giving of written consents with respect
to any security or the voting by a director of the Company.
2.6. SUBSIDIARIES. The Company does not own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.7. CONTRACTS AND OTHER COMMITMENTS. The Company does not
have any contract, agreement, lease, commitment, written or oral, absolute or
contingent, other than (i) contracts for the purchase of supplies and services
that were entered into in the ordinary course of business and that do not
involve more than $50,000, and do not extend for more than one (1) year beyond
the date hereof, (ii) sales contracts entered into in the ordinary course of
business that do not involve more than $50,000, and (iii) contracts terminable
at will by the Company on no more than ninety (90) days notice without cost or
liability to the Company and that do not involve any employment or consulting
arrangement and are not material to the conduct of the Company's business. For
the purpose of this paragraph, employment and consulting contracts and contracts
with labor unions, and license agreements and any other agreements relating to
the acquisition or disposition of the Company's technology, shall not be
considered to be contracts entered into in the ordinary course of business.
2.8. RELATED-PARTY TRANSACTIONS. No employee, officer, or
director of the Company or member of his or her immediate family thereof is
indebted to the Company, nor is the Company indebted (or committed to make loans
or extend or guarantee credit) to any of them. To the best of the Company's
knowledge, none of such persons has any direct or indirect ownership interest in
any firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation that competes
with the Company, except that employees, officers or directors of the Company
and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. To the best of the Company's
knowledge, no officer or director or any member of their immediate families is,
directly or indirectly, interested in any material contract with the Company.
2.9. REGISTRATION RIGHTS. Except as provided in the
Rights Agreement, the Company is not obligated to register under the Securities
Act any of its presently outstanding securities or any of its securities that
may subsequently be issued.
2.10. PERMITS. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial condition of the Company
and believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority.
<PAGE>
2.11. COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not
in violation or default in any material respect of any provision of its Restated
Certificate or Bylaws or in any material respect of any provision of any
mortgage, indenture, agreement, instrument or contract to which it is a party or
by which it is bound or, to the best of its knowledge, of any federal or state
judgment, order, writ, decree, statute, rule or regulation applicable to the
Company. The execution, delivery and performance by the Company of this
Agreement or the Rights Agreement and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
material conflict with or constitute, with or without the passage of time or
giving of notice, either a material default under any such provision or an event
that results in the creation of any material lien, charge or encumbrance upon
any assets of the Company or the suspension, revocation, impairment, forfeiture,
or nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations, or any of its assets or
properties.
2.12. LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened in writing against the Company
that questions the validity of this Agreement or the Rights Agreement or any of
the transactions contemplated hereby, or the right of the Company to enter into
such agreements, or to consummate the transactions contemplated hereby or
thereby, or that might result, either individually or in the aggregate, in any
material adverse change in the assets, business properties, prospects or
financial condition of the Company, or in any material change in the current
equity ownership of the Company. The foregoing includes, without limitation, any
action, suit, proceeding, or investigation pending or currently threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, their obligations under
any agreements with prior employers, or negotiations by the Company with
potential backers of, or investors in, the Company or its proposed business. The
Company is not a party to, or to the best of its knowledge, named in any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit or proceeding by the Company currently
pending or that the Company currently intends to initiate.
2.13. DISCLOSURE. The Company has provided the Investor
with all the information reasonably available to it without undue expense that
such Investor has requested for deciding whether to purchase the Series E
Preferred Stock. Neither this Agreement nor any other written statement or
certificate made or delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
2.14. OFFERING. Subject in part to the truth and accuracy
of the Investor's representations set forth in this Agreement, the offer, sale
and issuance of the Series E Preferred Stock as contemplated by this Agreement
are exempt from the registration requirements of the Securities Act, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
<PAGE>
2.15. TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
2.16. FINANCIAL STATEMENTS. The Company has delivered to
the Investor (i) its audited financial statements for the Company's fiscal year
ending December 31, 1997, and (ii) its unaudited financial schedules (balance
sheet and profit and loss statement) as at and for the year ended December 31,
1998 (collectively, the "Financial Statements"). The Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and with each
other, except that the unaudited statements may not contain all footnotes
required by generally accepted accounting principles. The Financial Statements
fairly present the financial condition and operating results of the Company as
of the dates, and for the periods, indicated therein, subject, in the case of
the unaudited Financial Statements, to normal year-end audit adjustments. Except
as set forth in the Financial Statements, the Company has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to December 31, 1998, and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements, which, in both cases, individually or in
the aggregate, are not material to the financial condition or operating results
of the Company. Except as disclosed in the Financial Statements, the Company is
not a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.
2.17. CHANGES. To the best of the Company's knowledge,
since December 31, 1998, there has not been any event or condition of any type
that has materially and adversely affected the business, properties, prospects
or financial condition of the Company.
2.18. PATENTS AND TRADEMARKS. The Company owns or possesses
sufficient legal rights to all patents, trademarks, servicemarks, trade names,
copyrights, trade secrets, software, licenses, information, proprietary rights
and processes necessary for the conduct of its business as now conducted and as
proposed to be conducted without any conflict with or infringement of the rights
of others. The Schedule of Exceptions contains a complete list of patents and
pending patent applications of the Company. Except for agreements with its own
employees or consultants, substantially in the form referenced in paragraph 2.21
below, there are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, software,
licenses, information, proprietary rights and processes of any other person or
entity. The Company has not received any communications alleging that the
Company has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names,
<PAGE>
copyrights, trade secrets or other proprietary rights of any other person or
entity. The Company is not aware that any of its employees is obligated under
any contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any contract, covenant or instrument under
which any of such employees is now obligated. The Company does not believe it is
or will be necessary to use any inventions of any of its employees (or persons
it currently intends to hire) made prior to their employment by the Company.
2.19. MANUFACTURING AND MARKETING RIGHTS. The Company has
not granted rights to manufacture, produce, assemble, license, market, or sell
its products to any other person and is not bound by any agreement that affects
the Company's exclusive right to develop, manufacture, assemble, distribute,
market, or sell its products.
2.20. EMPLOYEES; EMPLOYEE COMPENSATION. There is no strike,
labor dispute or union organization activities pending or threatened between the
Company and its employees. None of the Company's employees belongs to any union
or collective bargaining unit. To the best of its knowledge, the Company has
complied in all material respects with all applicable state and federal equal
employment opportunity and other laws related to employment. To the best of the
Company's knowledge, no employee of the Company is or will be in violation of
any judgment, decree or order, or any term of any employment contract, patent
disclosure agreement or other contract or agreement relating to the relationship
of any such employee with the Company or any other party because of the nature
of the business conducted or to be conducted by the Company or to the
utilization by the employee of his best efforts with respect to such business.
The Company is not party to or bound by any currently effective employment
contract, deferred compensation agreement, bonus plan, incentive plan, profit
sharing plan, retirement agreement, or other employee compensation agreement.
The Company is not aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with the Company, nor does
the Company have a present intention to terminate the employment of any of the
foregoing. Subject to general principles related to wrongful termination of
employees, the employment of each officer and employee of the Company is
terminable at the will of the Company.
2.21. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS.
Each employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement substantially in the form or forms attached
hereto as EXHIBIT E The Company, after reasonable investigation, is not aware
that any of its employees, officers or consultants are in violation thereof, and
the Company will use its best efforts to prevent any such violation.
2.22. TAX RETURNS, PAYMENTS, AND ELECTIONS. The Company has
filed all tax returns and reports as required by law. These returns and reports
are true and correct in all
<PAGE>
material respects. The Company has paid all taxes and other assessments due,
except those contested by it in good faith. The Company has not elected pursuant
to the Internal Revenue Code of 1986, as amended ("Code"), to be treated as an S
corporation or a collapsible corporation pursuant to Section 341(f) of Section
1362(a) of the Code, nor has it made any other elections pursuant to the Code
(other than elections which relate solely to methods of accounting, depreciation
or amortization) that would have a material effect on the business, properties,
prospects or financial condition of the Company. The Company has never had any
tax deficiency proposed or assessed against it and has not executed any waiver
of any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's federal income tax returns and none
of its state income or franchise tax or sales or use tax returns has ever been
audited by governmental authorities. Since the date of the Financial Statements,
the Company has made adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to its business, properties
and operations for such period. The Company has withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
2.23. INSURANCE. The Company has in full force and effect
fire and casualty insurance policies, with extended coverage, sufficient in
amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed. The Company does not now have
products liability insurance but may in the future in the judgment of the
Company's Board of Directors obtain such insurance in amounts customary for
companies similarly situated.
2.24. ENVIRONMENTAL AND SAFETY LAWS. The Company is not in
violation of any applicable statute, law, or regulation relating to the
environment or occupational health and safety, and to the best of its knowledge,
no material expenditures are or will be required in order to comply with any
such existing statute, law, or regulation.
2.25. INDEMNIFICATION. The Restated Certificate provides
for the indemnification of officers and directors of the Company to the fullest
extent permitted by law.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. The
Investor hereby represents and warrants that:
3.1. AUTHORIZATION. The Investor represents that it has
full power and authority to enter into this Agreement and the Rights Agreement
and that this Agreement and the Rights Agreement constitute its valid and
legally binding obligation.
3.2. PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is
made with the Investor in reliance upon such Investor's representation to the
Company, which by Investor's execution of this Agreement the Investor hereby
confirms, that the Series E Preferred Stock to be purchased by such Investor
under this Agreement, and the Common Stock issuable upon
<PAGE>
conversion thereof, (collectively, the "Securities") will be acquired for
investment for such Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that such
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Investor
further represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the Securities.
3.3. RELIANCE UPON INVESTOR'S REPRESENTATIONS. The
Investor understands that the Series E Preferred Stock is not, and any Common
Stock acquired on conversion thereof at the time of issuance may not be,
registered under the Securities Act on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt from
registration under the Securities Act pursuant to section 4(2) thereof, and that
the Company's reliance on such exemption is predicated on the Investor's
representations set forth herein.
3.4. RECEIPT OF INFORMATION. The Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series E Preferred Stock hereunder. The Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series E Preferred Stock hereunder and the business, properties, prospects and
financial condition of the Company and to obtain additional information (to the
extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to it or to which it had access. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of the Investor to rely thereon.
3.5. INVESTMENT EXPERIENCE. The Investor represents that
it is experienced in evaluating and investing in securities and acknowledges
that it is able to fend for itself, can bear the economic risk of its
investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Series E Preferred Stock. The Investor also represents it has not been
organized solely for the purpose of acquiring the Series E Preferred Stock.
3.6. ACCREDITED INVESTORS. The Investor represents to the
Company that it is an Accredited Investor as defined in Regulation D under the
Securities Act.
3.7. RESTRICTED SECURITIES. The Investor understands that
the securities may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Securities or an
available exemption from registration under the Securities Act, the Securities
must be held indefinitely. In particular, the Investor is aware that the
Securities may not be sold pursuant to Rule 144 promulgated under the Securities
Act unless all of the conditions of that Rule are met. Among the conditions for
use of Rule 144 (other than paragraph (k) of Rule 144) is the availability of
current information to the public about the Company. Such information is not now
available and the Company has no present plans to make such information
available.
<PAGE>
3.8. LEGENDS. It is understood that the Securities may
bear one or all of the following legends:
(a) "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 in effect
with respect to the securities under such Act or an opinion of counsel
reasonably satisfactory to the Company that such registration is not required or
unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by federal law or the laws of
any state as applicable.
4. CONDITIONS OF THE INVESTOR'S OBLIGATIONS AT
CLOSING. The obligations of the Investor under subparagraph 1.1(b) of this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions, the waiver of which must be set forth in a writing signed
by the Investor to be effective against the Investor:
4.1. REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company contained in Section 2 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of such Closing.
4.2. PERFORMANCE. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3. COMPLIANCE CERTIFICATE. The Chief Executive Officer
of the Company shall deliver to the Investor at the Closing a certificate
certifying that the conditions specified in paragraphs 4.1 and 4.2 have been
fulfilled.
4.4. QUALIFICATIONS. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required prior to the lawful issuance and sale
of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
4.5. PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investor's special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
4.6. BOARD OF DIRECTORS. The size of the Board of
Directors of the Company shall initially be fixed at ten (10) directors. The
directors shall consist of (i) Carlos P. Naudon, Clifford I. Waggoner, Richard
P. Yanak and Graham H. Gurney, as elected by the holders of Common Stock voting
separately as a single class, (ii) William W. Neville, David M. Clarke,
<PAGE>
Douglas C. Carlisle, Samuel F. McKay and Michael A. Thiemannn, as elected by the
holders of Preferred Stock voting separately as a single class, and (iii)
Douglas K. Anderson, as elected by the holders of Common Stock and Preferred
Stock voting together as a single class.
4.7. OPINION OF COMPANY COUNSEL. The Investor shall
have received from Hale and Dorr LLP, special counsel for the Company, an
opinion, dated the date of the Closing, in substantially the form attached
hereto as EXHIBIT D
4.8. INVESTORS' RIGHTS AGREEMENT. The Company and all
holders of Preferred Stock of the Company (other than the Investor) shall have
entered into the Rights Agreement in the form attached hereto as EXHIBIT B.
4.9. MANAGEMENT RIGHTS LETTER. The Company shall deliver
to the Investor an executed Management Rights Letter in the form attached hereto
as EXHIBIT F.
4.10 MUTUAL RELEASE AGREEMENT. The Company shall have
executed and delivered to the Investor a Mutual Release Agreement in the form
attached hereto as EXHIBIT G.
4.11. STRATEGIC ALLIANCE AGREEMENT. The Company shall have
executed and delivered to the Investor a Strategic Alliance Agreement in the
form attached hereto as EXHIBIT H.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to the Investor under this Agreement are subject
to the fulfillment on or before the Closing of each of the following conditions
by the Investor:
5.1. REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Investor contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 QUALIFICATIONS. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required prior to the lawful issuance and sale
of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
5.3 INVESTORS' RIGHTS AGREEMENT. The Investor shall have
entered into the Rights Agreement in the form attached hereto as EXHIBIT B.
5.4 MUTUAL RELEASE AGREEMENT. The Investor shall have
executed and delivered to the Company a Mutual Release Agreement in the form
attached hereto as EXHIBIT G.
5.5 STRATEGIC ALLIANCE AGREEMENT. The Investor shall have
executed and delivered to the Company a Strategic Alliance Agreement in the form
attached hereto as EXHIBIT H.
<PAGE>
6. RIGHT TO PUT SECURITIES
6.1. DEFINITIONS. For purposes of this Section 6:
CHANGE IN CONTROL - shall mean (i) a sale of all or
substantially all of the assets or business of the Company; (ii) a sale or other
transfer by the stockholders of the Company to a single entity or person (or to
a group of entities or persons acting in concert), in one or a series of related
transactions, of more than 50% of the outstanding shares of capital stock of the
Company entitled to vote for the election of directors, (including securities
convertible into such voting shares of the Company); or (iii) a merger or
consolidation of the Company into or with any other entity or entities if, as a
result thereof, more than 50% of the voting shares of the entity surviving such
merger or consolidation is held by persons or entities which are not
shareholders of the Company immediately prior to such event.
CONNECTICUT PRESENCE - shall mean that the Company, together
with its subsidiaries, and their successors and assigns (i) maintains its
principal place of business in the State of Connecticut, (ii) bases a numerical
majority of the sum of its employees in the State of Connecticut, and (iii)
conducts a majority of its operations (including manufacturing and production),
directly or through subcontractors, in the State of Connecticut.
PUT PRICE - shall mean (a) in the case of a Put under Section
6.4(a), the greater of (i) eight dollars ($8.00) (as adjusted for stock
dividends, stock splits and similar corporate events, for the Preferred Stock
and/or Common Stock which is the subject of a Notice of Put) multiplied by the
number of shares of Preferred Stock (and/or Common Stock) which are the subject
of a Notice of Put, plus a 40% compounded annual rate of return on such amount
from the date hereof through the date of the Put Closing (as hereinafter
defined), provided that if the Put Closing takes place more than three (3) years
from the date hereof, the compounded annual rate of return shall be calculated
from the date hereof through the third anniversary of the date hereof, or (ii)
the Aggregate Market Value on the Put Date; or (b) in the case of a Put under
Section 6.4(b), the greater of (i) eight dollars ($8.00) (as adjusted for stock
dividends, stock splits and similar corporate events, for the Preferred Stock
and/or Common Stock which is the subject of a Notice of Put) multiplied by the
number of shares of Preferred Stock (and/or Common Stock) which are the subject
of a Notice of Put, plus a 25% compounded annual rate of return on such amount
from the date hereof through the date of the Put Closing (as hereinafter
defined), or (ii) the Aggregate Market Value on the Put Date.
AGGREGATE MARKET VALUE - shall mean on any date the product of
(i) the Current Market value (as hereinafter defined) on such date of each share
of Preferred Stock (and/or Common Stock) held by the Investor exercising its
rights under this Section 6 and (ii) the number of shares of Preferred Stock
(and/or Common Stock) which are the subject of a Notice of Put. The term
"Current Market Value" on any date shall be:
(a) if the Series E Preferred Stock (or Common Stock) is not traded in
such manner that the quotations referred to in clause (b) below are available
for the period required hereunder, the per share value determined in good faith
by the Board of Directors of the Company or, if
<PAGE>
such determination cannot be made or is reasonably objected to by the Investor
within thirty (30) days of its notification thereof, then the value determined
by a nationally recognized independent investment banking firm (which has no
past or present relationship with the Company or the Investor) selected in good
faith by the Board of Directors of the Company, or if such selection cannot be
made or is reasonably objected to by the Investor within thirty (30) days of its
notification thereof, then the per share value determined by a nationally
recognized independent investment banking firm selected by the American
Arbitration Association in Hartford, Connecticut in accordance with its rules;
(b) the average of the daily closing prices per share for the 30
consecutive business days ending no more than 15 business days before the Put
Date (as adjusted for any stock dividend, split, combination or reclassification
that took effect during such 30 business day period). The closing price per
share for each day shall be the last reported sales price regular way or, in
case no such reported sales took place on such day, the average of the last
reported bid-and-asked prices regular way, in either case on the principal
national securities exchange on which the Series E Preferred Stock (or Common
Stock) is listed or admitted to trading, or if the Series E Preferred Stock (or
Common Stock) is not at the time listed or admitted for trading on any such
exchange, then such price as shall be equal to the average of the last reported
bid and asked prices, as reported by the National Association of Securities
Dealer's Automated Quotations System ("NASDAQ") on such day, or if, on any day
in question, the security shall not be quoted on NASDAQ, then such price shall
be equal to the average of the last reported bid-and-asked prices on such day as
reported by The National Quotation Bureau Incorporated or any similar reputable
quotation and reporting service, if such quotation is not reported by The
National Quotation Bureau Incorporated.
TERMINATION DATE - shall mean the earlier of (i) the date on
which Connecticut Innovations, Incorporated ("CII") no longer holds any Series C
Preferred Stock, Conversion Shares, Warrants or Warrant Shares, and (ii) the
first date after an IPO and the expiration or termination of the term of any
related "lock-up" agreement applicable to the Series C Preferred Stock,
Conversion Shares, or the Warrant Shares, on which all Series C Preferred Stock,
Conversion Shares and Warrant Shares then held by CII may be offered and sold by
CII to any number of offerees and purchasers pursuant to (A) Rule 144(k) under
the Securities Act of 1933 (or any similar rule hereafter adopted by the
Securities and Exchange Commission), or (B) an effective registration statement
filed under the Securities Act of 1933.
6.2. RIGHT TO PUT. On the terms and conditions herein set
forth, the Investor shall have the right to sell to the Company, and the Company
agrees to purchase from such Investor, all of such Investor's Securities (as
defined in Section 3.2) which are the subject of a Notice of Put (the "Put") for
the Put Price.
6.3. METHOD OF EXERCISE. On the terms and conditions
herein set forth, the Investor may exercise its rights hereunder to sell all or
part of its Securities by delivering to the Company a notice of Put (a "Notice
of Put") in the form attached hereto as EXHIBIT I.
<PAGE>
6.4. TIME OF EXERCISE. The rights of the Investor to Put
its Securities shall become exercisable at any time prior to the Termination
Date and following (a) the Company's failure to maintain a Connecticut Presence
(as defined herein) or (b) so long as the Company is not subject to the
requirements of Sections 12(g) or 15(d) of the Securities Exchange Act of 1934,
a Change in Control.
6.5. CLOSING DATE. The closing, (the "Put Closing"), of
the purchase and sale of Securities pursuant to this Section 6 hereof shall be
held on the date, (the "Put Closing Date"), which is the sixtieth (60th)
business day after delivery of a Notice of Put.
6.6. CLOSING PROCEDURES. At the Put Closing, the Investor
exercising their rights under this Section 6 will deliver to the Company the
securities which are covered by the Notice of Put, and the Company will deliver
to such Investor the Put Price for such securities in cash, certified or bank
check, or by wire transfer. The Company may elect to pay to the Investor the Put
Price as follows: in equal annual installments of principal in the amount of
one-third of the Put Price each, the first such installment to be paid at the
Closing, plus interest on the outstanding balance, payable with each installment
of principal calculated at a fixed rate per annum equal to twenty-five (25%)
percent. The Investor shall, at the Company's request, represent and warrant to
the Company that (i) it owns the securities which are covered by the Notice of
Put free and clear of all liens, charges and encumbrances, and (ii) it has the
power and authority to transfer such securities to the Company and to consummate
the Put.
7. MISCELLANEOUS.
7.1. ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
7.2. SURVIVAL OF WARRANTIES. The warranties,
representations and covenants of the Company and the Investor contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing and shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of the Investor or the
Company.
7.3. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein or in the Rights Agreement, 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 Series E
Preferred Stock sold hereunder or any Common Stock issued upon conversion
thereof). Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
7.4. GOVERNING LAW. This Agreement shall be governed by
and construed under the laws of the State of Connecticut.
<PAGE>
7.5. 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.
7.6. 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.
7.7. 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 to the party to be notified
by hand or professional courier service or five days after deposit with the
United States Post Office, by registered or certified mail, postage prepaid, if
to the Investor, addressed to the Investor to the attention of the President of
the Investor at the address indicated for the Investor on the signature page
hereto, with a copy to Kenneth A. Linhares, Esq., Fenwick & West, LLP, Two Palo
Alto Square, Suite 800, Palo Alto, CA 94306, and if to the Company, addressed to
the Company to the attention of the Chief Executive Officer of the Company at
the address indicated for the Company on the signature page hereto, with a copy
to Mark G. Borden, Esq., Hale and Dorr LLP, 60 State Street, Boston, MA 02109,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other party.
7.8. FINDER'S FEES. Each party represents that it neither
is nor will be obligated for any finders' fee or commission in connection with
this transaction.
The Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless the Investor
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees or
representatives is responsible.
7.9. ATTORNEYS' FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Rights
Agreement, or the Restated Certificate, 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.
7.10. 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
more than 50% of the Common Stock (that has not been sold to the
<PAGE>
public) issued or issuable upon conversion of the Series E Preferred Stock. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon the holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities have been
converted), the future holder of all such securities, and the Company.
Notwithstanding the foregoing, the rights of the Investor under Section 6 hereof
may not be waived or amended without the written consent of such Investor.
7.11. 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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
OPEN SOLUTIONS INC.
By: /s/ Doug K. Anderson
--------------------------------
Name: Douglass K. Anderson
Title: Chairman and CEO
Address: 300 Winding Brook Drive
Glastonbury, CT 06033
HNC SOFTWARE INC.
By: /s/ Raymond V. Thomas
--------------------------------
Name: Raymond V. Thomas
Title: Vice President, Finance
and Administration and
Secretary
Address: 5930 Cornerstone Court West
San Diego, CA 92121
<PAGE>
Exhibit 10.17
OPEN SOLUTIONS INC.
SERIES F PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES F PREFERRED STOCK PURCHASE AGREEMENT (this
"AGREEMENT") is made as of the 17th day of March, 2000, by and among Open
Solutions Inc., a Delaware corporation (the "COMPANY"), and the investors listed
on SCHEDULE A hereto (herein individually "INVESTOR" and collectively
"INVESTORS").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1. SALE AND ISSUANCE OF SERIES F PREFERRED STOCK.
(a) The Company shall adopt and file with the
Secretary of State of Delaware on or before the Closing (as defined below) a
Restated Certificate of Incorporation in the form attached hereto as EXHIBIT A
(the "RESTATED CERTIFICATE").
(b) Subject to the terms and conditions of this
Agreement, the Investors shall purchase at the Closing and the Company shall
sell and issue to the Investors at the Closing an aggregate of 2,145,923 shares
("SHARES") of the Company's Series F Preferred Stock ("SERIES F PREFERRED
STOCK"), each Investor to purchase such number of Shares as are set forth
opposite such Investor's name on SCHEDULE A hereto for the purchase price of
$9.32 per share.
1.2. CLOSING.
(a) The purchase and sale of the Series F Preferred
Stock shall take place at the offices of Shipman & Goodwin LLP, One American
Row, Hartford, Connecticut on the 16th day of March, 2000, or at such other time
and place as the Company and Investors shall mutually agree, either orally or in
writing (which time and place are designated as the "CLOSING").
(b) At the Closing, the Company shall deliver to each
Investor a certificate representing the shares of Series F Preferred Stock that
each Investor is purchasing under this Agreement, against payment of the
purchase price therefor by wire transfer of immediately available funds.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to each Investor that, except as set
forth on SCHEDULE B (the "SCHEDULE OF EXCEPTIONS") hereto specifically
identifying the relevant subparagraph(s) hereof, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
<PAGE>
2.1 ORGANIZATION; GOOD STANDING; QUALIFICATION. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware, has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted, to execute and
deliver this Agreement and the Amended and Restated Investors' Rights Agreement,
of even date herewith, among the Company, each Investor party thereto and
certain other stockholders of the Company, in substantially the form attached
hereto as EXHIBIT B (the "RIGHTS AGREEMENT"), to issue and sell the Series F
Preferred Stock and the Common Stock issuable upon conversion thereof, and to
carry out the provisions of this Agreement, the Rights Agreement and the
Restated Certificate. The Company is qualified to transact business as a foreign
corporation in the State of Connecticut.
2.2. AUTHORIZATION. All corporate or other action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization, execution, and delivery of this Agreement and the Rights
Agreement, the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance (or reservation for issuance) and
delivery of the Series F Preferred Stock being sold hereunder and the Common
Stock issuable upon conversion of the Series F Preferred Stock, has been taken
or will be taken prior to the Closing, and this Agreement and the Rights
Agreement, constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Rights Agreement may be limited by
applicable federal or state securities laws.
2.3. VALID ISSUANCE OF PREFERRED STOCK. The Series F
Preferred Stock which is being purchased by the Investors hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer (i) under this Agreement, (ii) under the Rights
Agreement, and (iii) under applicable state and federal securities laws. The
Common Stock issuable upon conversion of the Series F Preferred Stock (the
"CONVERSION SHARES") purchased under this Agreement have been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Restated Certificate shall be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Rights Agreement and under
applicable state and federal securities laws.
2.4. GOVERNMENTAL CONSENTS. No consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority is required on the part of the Company in
connection with the Company's valid execution, delivery, or performance of this
Agreement and the Rights Agreement, or the offer, sale or issuance of the Series
F Preferred Stock by the Company or the issuance of Common Stock upon conversion
thereof, except (i) the filing of the Restated Certificate with the Secretary of
State of the State of Delaware and (ii) such filings as have been made prior to
the applicable Closing, except that any
2
<PAGE>
notices of sale required to be filed with the Securities and Exchange Commission
under Regulation D of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), or such post-closing filings as may be required under applicable state
securities laws, which will be timely filed within the applicable periods
therefor by special counsel for the Company.
2.5. CAPITALIZATION AND VOTING RIGHTS. The authorized
capital of the Company consists, or will consist prior to the Closing, of:
(a) PREFERRED STOCK. Eight Million Eight Hundred
Thirty-Six Thousand Six Hundred Sixty-Five (8,836,665) shares of Preferred Stock
(the "PREFERRED STOCK"), One Million (1,000,000) shares of which have been
designated Series A-1 Preferred Stock, all of which are issued and outstanding,
Five Hundred Eighty-Three Thousand Three Hundred Thirty-Three (583,333) shares
of which have been designated Series A-2 Preferred Stock, all of which are
issued and outstanding, One Million Seven Hundred Thirty-Six Thousand Two
Hundred Fifty (1,736,250) shares of which have been designated Series B
Preferred Stock, One Million Six Hundred Twenty-Seven Thousand Nine Hundred
Seventeen (1,627,917) of which are issued and outstanding, One Million Three
Hundred Seventy-Five Thousand (1,375,000) shares of which have been designated
Series C Preferred Stock, One Million Two Hundred Sixty-Three Thousand Eight
Hundred Eighty-Nine (1,263,889) of which are issued and outstanding, One Million
Two Hundred Fifty Thousand (1,250,000) shares of which have been designated
Series D Preferred Stock, Eight Hundred Thirty-Three Thousand Thirty-Three
(833,333) of which are issued and outstanding, Seven Hundred Forty-Six Thousand
One Hundred Fifty-Seven (746,157) shares of which have been designated Series E
Preferred Stock, Seven Hundred Forty Six Thousand One Hundred Fifty-Seven
(746,157) of which are issued and outstanding, and Two Million One Hundred
Forty-Five Thousand Nine Hundred Twenty-Five (2,145,925) shares of which
have been designated Series F Preferred Stock, none of which have been issued.
(b) COMMON STOCK. Forty Million (40,000,000) shares
of common stock ("COMMON STOCK"), of which Two Million Eight Hundred Seventy
Thousand Nine Hundred Twenty-Seven (2,870,927) shares are issued and
outstanding.
(c) The outstanding shares of Common Stock and
Preferred Stock are owned by the stockholders and in the numbers specified in
EXHIBIT C hereto.
(d) The outstanding shares of Common Stock and
Preferred Stock have been issued in accordance with the registration or
qualification provisions of the Securities Act and any relevant state securities
laws or pursuant to valid exemptions therefrom.
(e) Except for (A) the conversion privileges of the
Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the
Series E and the Series F Preferred Stock, (B) the rights provided in Section
2.9 of the Rights Agreement, (C) the options to purchase an aggregate of
1,792,149 shares of Common Stock outstanding under the Company's 1994 Stock
Option Plan (the "OPTION PLAN") and (D) warrants to purchase 108,333 shares of
Series B
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Preferred Stock, warrants to purchase 111,111 shares of Series C Preferred Stock
and warrants to purchase 416,667 shares of Series D Preferred Stock, there are
not outstanding any options, warrants rights (including conversion or preemptive
rights and rights of first refusal) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. A total of
2,234,074 shares of Common Stock are reserved for issuance under the Option
Plan, 441,925 of which shares are not yet subject to any outstanding options.
Except for the Rights Agreement, the Company is not a party or subject to any
agreement or understanding, and, to the best of the Company's knowledge, there
is no agreement or understanding between any persons that affect or relate to
the voting or giving of written consents with respect to any security or the
voting by a director of the Company.
2.6. SUBSIDIARIES. The Company does not own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.7. CONTRACTS AND OTHER COMMITMENTS. The Company does not
have any contract, agreement, lease, commitment, written or oral, absolute or
contingent, other than (i) contracts for the purchase of supplies and services
that were entered into in the ordinary course of business and that do not
involve more than $50,000, and do not extend for more than one (1) year beyond
the date hereof, (ii) sales contracts entered into in the ordinary course of
business that do not involve more than $50,000, and (iii) contracts terminable
at will by the Company on no more than ninety (90) days notice without cost or
liability to the Company and that do not involve any employment or consulting
arrangement and are not material to the conduct of the Company's business. For
the purpose of this paragraph, employment and consulting contracts and contracts
with labor unions, and license agreements and any other agreements relating to
the acquisition or disposition of the Company's technology, shall not be
considered to be contracts entered into in the ordinary course of business.
2.8. RELATED-PARTY TRANSACTIONS. No employee, officer, or
director of the Company or member of his or her immediate family thereof is
indebted to the Company, nor is the Company indebted (or committed to make loans
or extend or guarantee credit) to any of them. To the best of the Company's
knowledge, none of such persons has any direct or indirect ownership interest in
any firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation that competes
with the Company, except that employees, officers or directors of the Company
and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. To the best of the Company's
knowledge, no officer or director or any member of their immediate families is,
directly or indirectly, interested in any material contract with the Company.
2.9. REGISTRATION RIGHTS. Except as provided in the Rights
Agreement, the Company is not obligated to register under the Securities Act any
of its presently outstanding securities or any of its securities that may
subsequently be issued.
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2.10. PERMITS. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial condition of the Company
and believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority.
2.11. COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not
in violation or default in any material respect of any provision of its Restated
Certificate or Bylaws or in any material respect of any provision of any
mortgage, indenture, agreement, instrument or contract to which it is a party or
by which it is bound or, to the best of its knowledge, of any federal or state
judgment, order, writ, decree, statute, rule or regulation applicable to the
Company. The execution, delivery and performance by the Company of this
Agreement or the Rights Agreement and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
material conflict with or constitute, with or without the passage of time or
giving of notice, either a material default under any such provision or an event
that results in the creation of any material lien, charge or encumbrance upon
any assets of the Company or the suspension, revocation, impairment, forfeiture,
or nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations, or any of its assets or
properties.
2.12. LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened in writing against the Company
that questions the validity of this Agreement or the Rights Agreement or any of
the transactions contemplated hereby, or the right of the Company to enter into
such agreements, or to consummate the transactions contemplated hereby or
thereby, or that might result, either individually or in the aggregate, in any
material adverse change in the assets, business properties, prospects or
financial condition of the Company, or in any material change in the current
equity ownership of the Company. The foregoing includes, without limitation, any
action, suit, proceeding, or investigation pending or currently threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, their obligations under
any agreements with prior employers, or negotiations by the Company with
potential backers of, or investors in, the Company or its proposed business. The
Company is not a party to, or to the best of its knowledge, named in any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit or proceeding by the Company currently
pending or that the Company currently intends to initiate.
2.13 DISCLOSURE. The Company has provided each Investor
with all the information reasonably available to it without undue expense that
such Investors have requested for deciding whether to purchase the Series F
Preferred Stock. Neither this Agreement nor any other written statement or
certificate made or delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
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2.14 OFFERING. Subject in part to the truth and accuracy
of the Investors' representations set forth in this Agreement, the offer, sale
and issuance of the Series F Preferred Stock as contemplated by this Agreement
are exempt from the registration requirements of the Securities Act, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.15 TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
2.16 FINANCIAL STATEMENTS. The Company has delivered to
each Investor (i) its unaudited financial statements for the Company's fiscal
year ending December 31, 1999, and (ii) its unaudited financial schedules
(balance sheet and profit and loss statement) as at and for the month ending
January 31, 2000 (collectively, the "FINANCIAL STATEMENTS"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated and
with each other, except that the unaudited statements may not contain all
footnotes required by generally accepted accounting principles. The Financial
Statements fairly present the financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein, subject, in the
case of the unaudited Financial Statements, to normal year-end audit
adjustments. Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to December 31, 1999 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company. Except as disclosed in the Financial Statements, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
generally accepted accounting principles.
2.17 CHANGES. To the best of the Company's knowledge,
since December 31, 1999, there has not been any event or condition of any type
that has materially and adversely affected the business, properties, prospects
or financial condition of the Company.
2.18 PATENTS AND TRADEMARKS. The Company owns or possesses
sufficient legal rights to all patents, trademarks, servicemarks, trade names,
copyrights, trade secrets, software, licenses, information, proprietary rights
and processes necessary for the conduct of its business as now conducted and as
proposed to be conducted without any conflict with or infringement of the rights
of others. The Schedule of Exceptions contains a complete list of patents and
pending patent applications of the Company. Except for agreements with its own
employees or
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consultants, substantially in the form referenced in paragraph 2.21 below, there
are no outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, servicemarks,
trade names, copyrights, trade secrets, software, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, servicemarks, trade names, copyrights, trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of such employee's best efforts to promote the interests
of the Company or that would conflict with the Company's business as proposed to
be conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company.
2.19 MANUFACTURING AND MARKETING RIGHTS. The Company has
not granted rights to manufacture, produce, assemble, license, market, or sell
its products to any other person and is not bound by any agreement that affects
the Company's exclusive right to develop, manufacture, assemble, distribute,
market, or sell its products.
2.20 EMPLOYEES; EMPLOYEE COMPENSATION. There is no strike,
labor dispute or union organization activities pending or threatened between the
Company and its employees. None of the Company's employees belongs to any union
or collective bargaining unit. To the best of its knowledge, the Company has
complied in all material respects with all applicable state and federal equal
employment opportunity and other laws related to employment. To the best of the
Company's knowledge, no employee of the Company is or will be in violation of
any judgment, decree or order, or any term of any employment contract, patent
disclosure agreement or other contract or agreement relating to the relationship
of any such employee with the Company or any other party because of the nature
of the business conducted or to be conducted by the Company or to the
utilization by the employee of his best efforts with respect to such business.
The Company is not party to or bound by any employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation agreement. The Company is
not aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the will
of the Company.
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2.21 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS.
Each employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement substantially in the form or forms attached
hereto as EXHIBIT E. The Company, after reasonable investigation, is not aware
that any of its employees, officers or consultants are in violation thereof, and
the Company will use its best efforts to prevent any such violation.
2.22 TAX RETURNS, PAYMENTS, AND ELECTIONS. The Company has
filed all tax returns and reports, or has filed for extension to file such
returns and reports, as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended ("CODE"), to
be treated as an S corporation or a collapsible corporation pursuant to Section
341(f) of Section 1362(a) of the Code, nor has it made any other elections
pursuant to the Code (other than elections which relate solely to methods of
accounting, depreciation or amortization) that would have a material effect on
the business, properties, prospects or financial condition of the Company. The
Company has never had any tax deficiency proposed or assessed against it and has
not executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. None of the Company's federal
income tax returns and none of its state income or franchise tax or sales or use
tax returns has ever been audited by governmental authorities. Since the date of
the Financial Statements, the Company has made adequate provisions on its books
of account for all taxes, assessments and governmental charges with respect to
its business, properties and operations for such period. The Company has
withheld or collected from each payment made to each of its employees, the
amount of all taxes (including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes)
required to be withheld or collected therefrom, and has paid the same to the
proper tax receiving officers or authorized depositaries.
2.23 INSURANCE. The Company has in full force and effect
fire and casualty insurance policies, with extended coverage, sufficient in
amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed. The Company does not now have
products liability insurance but may in the future in the judgment of the
Company's Board of Directors obtain such insurance in amounts customary for
companies similarly situated.
2.24 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in
violation of any applicable statute, law, or regulation relating to the
environment or occupational health and safety, and to the best of its knowledge,
no material expenditures are or will be required in order to comply with any
such existing statute, law, or regulation.
2.25 INDEMNIFICATION. The Restated Certificate provides
for the indemnification of officers and directors of the Company to the fullest
extent permitted by law.
3 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor hereby represents and warrants that:
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3.1 AUTHORIZATION. Each Investor represents that it has
full power and authority to enter into this Agreement and the Rights Agreement
and that this Agreement and the Rights Agreement constitute its valid and
legally binding obligation.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is
made with each Investor in reliance upon such Investor's representation to the
Company, which by each Investor's execution of this Agreement each Investor
hereby confirms, that the Series F Preferred Stock to be purchased by such
Investor under this Agreement, and the Common Stock issuable upon conversion
thereof, (collectively, the "SECURITIES") will be acquired for investment for
such Investor's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the Securities.
3.3 RELIANCE UPON INVESTOR'S REPRESENTATIONS. Each
Investor understands that the Series F Preferred Stock is not, and any Common
Stock acquired on conversion thereof at the time of issuance may not be,
registered under the Securities Act on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt from
registration under the Securities Act pursuant to section 4(2) thereof, and that
the Company's reliance on such exemption is predicated on the Investor's
representations set forth herein.
3.4 RECEIPT OF INFORMATION. Each Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series F Preferred Stock hereunder. Each Investor
further represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
the Series F Preferred Stock hereunder and the business, properties, prospects
and financial condition of the Company and to obtain additional information (to
the extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to it or to which it had access. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of each Investor to rely thereon.
3.5 INVESTMENT EXPERIENCE. Each Investor represents that
it is experienced in evaluating and investing in securities and acknowledges
that it is able to fend for itself, can bear the economic risk of its
investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Series F Preferred Stock. Each Investor also represents it has not been
organized solely for the purpose of acquiring the Series F Preferred Stock.
3.6 ACCREDITED INVESTORS. Each Investor represents to the
Company that it is an Accredited Investor as defined in Regulation D under the
Securities Act.
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3.7 RESTRICTED SECURITIES. Each Investor understands that
the securities may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Securities or an
available exemption from registration under the Securities Act, the Securities
must be held indefinitely. In particular, each Investor is aware that the
Securities may not be sold pursuant to Rule 144 promulgated under the Securities
Act unless all of the conditions of that Rule are met. Among the conditions for
use of Rule 144 (other than paragraph (k) of Rule 144) is the availability of
current information to the public about the Company. Such information is not now
available and may never become available.
3.8 LEGENDS. It is understood that the Securities may
bear one or all of the following legends:
(a) "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 in effect with respect
to the securities under such Act or an opinion of counsel reasonably
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by federal law or the laws of
any state as applicable.
4 CONDITIONS OF EACH INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which must be set forth in a writing signed by an Investor to be
effective against such Investor:
4.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company contained in Section 2 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of such Closing.
4.2 PERFORMANCE. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 COMPLIANCE CERTIFICATE. The Chief Executive Officer
of the Company shall deliver to the Investors at the Closing a certificate
certifying that the conditions specified in paragraphs 4.1 and 4.2 have been
fulfilled.
4.4 QUALIFICATIONS. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required prior to the lawful issuance and sale
of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
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4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request, including, without limitation, the following:
(a) The Restated Certificate, as adopted by the
Company, filed with and certified by the Secretary of State of the State of
Delaware;
(b) A certificate, as of the most recent practicable
dates prior to the Closing, as to the corporate good standing of the Company
issued by the Secretary of State of the State of Delaware;
(c) By-laws of the Company, certified by its
Secretary as of the Closing Date;
(d) Resolutions of the Board of Directors and
stockholders of the Company, authorizing and approving all matters in connection
with this Agreement and the transactions contemplated hereby and required to be
authorized by the Board of Directors or such stockholders, as the case may be,
certified by the Secretary of the Company as of the Closing.
4.6 BOARD OF DIRECTORS. The maximum size of the Board of
Directors of the Company shall initially be fixed at ten (10) directors. The
number of directors immediately following the Closing shall be ten (10),
consisting of (i) Carlos P. Naudon, Douglas K. Anderson and Richard P. Yanak as
elected by the holders of Common Stock voting separately as a single class, (ii)
John Mutch, David M. Clarke, Douglas C. Carlisle, Samuel F. McKay, William M.
Neville and David Dame as elected by the holders of Preferred Stock voting
separately as a single class, and (iii) Louis Hernandez, Jr., as elected by the
holders of Common Stock and Preferred Stock voting together as a single class.
4.7 OPINION OF COMPANY COUNSEL. Each Investor named
therein shall have received from Shipman & Goodwin LLP, special counsel for the
Company, an opinion, dated the date of the Closing, in substantially the form
attached hereto as EXHIBIT D.
4.8 INVESTORS' RIGHTS AGREEMENT. The Company and certain
holders of Preferred Stock of the Company (including certain of the Investors
and all of the holders of the Company's currently outstanding Preferred Stock)
shall have entered into the Rights Agreement in the form attached hereto as
EXHIBIT B.
4.9 MANAGEMENT RIGHTS LETTER. The Company shall deliver
to each Investor identified therein an executed Management Rights Letter in the
form attached hereto as EXHIBIT F.
4.10 AMENDMENT OF EXISTING PUT RIGHTS. Each holder of
outstanding Preferred Stock or Common Stock, or warrants to purchase any
Preferred Stock or Common Stock, that shall have a contractual right to require
the Company to repurchase such holder's shares of
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Preferred Stock or Common
Stock or such holder's warrants, whether upon the happening of a contingency or
otherwise, shall have agreed to amend such rights in the manner set forth in the
Rights Agreement.
4.11 2000 STOCK PLANS. The stockholders of the Company
shall have approved each of the Company's 2000 Stock Incentive Plan, 2000
Employee Stock Purchase Plan and 2000 Non-Employee Director Stock Option Plan,
each to become effective as of the closing of an IPO.
5 CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to the Investors under this Agreement are subject
to the fulfillment on or before the Closing of each of the following conditions
by each Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of each Investor contained in Section 3 shall be true on and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
5.2 QUALIFICATIONS. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required prior to the lawful issuance and sale
of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
5.3 INVESTORS' RIGHTS AGREEMENT. Each Investor identified
therein shall have entered into the Rights Agreement in the form attached hereto
as EXHIBIT B.
6. RIGHT TO PUT SECURITIES
6.1 DEFINITIONS. For purposes of this Section 6:
CONNECTICUT PRESENCE - shall mean that the Company, and each
of its subsidiaries, and their successors and assigns (i) maintains its
principal place of business in the State of Connecticut, (ii) bases a numerical
majority of the sum of its employees in the State of Connecticut (excluding
sales and consulting personnel), and (iii) conducts a majority of its operations
(including manufacturing and production but excluding sales and consulting
operations), directly or through subcontractors, in the State of Connecticut;
PROVIDED THAT, for purposes of determining whether the Company has failed to
maintain a Connecticut Presence, the assets, revenues and employees of any
business acquired by the Company on an arm's length basis from a non-affiliate
of the Company (provided such acquired business had been operating for at least
one year prior to the acquisition) shall be excluded and disregarded; PROVIDED
FURTHER, that it is understood that the Company shall not be deemed to have
failed to maintain a Connecticut Presence if the Company ceases to maintain a
Connecticut Presence by virtue of an acquisition of the Company in connection
with which each of CII and CII-Webster (each as defined hereinafter) receives a
liquidation distribution with respect to, or cash, securities or other property
in exchange for, all of the Securities held by CII and CII-Webster on
substantially the same terms as other holders of Securities.
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COVENANT PERIOD - shall mean the period beginning upon the
closing of an IPO and terminating upon the earlier of the date upon which all
Securities then held by CII and CII-Webster may be offered and sold by CII or
CII-Webster, as applicable, to any number of offerees and purchasers pursuant to
(i) Rule 144(k) under the Securities Act of 1933 (or any similar rule hereafter
adopted by the Securities and Exchange Commission), or (ii) an effective
registration statement filed under the Securities Act.
PUT PRICE - shall mean the greater of (i) nine dollars and
thirty-two cents ($9.32) (as adjusted for stock dividends, stock splits and
similar corporate events, for the Preferred Stock and/or Common Stock which is
the subject of a Notice of Put) multiplied by the number of shares of Preferred
Stock (and/or Common Stock) which are the subject of a Notice of Put, plus a
twenty-five percent (25%) compounded annual rate of return on such amount from
the date hereof through the date of the Put Closing (as hereinafter defined), or
(ii) the Aggregate Market Value on the Put Date.
AGGREGATE MARKET VALUE - shall mean on any date the product of
(i) the Current Market Value (as hereinafter defined) on such date of each share
of Series F Preferred Stock (and/or Common Stock) held by the Investor
exercising its rights under this Section 6 and (ii) the number of shares of
Series F Preferred Stock (and/or Common Stock) which are the subject of a Notice
of Put. The term "CURRENT MARKET VALUE" on any date shall be the per share value
determined in good faith by the Board of Directors of the Company or, if such
determination cannot be made or is reasonably objected to by the Investor within
thirty (30) days of its notification thereof, then the value determined by a
nationally recognized independent investment banking firm (which has no past or
present relationship with the Company or the Investor) selected in good faith by
the Board of Directors of the Company, or if such selection cannot be made or is
reasonably objected to by the Investor within thirty (30) days of its
notification thereof, then the per share value determined by a nationally
recognized independent investment banking firm selected by the American
Arbitration Association in Hartford, Connecticut in accordance with its rules.
TERMINATION DATE - shall mean the earlier of (i) the date on
which each of Connecticut Innovations, Incorporated ("CII") or Connecticut
Innovations/Webster LLC ("CII-WEBSTER") no longer holds any Securities, (ii)
upon the closing of a firm commitment underwritten public offering of the
Company's Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended (an "IPO") and (iii) upon the closing of an acquisition
of the Company in connection with which each of CII and CII-Webster receives a
liquidation distribution with respect to, or cash, securities or other property
in exchange for, all of the Securities held by CII and CII-Webster on
substantially the same terms as other holders of Securities.
6.2 RIGHT TO PUT. On the terms and conditions herein set
forth, each Investor shall have the right to sell to the Company, and the
Company agrees to purchase from such Investor, all of such Investor's Securities
(as defined in Section 3.2) which are the subject of a Notice of Put (the "PUT")
for the Put Price.
13
<PAGE>
6.3 METHOD OF EXERCISE. On the terms and conditions
herein set forth, each Investor may exercise its rights hereunder to sell all or
part of its Securities by delivering to the Company a notice of Put (a "NOTICE
OF PUT") in the form attached hereto as EXHIBIT G. Upon receipt of a Notice of
Put, the Company shall as promptly as practical, and any event within five (5)
business days thereafter, notify each holder of outstanding shares of Series F
Preferred Stock of the Put therein described.
6.4 TIME OF EXERCISE. The rights of each Investor to Put
its Securities shall become exercisable at any time prior to the Termination
Date and following the Company's failure to maintain a Connecticut Presence (as
defined herein).
6.5 CLOSING DATE. The closing, (the "PUT CLOSING"), of
the purchase and sale of Securities pursuant to this Section 6 hereof shall be
held on the date, (the "PUT CLOSING DATE"), which is the sixtieth (60th)
business day after delivery of a Notice of Put.
6.6 CLOSING PROCEDURES. At the Put Closing, the Investors
exercising their rights under this Section 6 will deliver to the Company the
securities which are covered by the Notice of Put, and the Company will deliver
to such Investors the Put Price for such securities in cash, certified or bank
check, or by wire transfer. The Company may elect to pay to the Investors the
Put Price as follows: in equal annual installments of principal in the amount of
one-third of the Put Price each, the first such installment to be paid at the
Put Closing, plus interest on the outstanding balance, payable with each
installment of principal calculated at a fixed rate per annum equal to
twenty-five (25%) percent. Each Investor shall, at the Company's request,
represent and warrant to the Company that (i) it owns the securities which are
covered by the Notice of Put free and clear of all liens, charges and
encumbrances, and (ii) it has the power and authority to transfer such
securities to the Company and to consummate the Put.
6.7 COVENANT TO MAINTAIN CONNECTICUT PRESENCE.
Notwithstanding termination of the Put, solely for the benefit of CII and
CII-Webster, the Company covenants and agrees that it shall, at all times during
the Covenant Period, maintain a Connecticut Presence. The parties hereto
acknowledge and agree that the sole remedies available to any holder of
Securities for the breach of the covenant contained in this Section 6.7 shall be
(i) the release, pursuant to the terms of the applicable "lock-up" agreement, of
CII and CII-Webster from the restrictions set forth therein, and (ii) temporary,
preliminary and permanent injunctive relief, if granted by any court of
competent jurisdiction.
6.8 SUBORDINATION. Notwithstanding anything herein to the
contrary, the obligation of the Company to pay the Put Price upon exercise of
the Put Right is expressly subordinate to the prior right of the holders of the
Company's Series F Preferred Stock to require the redemption of some or all of
the outstanding shares of such Series F Preferred Stock in accordance with
Article III, B., Section 5 of the Company's Restated Certificate of
Incorporation and the Company shall not be obligated to, and shall not, make any
payment of any Put Price during any Redemption Exercise Period (as defined in
the Company's Restated Certificate of Incorporation) or at any time after any
such Redemption Exercise Period until the Company shall
14
<PAGE>
have satisfied its obligations to affect any redemption election made during
such Redemption Exercise Period.
7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
7.2 SURVIVAL OF WARRANTIES. The warranties,
representations and covenants of the Company and each Investor contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing and shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of any Investor or the
Company.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein or in the Rights Agreement, 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 Series F
Preferred Stock sold hereunder or any Common Stock issued upon conversion
thereof). Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
7.4 GOVERNING LAW. This Agreement shall be governed by
and construed under the laws of the State of Connecticut without regard to
principles of conflicts of law.
7.5 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.
7.6 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.
7.7 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 to the party to be notified
by hand or professional courier service or five days after deposit with the
United States Post Office, by registered or certified mail, postage prepaid, if
to the Investor(s), addressed to the Investor(s) to the attention of the
designated person of the Investor(s) at the address indicated for the
Investor(s) on the signature page hereto, with a copy to Catherine M. Kilbane,
Esq., Baker & Hostetler LLP, 3200 National City Center, 1900 East Ninth Street,
Cleveland, Ohio 44144-3485, and if to CII or CII-Webster, with a copy to David
E. Sturgess, Esq., Updike Kelly & Spellacy, P.C., One State Street, Hartford,
Connecticut, 06103,
15
<PAGE>
and if to the Company, addressed to the Company to the attention of the Chief
Executive Officer of the Company at the address indicated for the Company on the
signature page hereto, with a copy to Deborah S. Frisone, Esq., Shipman &
Goodwin LLP, One American Row, Hartford, Connecticut, 06103, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other party.
7.8 FINDER'S FEES. Each party represents that it neither
is nor will be obligated for any finders' fee or commission in connection with
this transaction.
Each Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each
Investor from any liability for any commission or compensation in the nature of
a finders' fee (and the costs and expenses of defending against such liability
or asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
7.9 ATTORNEYS' FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Rights
Agreement, or the Restated Certificate, 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. Whether or
not the transactions contemplated by this Agreement close, the Company agrees to
pay for the reasonable legal expenses of one counsel for the Purchasers (to be
designated by Crystal Internet Venture Fund II (BVI) Crystal Vision L.P.) and to
reimburse the Purchasers for their reasonable expenses incurred in connection
with their due diligence review of the Company, in an aggregate amount not to
exceed $30,000, PROVIDED THAT if the transactions contemplated by this Agreement
do not close because the Purchasers elect not to proceed without good reason,
then the Company shall not be required to pay such expenses.
7.10 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
more than 50% of the Common Stock (that has not been sold to the public) issued
or issuable upon conversion of the Series F Preferred Stock. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon the
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), the
future holder of all such securities, and the Company. Notwithstanding the
foregoing, the rights of any Investor under Section 6 hereof may not be waived
or amended without the written consent of such Investor.
16
<PAGE>
7.11 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.
[Remainder of page intentionally left blank. Next page is signature page.]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
OPEN SOLUTIONS INC.
By:
---------------------------------------
Name:
Title:
Address: 300 Winding Brook Drive
Glastonbury, CT 06033
INVESTOR:
By:
----------------------------------------
Name:
Title:
Address:
INVESTOR:
By:
----------------------------------------
Name:
Title:
Address:
18
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 17, 2000 relating to the financial statements and
financial statement schedules of Open Solutions, Inc., which appear in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, CT
March 17, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,224,624
<SECURITIES> 0
<RECEIVABLES> 1,703,607
<ALLOWANCES> 600,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,388,372
<PP&E> 2,028,069
<DEPRECIATION> 1,231,100
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22,084,489
14,167
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<OTHER-SE> (16,588,508)
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<OTHER-EXPENSES> 11,259,516
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<INCOME-PRETAX> (4,714,787)
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<INCOME-CONTINUING> (4,714,787)
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