<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CORAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7563 84-11777-92
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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1500 KANSAS AVENUE, SUITE 2E
LONGMONT, COLORADO 80501
(303) 772-5800
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------------
ERIC A. JOHNSON
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
CORAL SYSTEMS, INC.
1500 KANSAS AVENUE, SUITE 2E
LONGMONT, COLORADO 80501
(303) 772-5800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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<S> <C>
JAMES C.T. LINFIELD JEFFREY D. SAPER
COOLEY GODWARD LLP J. ROBERT SUFFOLETTA
2595 CANYON BOULEVARD, SUITE 250 WILSON SONSINI GOODRICH & ROSATI, P.C.
BOULDER, COLORADO 80302-6737 650 PAGE MILL ROAD
(303) 546-4000 PALO ALTO, CALIFORNIA 94304-1050
(415) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par value........ 3,105,000 Shares $12.00 $37,260,000 $11,290.91
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</TABLE>
(1) Includes 405,000 shares of Common Stock issuable upon exercise of the
Underwriters over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
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 THAT 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> 2
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED OCTOBER 17, 1996
2,700,000 SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Coral
Systems, Inc. ("Coral Systems" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $10.00 and
$12.00 per share. See "Underwriting" for the factors to be considered in
determining the initial public offering price. The Company has filed an
application to include the Common Stock for quotation on the Nasdaq National
Market under the symbol "CSYS."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY PROSPECTIVE
INVESTORS IN PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public Discount(1) Company(2)
<S> <C> <C> <C>
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Per Share...................... $ $ $
Total(3)....................... $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated at
$821,000.
(3) The Company and certain stockholders (the "Selling Stockholders") have
granted to the Underwriters a 30-day option to purchase up to 405,000
additional shares of Common Stock solely to cover over-allotments, if any.
If the Underwriters exercise this option in full, the Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein subject to receipt and acceptance by them, and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1996.
---------------------
MONTGOMERY SECURITIES
COWEN & COMPANY
UBS SECURITIES
, 1996
<PAGE> 3
Graphic under the heading "Technological Flexibility for Wireless Applications"
with a relational schematic showing a figure labeled "Coral Systems Core
Technology" at the center connected to a figure labeled "Coral Systems
Applications," including "Future Applications," "FraudBuster(R)" and
"ChurnAlert(R)," and a figure labeled "Multiple Third Party Platforms,"
including "Hardware," "Other Data Interfaces," "Transaction Processors" and
"Databases."
Photographs under the heading "Software Solutions for Wireless Carriers" with
(i) one photograph of the ChurnAlert product splash screen with the Coral
Systems logo and slogan "The Software Standard in Wireless;" (ii) three
photographs of the ChurnAlert graphical user interface; (iii) the following
statement: "ChurnAlert is a software product that enables carriers to use
adjustable analyses to proactively address the needs of subscribers who are
likely to terminate service, or churn;" (iv) one photograph of the FraudBuster
product splash screen with the Coral Systems logo and slogan "The Software
Standard in Wireless;" (v) three photographs of the FraudBuster graphical user
interface and (vi) the following statement: "FraudBuster is a fraud management
software product which includes a fraud profiler and subscription fraud
monitoring techniques and is designed to identify most commonly known types of
wireless fraud."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under the
caption "Risk Factors," which could cause actual results to differ materially
from those indicated in such forward-looking statements.
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this Prospectus:
(i) gives effect to the conversion of each outstanding share of Preferred Stock
into Common Stock upon the closing of this offering, (ii) has been adjusted to
reflect a 1-for-2 reverse stock split of the Common Stock to be effected prior
to the offering, and (iii) assumes no exercise of the Underwriters'
over-allotment option.
THE COMPANY
Coral Systems provides client-server software products for the wireless
telecommunications industry to enable carriers to reduce fraud and customer
turnover, or "churn," and increase operating efficiencies. The Company's
products are based upon its proprietary core technology, which provides several
key advantages, including rapid product development, portability, technology
independence and enhanced scalability. The Company's fraud management software,
FraudBuster, incorporates a fraud profiler and subscription fraud monitoring
functionality and is designed to combat most currently identified types of
wireless fraud. Unlike many other fraud prevention techniques which typically
address specific types of fraud, FraudBuster detects multiple types of existing
and emerging fraud, including cloning, subscription fraud, tumbling fraud and
cellular telephone theft. Coral Systems' veRiFier line extension, when released,
will expand the FraudBuster solution by providing interfaces to complementary
fraud prevention products, including radio frequency ("RF") signature detection.
The Company's churn prevention product, ChurnAlert, allows carriers to analyze
and identify potential churn candidates before they seek customer service
assistance or deactivate service. The Company's Home Location Register ("HLR")
networking product facilitates seamless roaming and enhanced services and
optimizes switch capacity with minimal capital outlays. The Company's Data
Message Handler ("DMH") networking product, when released, will enable carriers
to capture and distribute data on a near real-time basis to facilitate billing,
wireless fraud detection, churn prevention and customer service applications.
Wireless telecommunications is one of the fastest growing segments of the
telecommunications industry and has become increasingly competitive as a result
of a number of recent regulatory and technological changes, causing increasing
pressure on carrier profitability. Subscriber growth, new market entrants,
declining revenue per subscriber and the transition to a mass market subscriber
base have created significant challenges for wireless carriers, including rising
losses from fraud and churn, growing strains on network capacity and increasing
demand for enhanced services. Industry sources estimate that in the U.S. the
total revenue lost to wireless telecommunications fraud was approximately $650
million in 1995, up from $482 million in 1994. Wireless carriers are also
focusing on improving customer retention to reduce subscriber churn as the cost
of acquiring new subscribers increases. Wireless carriers in the U.S. have
recently experienced average annual subscriber churn at rates of 26% to 36%.
Fraud and churn also pose significant problems for carriers in many
international markets.
The Company's objective is to become a leading provider of software
solutions for a broad range of challenges facing wireless carriers by
capitalizing on the growth of the wireless telecommunications industry,
leveraging its proprietary core technology to develop new products and enhanced
versions of existing products, and maximizing its recurring revenue stream
through a per subscriber license fee model. Coral Systems licenses its products
pursuant to agreements that typically provide for an initial license fee and an
annual maintenance fee for a defined number of subscribers, as well as
additional license and maintenance fees for net subscriber additions. The
Company has entered into strategic development and distribution relationships
with manufacturers and providers of switching equipment and billing services,
including Cincinnati Bell Information Systems, Inc. ("CBIS"), Ericsson Radio
Systems AB ("Ericsson"), Lucent Technologies Inc. ("Lu-
3
<PAGE> 5
cent") and Nortel. Wireless carriers using the Company's products include
AirTouch Communications, Inc. ("AirTouch"), BellSouth PCS, Cox Communications,
Orange Personal Communications Services and Sprint Spectrum.
The Company was incorporated in Colorado in August 1991 and reincorporated
in Delaware in April 1995. The Company's executive offices are located at 1500
Kansas Avenue, Suite 2E, Longmont, Colorado 80501, and its telephone number is
(303) 772-5800.
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The Company intends to furnish its stockholders with annual reports
containing audited financial statements and an opinion thereon expressed by
independent certified public accountants and with quarterly reports for the
first three quarters of each fiscal year containing interim unaudited financial
information.
FraudBuster(R), ChurnAlert(R) and veRiFier(TM) are trademarks of the
Company. All other brand names and trademarks appearing in this Prospectus are
the property of their respective holders.
4
<PAGE> 6
THE OFFERING
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<S> <C>
Common Stock to be offered............... 2,700,000 shares
Common Stock to be outstanding after the
offering............................... 9,930,137 shares(1)
Use of proceeds.......................... For working capital and other general corporate purposes
Proposed Nasdaq National Market symbol... CSYS
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ------------------------
1993 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue....................................... $ 504 $ 1,417 $ 3,890 $ 3,093 $ 6,852
Cost of revenue..................................... 244 508 1,909 1,542 1,474
------- ------- ------- ------- ------
Gross profit........................................ 260 909 1,981 1,551 5,378
Operating expenses:
Research and development.......................... 414 573 2,160 1,496 1,953
Sales and marketing............................... 158 645 1,870 1,427 2,614
General and administrative........................ 677 886 1,351 1,066 1,765
------- ------- ------- ------- ------
Total operating expenses.................... 1,249 2,104 5,381 3,989 6,332
------- ------- ------- ------- ------
Loss from operations................................ (989) (1,195) (3,400) (2,438 ) (954)
Other income (expense), net......................... (61) (33) 9 15 (31)
------- ------- ------- ------- ------
Loss before extraordinary item...................... (1,050) (1,228) (3,391) (2,423 ) (985)
Extraordinary item:
Gain on extinguishment of debt and other
liabilities(2).................................. -- -- -- -- 243
------- ------- ------- ------- ------
Net loss............................................ $(1,050) $ (1,228) $(3,391) $(2,423 ) $ (742)
======= ======= ======= ======= ======
Pro forma net loss per common share before
extraordinary item (unaudited).................... $ (.12)
======
Pro forma net loss per common share (unaudited)..... $ (.48) $ (.09)
======= ======
Pro forma weighted average number of shares
outstanding (unaudited)........................... 7,097 8,096
======= ======
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<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1996 1996 1996
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<S> <C> <C> <C> <C> <C>
Total revenue....................................... $ 274 $ 796 $ 1,029 $2,194 $ 3,630
Cost of revenue..................................... 251 366 257 393 823
------- ----- ------- ------ ------
Gross profit........................................ 23 430 772 1,801 2,807
Operating expenses:
Research and development.......................... 540 663 699 585 668
Sales and marketing............................... 464 443 659 814 1,142
General and administrative........................ 288 285 399 651 716
------- ----- ------- ------ ------
Total operating expenses.................... 1,292 1,391 1,757 2,050 2,526
------- ----- ------- ------ ------
Income (loss) from operations....................... (1,269) (961) (985) (249) 281
Other income (expense), net......................... 7 (7) (37) 7 (2)
------- ----- ------- ------ ------
Income (loss) before extraordinary item............. (1,262) (968) (1,022) (242) 279
Extraordinary item:
Gain on extinguishment of debt and other
liabilities(2).................................. -- -- -- -- 243
------- ----- ------- ------ ------
Net income (loss)................................... $(1,262) $ (968) $(1,022) $ (242) $ 522
======= ===== ======= ====== ======
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<CAPTION>
SEPTEMBER 30, 1996
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ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $3,374 $ 30,174
Total assets.............................................................................. 7,454 34,254
Long-term debt, non-current portion....................................................... 313 313
Stockholders' equity...................................................................... 3,438 30,238
</TABLE>
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(1) Does not include (i) 1,102,346 shares of Common Stock issuable upon exercise
of stock options outstanding as of September 30, 1996, granted under the
Company's Amended and Restated Stock Option Plan (the "Stock Option Plan")
at a weighted average exercise price of $1.26 per share and (ii) 979,937
shares of Common Stock issuable upon exercise of warrants outstanding as of
September 30, 1996, at a weighted average exercise price of $0.28 per share.
See "Management -- Stock Option Plan" and "Description of Capital Stock."
(2) In September 1996, the Company extinguished a previously recorded net
liability of $658,300. The Company settled this obligation for $415,000,
resulting in a gain of $243,300 which was recorded as an extraordinary item.
(3) Adjusted to reflect the sale of the 2,700,000 shares of Common Stock offered
by the Company hereby at an assumed public offering price at $11.00 and the
application of the estimated net proceeds therefrom.
5
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information contained in this
Prospectus, prospective investors should consider carefully the following risk
factors in evaluating the Company and its business before purchasing shares of
the Common Stock offered hereby.
LIMITED OPERATING HISTORY; LACK OF PROFITABILITY
The Company was incorporated in August 1991 and first recognized software
license revenue in the fourth quarter of 1993. Prior to that time, the Company
operated as a development stage company with revenue consisting solely of
software development fees. The Company did not begin to generate meaningful
software license revenue until the second quarter of 1995. Accordingly, the
Company has only a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stages of development. The Company was
not profitable on a quarterly basis until the quarter ended September 30, 1996,
has not achieved profitability on an annual basis and, as of September 30, 1996,
had an accumulated deficit of $7.0 million. In view of the Company's short
operating history, the rapidly changing nature of the wireless
telecommunications market and the uncertainty of market acceptance of the
Company's products, the Company's recent growth in revenue may not be
sustainable and should not be considered indicative of future results or growth.
There can be no assurance that the Company will achieve or sustain profitability
in the future on a quarterly or annual basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
FLUCTUATIONS IN FUTURE OPERATING RESULTS
The Company has experienced, and expects to continue to experience,
significant fluctuations in operating results due to a variety of factors,
including the size and rate of growth of the wireless telecommunications market,
market acceptance of the Company's products and those of its competitors, the
size and timing of customer orders, development and marketing expenses relating
to the introduction of new or enhanced products, the timing and degree of
success of product introductions by the Company and its competitors, changes in
pricing policies by the Company and its competitors, the long sales cycles
associated with the Company's products, the mix of products and services
delivered by the Company, the accuracy of forecasts of carrier demand,
development delays, changes in hardware platforms and general economic
conditions. In response to competitive pressures or otherwise, the Company may
take certain pricing or marketing actions that could materially adversely affect
its business or operating results. Because of the relatively large dollar size
of the Company's typical software license fee, any delay in the closing of a
transaction could adversely impact the Company's operating results for a
particular quarter. The Company may also be required to reduce license fees or
undertake significant custom development without compensation in connection with
its licensing transactions. Further, due in part to the time required to
implement the Company's products, the Company may experience potentially
significant delays in recognizing revenue. The Company's expense levels are
relatively fixed and are based, in part, on its expectations regarding future
sales and, as a result, the Company's business, operating results and financial
condition would be materially and adversely affected by a decrease in sales or a
failure to meet the Company's sales expectations. There can be no assurance that
the Company will achieve or sustain profitability on a quarterly or annual
basis. It is likely that in some future quarter the Company's revenue or
operating results will be below the expectations of stock market securities
analysts and investors. In such event, the price of the Company's Common Stock
would likely decline, perhaps substantially. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON FRAUDBUSTER PRODUCT
To date, the majority of the Company's revenue has been attributable to
license revenue from FraudBuster, the Company's fraud management software
product. During fiscal 1995 and the nine months ended September 30, 1996,
FraudBuster accounted for approximately 51.1% and 65.4%, respectively, of the
6
<PAGE> 8
Company's total revenue. In addition, a significant portion of the Company's
service and hardware revenue for these periods was directly attributable to the
licensing of FraudBuster. The Company has realized limited revenue to date from
its other products and services including ChurnAlert and its HLR. The Company
anticipates that FraudBuster will continue to account for a substantial portion
of revenue for the foreseeable future. Accordingly, any significant overall
decline in revenue from FraudBuster would have a material adverse effect on the
Company's business, operating results and financial condition. The Company's
future operating results are dependent upon continued market acceptance of
FraudBuster and enhancements thereto. There can be no assurance that FraudBuster
will continue to achieve market acceptance or that the Company will be
successful in marketing enhancements thereto. There can be no assurance that
current revenue or margin levels from this product will be sustained. The
Company anticipates that its existing and new competitors will introduce
additional products that compete with FraudBuster, particularly if the demand
for fraud prevention software products increases. In the event that the
Company's current or future competitors release new products that have more
advanced features, offer better performance or are more price competitive than
FraudBuster, the Company's business, operating results and financial condition
could be materially and adversely affected. See "Business -- Products" and
"-- Product Development."
DEPENDENCE ON CONTINUED GROWTH OF CELLULAR MARKET; UNCERTAIN ACCEPTANCE OF PCS
The Company provides its services primarily to cellular and Personal
Communications Service ("PCS") carriers. Although the cellular market has
experienced significant growth in recent years, there can be no assurance that
such growth will continue at similar rates, if at all, or that cellular carriers
will continue to use the Company's products or services. The Company's future
financial performance will depend to a large extent on the number of carriers
seeking third-party solutions to the problems of fraud and customer churn. There
can be no assurance that the market for these solutions will continue to grow or
that, if such market does grow, there will be continued demand for the Company's
products. Any decline in demand for the Company's products and services or for
cellular service in general, whether as a result of competition, technological
change, general economic conditions or other factors, would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's future operating results will depend in large part on
the emergence of the PCS market and the use of the Company's products and
services by PCS carriers. Currently, the PCS market is in its initial stages of
development, and if this market does not grow as expected or if the carriers in
this market do not use the Company's products, the Company's business, operating
results and financial condition would be materially and adversely affected.
COMPETITION
The markets for the Company's software products are new, intensely and
increasingly competitive, rapidly evolving and subject to rapid technological
change. The Company's competitors include computer hardware and software
providers, telecommunications services and billing providers and range from
small companies with limited resources to large companies with substantially
greater financial, technical and marketing resources than those of the Company.
In addition, the Company competes against the internal development efforts of
the Company's customers and potential customers. As a result, some of the
Company's competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than the Company. Further,
existing companies may broaden their product lines or increase their focus to
compete more directly with the Company's current and future products. Currently,
the Company's principal competitors are GTE Telecommunications Services
("GTE-TSI") in the United States and Digital Equipment Corporation in
international markets. The Company's FraudBuster product competes with a number
of other profiler products and several alternative technologies, including RF
signature systems, personal identification numbers ("PINs") and authentication.
In addition, the Company has licensed the source code for FraudBuster to
AirTouch for the purpose of enabling AirTouch to use, reproduce and develop
enhancements to FraudBuster in AirTouch's markets and to sublicense FraudBuster
to cellular carriers in which AirTouch directly owns at least a 10% equity
interest, in exchange for a royalty to the Company on such sublicenses. As a
result, AirTouch could compete with the Company in those markets covered by
cellular carriers in which AirTouch owns such an equity interest. GTE-TSI is
also the Company's primary competitor in the churn prevention
7
<PAGE> 9
software market. Tandem Computers is the Company's principal competitor for its
HLR products and services. In addition, with the deployment of its own HLR
products, the Company will begin to compete with vendors who have licensed the
Company's HLR product source code. To the extent that competitors achieve higher
product quality, lower price, greater functionality or other advantages relative
to the Company's products, the Company's business, operating results and
financial condition could be materially and adversely affected. There can be no
assurance that the Company will have the resources required to respond
effectively to market or technological changes or to compete successfully in the
future. Furthermore, increasing competition in the wireless telecommunications
industry may cause prices to fall, which may materially and adversely affect the
Company's business, operating results and financial condition. Current and
potential competitors have established or may in the future establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances may
emerge and rapidly acquire significant market share. If this were to occur, the
Company's business, operating results and financial condition would be
materially adversely affected. See "Business -- Competition."
CUSTOMER CONCENTRATION; DEPENDENCE ON DISTRIBUTORS
To date, a significant portion of the Company's revenue in any particular
period has been attributable to a limited number of customers, comprised of both
distributors and carriers. Comcast Cellular Communications, Pacific Synergy,
Motorola and AirTouch accounted for 22.1%, 22.1%, 11.7% and 11.2%, respectively,
of the Company's total revenue in 1995 and Lucent and DSC Technologies accounted
for 60.0% and 12.4%, respectively, of the Company's total revenue in the nine
months ended September 30, 1996. The Company expects a relatively small number
of customers will continue to represent a significant percentage of its total
revenue for each quarter for the foreseeable future, although the companies that
comprise the largest customers in any given quarter are expected to change from
quarter to quarter. The terms of the Company's agreements with its customers are
generally for periods of five years and although these agreements typically
contain a growth component based on net new subscribers in addition to an
initial license fee, there are no minimum payment obligations to the Company
after the initial licensing fee. Therefore, there can be no assurance that any
of the Company's customers will continue to utilize the Company's services in
amounts similar to previous years, if at all.
The Company's products are currently distributed or marketed in conjunction
with, among others, Lucent, Ericsson, Nortel and CBIS. License revenue from all
distributors accounted for approximately 53.8% and 75.3% of the Company's total
revenue in 1995 and the nine months ended September 30, 1996, respectively. The
Company believes its dependence on distributors will increase in the future.
There are no minimum purchase obligations applicable to any distributor and the
Company generally licenses to these entities on an individual purchase order
basis with no guarantee of continuing orders. The loss of, or significant
reduction in, license revenue through any of the Company's principal
distributors could materially adversely affect the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Sales, Marketing
and Distribution" and "-- Customers and Customer Support."
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; RISK OF
LITIGATION
The Company regards its software as proprietary and relies primarily on a
combination of patent, trademark, copyright and trade secret laws, employee and
third-party nondisclosure agreements and other methods to protect its
proprietary rights. The Company currently has one issued U.S. patent and five
applications pending in the U.S. Patent and Trademark Office, six applications
for foreign patents pending and two Patent Cooperation Treaty applications
preserving the Company's ability to obtain patent protection in a number of
foreign countries. There can be no assurance that any of such pending patent
applications will result in the issuance of any patents, or that the Company's
current patent or any future patents will provide meaningful protection to the
Company. In particular, there can be no assurance that third parties have not or
will not develop equivalent technologies or products that avoid infringing the
Company's current patent or any future patents or that the Company's current
patent or any future patents would be held valid and enforceable
8
<PAGE> 10
by a court having jurisdiction over a dispute involving such patents. In
addition, since patent applications in the United States are not publicly
disclosed until the patent issues and foreign patent applications generally are
not publicly disclosed for at least a portion of the time that they are pending,
applications may have been filed by entities other than the Company which, if
issued as patents, may relate to the Company's products. There can be no
assurance that third parties will not assert infringement claims against the
Company in the future based on existing patents or future patents or that such
claims will not be successful.
The Company does not include in its products any mechanism to prevent or
inhibit unauthorized copying. Unauthorized copying is common within the software
industry, and if a significant amount of unauthorized copying of the Company's
products were to occur, the Company's business, operating results and financial
condition could be materially and adversely affected. Furthermore, the Company
may enter into transactions in countries where intellectual property laws are
not well developed and where legal protection of the Company's rights may be
ineffective. Also, as the number of software products in the industry increases,
and the possibility for overlapping functionality increases, software developers
may increasingly become subject to infringement claims. There can be no
assurance that third parties will not assert infringement claims against the
Company with respect to current or future products. From time to time, the
Company receives notices from third parties claiming infringement of
intellectual property rights of such parties. The Company investigates these
claims and responds as it deems appropriate. However, there can be no assurance
that the Company's response will satisfy the party sending the notice, or that
such party will not institute a claim against the Company. The scope of
protection accorded to patents covering software-related inventions is evolving
and is subject to a significant degree of uncertainty. Any claims or litigation,
with or without merit, could be costly, time-consuming and could result in a
diversion of management's attention, which could have a material adverse effect
on the Company's business, operating results and financial condition. In
addition, such claims could cause product shipment delays or require the Company
to enter into royalty or licensing agreements which may not be available on
terms acceptable to the Company or at all, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. There has been substantial litigation regarding copyright, trademark
and other intellectual property rights involving computer software companies and
there can be no assurance that the Company will not be subject to litigation
regarding these matters in the future. Adverse determinations in such claims or
litigation could also have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Intellectual
Property."
The Company has received notice from Tadiran Corporation regarding an
alleged trademark infringement by the Company's use of the name Coral Systems,
Inc. The Company believes that it can settle such matter on terms acceptable to
the Company. See "Business -- Intellectual Property."
RISK OF PATENT INTERFERENCE ACTION
The Company's one issued U.S. patent relates to specific aspects of its
fraud detection and profiling technology, including aspects that have been or
may in the future be used in FraudBuster or other Company products. The Company
has filed a continuation application for this issued patent to pursue additional
claims. The Company received notice from the United States Patent and Trademark
Office that the issued patent and the continuation application are being
reviewed to determine if an interference action should be declared between the
Company and another party. Such an interference action may be declared if there
is interfering subject matter in the Company's patent or patent application and
the other party's patent or patent application to determine whether the Company
or the other party is entitled to a patent claiming such subject matter.
Interference actions may be complex and expensive, and the outcome of such
actions is often difficult to predict. Accordingly, in the event that an
interference action is declared, the Company may consider opportunities to
settle the interference action on terms acceptable to the Company. Any such
settlement may require licensing of the Company's patent rights which may
diminish their value to the Company. In addition, there can be no assurance that
the Company will pursue a settlement or that a settlement would be reached on
terms acceptable to the Company. In the event that the Company could not settle
any such interference action and were declared to have interfered, it could lose
some or all of the claims in the Company's existing patent and/or the
continuation application and be subject to patent infringement claims for its
use of the technology
9
<PAGE> 11
in question. Any such action or claim could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business -- Intellectual Property."
LENGTHY SALES CYCLE
A carrier's decision to license one of the Company's products typically
involves a significant commitment of capital by the customer, with the attendant
delays frequently associated with significant capital expenditures. In addition,
purchases of the Company's products involve multilevel testing, integration,
implementation and support requirements. For these and other reasons, the sales
cycle associated with the licensing of the Company's products typically ranges
from 6 to 18 months and is subject to a number of risks over which the Company
has little or no control, including customers' budgetary and capital spending
constraints and the internal purchasing approval processes of the customer.
Because of this lengthy sales cycle and the relatively large size of a typical
software license, if revenue forecasted from a specific customer for a
particular quarter is not realized in that quarter, the Company's operating
results for that quarter could be materially and adversely affected. See
"-- Fluctuations in Future Operating Results" and "Business -- Sales, Marketing
and Distribution."
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS; PRODUCT DELAYS AND RISK OF SOFTWARE
ERRORS OR FAILURES
The Company's success depends in part on the timely introduction and
success of new products or product enhancements. A significant delay in the
introduction of, or the presence of a defect in, one or more new products or
product enhancements could have a material adverse effect on the ultimate
success of such products or product enhancements and on the Company's business,
operating results and financial condition. Further, because of the revenue
typically associated with initial shipments of a new product or product
enhancement, delaying the introduction of a new product or product enhancement
expected near the end of a fiscal quarter may materially and adversely affect
operating results for that quarter or beyond. The process of developing software
products such as those offered by the Company is extremely complex and is
expected to become more complex and expensive in the future as new platforms and
technologies emerge. In the past, the Company has experienced significant delays
in the introduction of certain new products and product enhancements and the
Company anticipates that there will be similar delays in developing and
introducing new products and product enhancements in the future. There can be no
assurance that new products or product enhancements will be introduced on
schedule or at all or that they will achieve market acceptance or generate
significant revenue. Software products as complex as those offered by the
Company may contain undetected errors when first introduced or when new versions
are released. There can be no assurance that, despite testing by the Company,
errors will not be found in new products or product enhancements after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Technology."
CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS
The wireless telecommunications industry is undergoing rapid changes,
including evolving industry standards, frequent new product introductions and
changes in carrier requirements and preferences. The introduction of new
technologies might render some of the Company's existing products obsolete or
unmarketable. There can be no assurance that the current demand for the
Company's products will continue or that the mix of the Company's future product
offerings will keep pace with technological changes or satisfy evolving customer
preferences or that the Company will be successful in developing and marketing
products for any future operating system or industry standard. Failure to
develop and introduce new products and product enhancements in a timely fashion
could result in a loss of the Company's customers and could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Products," "-- Product Development" and
"-- Technology."
10
<PAGE> 12
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
While most of the Company's operations are not directly regulated, the
Company's customers are subject to a variety of governmental regulations. Such
regulations may decrease the growth of the wireless telephone industry,
adversely affect the development of the PCS market, limit the number of
potential customers for the Company's products or impede the Company's ability
to offer competitive products and services to the wireless telephone market or
otherwise have a material adverse effect on the Company's business, operating
results and financial condition. At the same time, recently enacted legislation
deregulating the telecommunications industry may cause changes in the industry,
including entrance of new competitors and industry consolidation, which could in
turn subject the Company to increased pricing pressures, decrease the demand for
the Company's products, increase the Company's cost of doing business or
otherwise have a material adverse effect on the Company's business, operating
results and financial condition. If the recent trend toward privatization and
deregulation of telecommunications markets outside of the U.S. were to
discontinue, or if currently deregulated international markets were to
reinstitute comprehensive government regulation of telecommunications services,
the Company's business, operating results and financial condition could be
materially and adversely affected.
ABILITY TO MANAGE GROWTH
The Company is currently experiencing a period of rapid growth that has
placed, and could continue to place, a significant strain on the Company's
operational, financial, management, administrative and other resources. The
Company's ability to manage its growth effectively will require it to continue
to improve its operational, financial and management information systems and to
attract, train, motivate, manage and retain key employees. There can be no
assurance that the Company's systems, procedures, controls and existing
facilities will be adequate to support expansion of the Company's operations. If
the Company is unable to manage its growth effectively, the Company's business,
operating results and financial condition could be materially and adversely
affected. See "Business -- Employees" and "Management."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent on the performance
and continued service of its senior management and certain key employees. In
particular, the loss of the services of Eric Johnson, the Company's Chairman of
the Board, President and Chief Executive Officer, could have a material adverse
effect on the Company. The Company maintains key-man life insurance policies on
Mr. Johnson as well as certain other management personnel, however, such
policies are not designed to fully compensate the Company for the loss of these
persons' services. Competition for highly skilled employees with technical,
management, marketing, sales, product development and other specialized training
is intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. Specifically, the Company may
experience increased costs in order to attract and retain skilled employees. The
loss of any of the Company's senior management or other key research,
development, sales and marketing personnel, particularly if lost to competitors,
could have a material adverse effect on the Company's business, operating
results and financial condition. The Company's failure to attract additional
qualified employees or to retain the services of key personnel could materially
and adversely affect the Company's business, operating results and financial
condition. See "Business -- Employees" and "Management."
DEPENDENCE ON THIRD-PARTY PRODUCTS AND SERVICES
Many of the Company's products incorporate or rely on products developed
and owned by third parties, including computer hardware, telecommunications
switching equipment, databases and on-line transaction monitors. Consequently,
the Company must rely upon third parties to develop and introduce products that
enhance the Company's current products and enable the Company, in turn, to
develop its own products on a timely and cost-effective basis to meet changing
customer needs and technological trends in the telecommunications industry. Any
impairment or termination of the Company's relationship with any vendor,
developer or licensor of third-party products would force the Company to seek
alternative sources for these products. There can be no assurance that the
Company will be able to obtain access in a timely manner to
11
<PAGE> 13
third-party products and development services necessary to enable the Company to
develop and introduce new and enhanced products, that the Company will obtain
third-party products and development services on commercially reasonable terms
or that the Company will be able to replace third-party products in the event
such products become unavailable, obsolete or incompatible with future versions
of the Company's products. The absence, or any significant delay in the
replacement, of third-party products could have a material adverse effect on the
Company's business, operating results and financial condition.
RISKS ASSOCIATED WITH REVENUE FROM INTERNATIONAL CUSTOMERS
Revenue from international customers accounted for approximately 27.2%,
34.7% and 14.1% of the Company's total revenue in 1994 and 1995 and the nine
months ended September 30, 1996, respectively, and the Company expects that
revenue from international customers will continue to account for a significant
portion of the Company's total revenue. The Company expects to expand its sales
efforts outside of the U.S., which will require significant management attention
and financial resources. Revenue from international customers is subject to
inherent risks, including unexpected changes in regulatory requirements, tariffs
and other trade barriers, political and economic instability in foreign markets,
difficulties in staffing and management and integration of foreign operations,
longer payment cycles, greater difficulty in accounts receivable collection,
currency fluctuations and potentially adverse tax consequences. Since most of
the Company's foreign sales are denominated in U.S. dollars, the Company's
products may also become less price competitive in countries in which local
currencies decline in value relative to the U.S. dollar. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Sales, Marketing and Distribution."
CONCENTRATION OF SHARE OWNERSHIP; ANTI-TAKEOVER PROVISIONS
Based on the number of shares of Common Stock outstanding as of September
30, 1996, upon completion of this offering, the directors and officers of the
Company, together with certain entities affiliated with them, will own an
aggregate of 26.3% of the Company's outstanding Common Stock, assuming no
exercise of outstanding stock options or warrants (24.7% assuming the exercise
in full of the Underwriters' over-allotment option). As a result, these
stockholders will retain significant voting power in the election of all
directors and with respect to other matters requiring approval by the
stockholders of the Company. See "Management -- Directors and Executive
Officers" and "Principal and Selling Stockholders."
Upon the completion of this offering, the Company's Board of Directors will
have the authority to issue up to 5,000,000 shares of undesignated preferred
stock and to determine the designations, preferences and rights and the
qualifications or restrictions of those shares without any further vote or
action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate actions, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no present plans to issue shares of
preferred stock. In addition, the Company will, upon consummation of the
offering, be subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. In general, this statute 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. Furthermore, certain
other provisions of the Company's Certificate of Incorporation and Bylaws, such
as classification of the Board of Directors and prohibitions against
stockholders acting by written consent or calling special meetings of
stockholders, may have the effect of discouraging, delaying or preventing a
merger, tender offer or proxy contest, or other transaction, even if such
transaction could provide a premium to the market price of the Company's Common
Stock. See "Management" and "Description of Capital Stock."
12
<PAGE> 14
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price for the
Company's Common Stock. In addition to the 2,700,000 shares of Common Stock
offered hereby, as of the date of the final Prospectus (the "Effective Date"),
there will be 7,230,137 shares of Common Stock outstanding, all of which are
"restricted" shares (the "Restricted Shares") under the Securities Act of 1933,
as amended (the "Securities Act"). Approximately Restricted Shares
will be eligible for sale in the public market immediately following the
Effective Date pursuant to Rule 144(k) promulgated under the Securities Act. In
addition, approximately Restricted Shares will become eligible for
sale 180 days after the Effective Date upon expiration of certain lock-up
agreements with the Underwriters and pursuant to Rules 144 and 701, subject in
some cases to certain volume and other resale restrictions pursuant to Rule 144.
In addition, the Company intends to register on Form S-8, within 90 days after
the Effective Date, a total of 2,354,655 shares of Common Stock subject to
outstanding options or reserved for issuance under the Company's Stock Option
Plan and the Employee Stock Purchase Plan (the "Purchase Plan"). Following the
filing of such registration statement on Form S-8, approximately 109,000 shares
issuable upon the exercise of stock options will become eligible for sale in the
public market. Upon expiration of the lock-up agreements referred to above,
holders of approximately 5,138,000 shares of Common Stock and holders of
warrants to purchase approximately 251,000 shares of Common Stock will be
entitled to certain registration rights with respect to such shares. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Company's Common Stock. See "Shares
Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this offering. The initial
public offering price will be determined by negotiations between the Company and
the Representatives of the Underwriters and may not be indicative of future
market prices. The market price of the Company's Common Stock could be subject
to significant fluctuations in response to variations in quarterly operating
results and other factors, such as announcements of new products by the Company
or its competitors and changes in earnings estimates or recommendations by
securities analysts or other events. Moreover, the stock market has experienced
extreme volatility that has particularly affected the market prices of equity
securities of many high technology companies and that has often been unrelated
or disproportionate to the operating performance of such companies. Broad market
fluctuations, as well as economic conditions generally and in the software
industry specifically, may materially and adversely affect the market price of
the Company's Common Stock. There can be no assurance that the market price of
the Common Stock will not decline below the initial public offering price. See
"Underwriting."
DILUTION
Investors participating in this offering will incur immediate and
substantial dilution of net tangible book value per share of $7.95. To the
extent that outstanding options and warrants to purchase Common Stock are
exercised, there will be further dilution. See "Dilution" and "Underwriting."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,700,000 shares of
Common Stock offered by the Company hereby are estimated to be $26,800,000
($29,767,000 if the Underwriters' over-allotment option is exercised in full),
based on an assumed initial public offering price of $11.00 per share and after
deducting the estimated underwriting discount and offering expenses payable by
the Company.
The Company intends to use the net proceeds of this offering primarily for
working capital and other general corporate purposes. The amounts actually
expended by the Company for working capital purposes will depend upon a number
of factors, including future revenue growth, the amount of cash generated by the
Company's operations and the progress of the Company's product development
efforts. The Company may also use a portion of such net proceeds to acquire or
invest in businesses, products and technologies that are complementary to those
of the Company, although no specific acquisitions are planned as of the date of
this Prospectus, and no portion of the net proceeds has been allocated for any
particular acquisition.
Pending the uses described above, the Company intends to invest the net
proceeds from this offering in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends and currently intends
to retain any future earnings to finance the growth and development of its
business.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth at September 30, 1996 (i) the long-term debt
and capitalization of the Company and (ii) the long-term debt and capitalization
of the Company, as adjusted to give effect to conversion of all outstanding
preferred stock into Common Stock and the sale of the 2,700,000 shares of Common
Stock being offered by the Company hereby at an assumed initial public offering
price of $11.00 per share, and the application of the estimated proceeds
therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt...................................... $ 380 $ 380
======= =======
Long-term debt, non-current portion.................................... $ 313 $ 313
Stockholders' equity:
Preferred stock, $0.001 par value; 15,000,000 shares authorized and
5,908,253 outstanding, actual; and 5,000,000 shares authorized, no
shares outstanding, pro forma and as adjusted..................... 6 --
Common stock, $0.001 par value; 30,000,000 shares authorized and
3,234,433 shares outstanding, actual; and 25,000,000 shares
authorized and 9,930,137 shares outstanding, pro forma and as
adjusted(1)....................................................... 3 10
Additional paid-in capital............................................. 10,467 37,266
Accumulated deficit.................................................... (7,038) (7,038)
------- -------
Total stockholders' equity................................... 3,438 30,238
------- -------
Total capitalization.................................... $ 3,751 $30,551
======= =======
</TABLE>
- ---------------
(1) Does not include (i) 1,102,346 shares of Common Stock issuable upon exercise
of stock options outstanding as of September 30, 1996, granted under the
Company's Stock Option Plan at a weighted average exercise price of $1.26
per share and (ii) 979,937 shares of Common Stock issuable upon exercise of
warrants outstanding as of September 30, 1996, at a weighted average
exercise price of $0.28 per share. See "Management -- Stock Option Plan" and
"Description of Capital Stock."
15
<PAGE> 17
DILUTION
The net tangible book value of the Company at September 30, 1996, was
approximately $3,438,000, or $0.48 per share of Common Stock. Net tangible book
value per share is equal to the Company's total tangible assets less its total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of 2,700,000 shares of Common Stock
offered hereby (at an assumed initial public offering price of $11.00 per share
and after deducting the estimated underwriting discount and offering expenses)
as well as the conversion of all outstanding preferred stock into Common Stock,
the pro forma net tangible book value of the Company at September 30, 1996 would
have been approximately $30,238,000, or $3.05 per share, representing an
immediate increase in such net tangible book value of $2.57 per share to
existing stockholders and an immediate dilution in net tangible book value of
$7.95 per share to purchasers of Common Stock in the offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $11.00
------
Net tangible book value per share before offering................. $0.48
Increase per share attributable to new investors.................. 2.57
-----
Pro forma net tangible book value per share after offering.......... 3.05
------
Dilution per share to new investors................................. $ 7.95
======
</TABLE>
The following table summarizes on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid, the average price paid per share by the existing
stockholders and by the investors purchasing shares of the Common Stock in the
offering, as well as the conversion of all outstanding preferred stock into
Common Stock, (at an assumed initial public offering price of $11.00 per share
before deducting the estimated underwriting discount and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 7,230,137 72.8% $10,476,300 26.1% $ 1.45
New investors............ 2,700,000 27.2 29,700,000 73.9 11.00
--------- ------ ----------- ------
Total.......... 9,930,137 100.0% $40,176,300 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Does not include (i) 1,102,346 shares of Common Stock issuable upon exercise
of stock options outstanding as of September 30, 1996, granted under the
Company's Stock Option Plan at a weighted average exercise price of $1.26
per share and (ii) 979,937 shares of Common Stock issuable upon exercise of
warrants outstanding as of September 30, 1996, at a weighted average
exercise price of $0.28 per share.
Assuming full exercise of the Underwriters' overallotment option, the
percentage of shares held by existing stockholders would be 69.8% of the total
number of shares of Common Stock to be outstanding after this offering, and the
number of shares to be held by new stockholders would be increased to 3,105,000
shares, or 30.2% of the total number of shares of Common Stock to be outstanding
after this offering. See "Management -- Stock Option Plan," "Principal and
Selling Stockholders" and "Description of Capital Stock."
16
<PAGE> 18
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected financial data of the Company. The
statement of operations data for each of the years ended December 31, 1993, 1994
and 1995 and for the nine months ended September 30, 1996, and the balance sheet
data at December 31, 1994 and 1995, and for the nine months ended September 30,
1996 are derived from, and are qualified by reference to, the Company's
Financial Statements included elsewhere in this Prospectus which have been
audited by Price Waterhouse LLP, independent accountants. The statement of
operations data for the years ended December 31, 1991 and 1992 and the balance
sheet data at December 31, 1991, 1992 and 1993 are derived from the Company's
financial statements not included herein. The statement of operations data for
the nine months ended September 30, 1995 have been derived from the unaudited
financial statements of the Company included elsewhere in the Prospectus. The
data should be read in conjunction with the Financial Statements, related notes,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software licenses................................. $ -- $ -- $ 215 $ 1,036 $ 2,485 $ 1,935 $5,829
Services and other................................ -- 699 179 240 625 532 408
Hardware.......................................... -- -- 110 141 780 626 615
----- ----- ------- ------- ------- ------- -----
Total revenue................................... -- 699 504 1,417 3,890 3,093 6,852
----- ----- ------- ------- ------- ------- -----
Cost of revenue:
Software licenses................................. -- 58 122 526 422 419
Services and other................................ 140 75 258 645 513 585
Hardware.......................................... -- 111 128 738 607 470
----- ----- ------- ------- ------- ------- -----
Total cost of revenue........................... -- 140 244 508 1,909 1,542 1,474
----- ----- ------- ------- ------- ------- -----
Gross profit........................................ -- .. 559 260 909 1,981 1,551 5,378
Operating expenses:
Research and development.......................... 37 514 414 573 2,160 1,496 1,953
Sales and marketing............................... 2 133 158 645 1,870 1,427 2,614
General and administrative........................ 86 417 677 886 1,351 1,066 1,765
----- ----- ------- ------- ------- ------- -----
Total operating expenses........................ 125 1,064 1,249 2,104 5,381 3,989 6,332
----- ----- ------- ------- ------- ------- -----
Loss from operations................................ (125) (505) (989) (1,195) (3,400) (2,438) (954)
Other income (expense), net......................... -- 3 (61) (33) 9 15 (31)
----- ----- ------- ------- ------- ------- -----
Loss before extraordinary item...................... (125) (502) (1,050) (1,228) (3,391) (2,423) (985)
Extraordinary item:
Gain on extinguishment of debt and other
liabilities(1).................................. -- -- -- -- -- -- 243
----- ----- ------- ------- ------- ------- -----
Net loss............................................ $(125) $(502) $(1,050) $(1,228) $(3,391) $(2,423) $ (742)
===== ===== ======= ======= ======= ======= =====
Pro forma net loss per common share before
extraordinary item (unaudited).................... $ (.12)
=====
Pro forma net loss per common share (unaudited)..... $ (.48) $ (.09)
======= =====
Pro forma weighted average number of shares
outstanding (unaudited)........................... 7,097 8,096
======= =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
----- ----- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 25 $ 215 $ 62 $ 83 $ 1,023 $ 3,374
Total assets........................................ 35 312 355 1,092 2,958 7,454
Long-term debt, non-current portion................. -- 167 500 22 146 313
Stockholders' equity (deficit)...................... 2 (450) (1,518) (754) 138 3,438
</TABLE>
- ---------------
(1) In September 1996, the Company extinguished a previously recorded net
liability of $658,300. The Company settled this obligation for $415,000,
resulting in a gain of $243,300 which was recorded as an extraordinary item.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and related notes thereto included elsewhere in this Prospectus. This
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below, in "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
Coral Systems was founded in 1991 and develops, markets and supports
software solutions for the wireless telecommunications industry. Prior to the
fourth quarter of 1993, the Company operated as a development stage company with
revenue consisting solely of software development fees. The Company did not
begin to generate significant revenue until the second quarter of 1995. During
1995 and the nine months ended September 30, 1996, approximately 51.1% and
65.4%, respectively, of the Company's total revenue was attributable to licenses
of FraudBuster, the Company's fraud profiling software product. In addition, a
significant portion of the Company's service and hardware revenue for these
periods was directly attributable to the licensing of FraudBuster.
The Company generates revenue from software licenses, services (including
maintenance, installation and training), development and consulting contracts,
and certain hardware sold in conjunction with software licenses. The Company's
software license agreements typically provide for an initial license fee and an
annual maintenance fee for a defined number of subscribers, as well as
additional license and maintenance fees for net subscriber additions. This
provides a potential ongoing revenue stream, which enables the Company to
benefit from growth in the subscriber base of its customers. The Company also
has entered into license agreements that provide for either a one-time license
fee or a monthly license fee, each of which has an annual maintenance fee with
no additional fee based on incremental subscriber growth. Revenue from initial
license fees is recognized when the product has been delivered and the Company
has satisfied all significant performance obligations or when the customer
accepts the product. Revenue for incremental subscriber growth, if any, is
recognized at the date subscriber growth is calculated and the revenue is earned
pursuant to the terms of the relevant software license agreement. Monthly
license fees are recognized as earned on a monthly basis. Maintenance revenue is
recognized ratably over the term of the maintenance agreement. Service revenue
for installation and training is recognized as the service is performed. Revenue
from development and consulting contracts is generally recognized as the
services are performed, using the percentage of completion method. Hardware is
sold only in conjunction with software licenses when required by the customer
and such revenue is deferred until the related license revenue is recognized.
The Company licenses its software products through a direct sales force,
international sales agents and distributors. Distributors include vendors of
telecommunications switching equipment, computer hardware and database software.
To date, a significant portion of the Company's revenue in any particular period
has been attributable to a limited number of customers which are comprised of
both distributors and carriers that purchased products and services directly
from the Company. The Company expects a relatively small number of customers
will continue to represent a significant percentage of its total revenue for the
foreseeable future, although the companies that comprise the largest customers
in any given quarter are expected to change from quarter to quarter. License
revenue from all distributors accounted for approximately 53.8% and 75.3% of the
Company's total revenue in 1995 and the nine months ended September 30, 1996,
respectively. Revenue from international customers accounted for approximately
34.7% and 14.1% of the Company's total revenue in 1995 and the nine months ended
September 30, 1996, respectively, and the Company expects that revenue from
international customers will continue to account for a significant portion of
the Company's total revenue.
Cost of software license revenue primarily includes fees paid to third
party software vendors, as well as costs associated with implementation of the
application software when necessary. Cost of service revenue consists primarily
of expenses for personnel engaged in customer support, installation, training
and consulting
18
<PAGE> 20
services. Cost of hardware consists of hardware purchased from third party
vendors plus shipping costs. The Company's gross margin has varied significantly
in the past and may vary significantly in the future, depending primarily on the
mix of services and products licensed or sold by the Company. The Company's
software licenses have a substantially higher gross margin than its services and
hardware revenue. Therefore, to the extent the Company's total revenue for any
particular period includes a higher proportion of lower margin services or
hardware, there will be a material adverse effect on the Company's operating
results.
The sale of the Company's software products to wireless carriers typically
involves a lengthy sales cycle ranging from 6 to 18 months. The length of the
sales cycle for the Company's products has caused, and may continue to cause,
material fluctuations in the Company's revenue and operating results on a
quarterly and annual basis. As a result, period-to-period comparisons on a
quarterly or annual basis are not necessarily meaningful and should not be
relied upon as indications of the Company's future performance.
RESULTS OF OPERATIONS
The following table presents certain items from the Company's statement of
operations expressed as a percentage of total revenue for the respective
periods.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------
1993 1994 1995 1995 1996
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses......................... 42.7% 73.1% 63.9% 62.6% 85.0%
Services and other........................ 35.5 16.9 16.1 17.2 6.0
Hardware.................................. 21.8 10.0 20.0 20.2 9.0
------ ----- ----- ----- -----
Total revenue........................... 100.0 100.0 100.0 100.0 100.0
------ ----- ----- ----- -----
Cost of revenue:
Software licenses......................... 11.5 8.6 13.5 13.6 6.1
Services and other........................ 14.9 18.2 16.6 16.6 8.5
Hardware.................................. 22.0 9.1 19.0 19.7 6.9
------ ----- ----- ----- -----
Total cost of revenue................... 48.4 35.9 49.1 49.9 21.5
------ ----- ----- ----- -----
Gross profit................................ 51.6 64.1 50.9 50.1 78.5
Operating expenses:
Research and development.................. 82.1 40.4 55.5 48.4 28.5
Sales and marketing....................... 31.4 45.5 48.1 46.1 38.1
General and administrative................ 134.3 62.5 34.7 34.4 25.8
------ ----- ----- ----- -----
Total operating expenses................ 247.8 148.4 138.3 128.9 92.4
------ ----- ----- ----- -----
Loss from operations........................ (196.2) (84.3) (87.4) (78.8) (13.9)
Other income (expense)...................... (12.1) (2.4) 0.2 0.5 (0.5)
------ ----- ----- ----- -----
Loss before extraordinary item.............. (208.3) (86.7) (87.2) (78.3) (14.4)
Extraordinary item:
Gain on extinguishment of debt and other
liabilities............................. -- -- -- -- 3.6
------ ----- ----- ----- -----
Net loss.................................... (208.3)% (86.7)% (87.2)% (78.3)% (10.8)%
====== ===== ===== ===== =====
</TABLE>
19
<PAGE> 21
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
Revenue. Total revenue increased 122.6% from $3.1 million in the nine
months ended September 30, 1995 to $6.9 million in the nine months ended
September 30, 1996 due to a significant increase in software license revenue.
Software Licenses. Revenue from software licenses increased
205.3% from $1.9 million in the nine months ended September 30, 1995
to $5.8 million in the nine months ended September 30, 1996 and
represented 62.6% and 85.0%, respectively, of total revenue in these
periods. The increase in software license revenue for the nine months
ended September 30, 1996 was primarily attributable to increased
revenue from FraudBuster licenses and, to a lesser extent, to a
license of the Company's HLR product during this period.
Services and Other. Service revenue decreased 23.3% from $532,000
in the nine months ended September 30, 1995 to $408,000 in the nine
months ended September 30, 1996 and represented 17.2% and 6.0%,
respectively, of total revenue in these periods. Service revenue was
higher in the 1995 period due to revenue from a development agreement
for the Company's ChurnAlert product.
Hardware. Hardware revenue decreased slightly from $626,000 in
the nine months ended September 30, 1995 to $615,000 in the nine
months ended September 30, 1996 and represented 20.2% and 9.0%,
respectively, of total revenue in these periods. While hardware
revenue in aggregate terms remained relatively flat during the period,
it decreased as a percentage of total revenue as the Company's
software license revenue significantly increased during the period.
Cost of Revenue. Cost of revenue was $1.5 million for each of the nine
months ended September 30, 1995 and 1996. Overall gross profit as a percentage
of total revenue increased from 50.1% in the nine months ended September 30,
1995 to 78.5% in the nine months ended September 30, 1996. This increase was
primarily attributable to a significant increase in software licenses as a
percentage of total revenue.
Software Licenses. Cost of software licenses decreased slightly
from $422,000 in the nine months ended September 30, 1995 to $419,000
in the nine months ended September 30, 1996. Software license gross
profit as a percentage of software license revenue increased from
78.2% in the nine months ended September 30, 1995 to 92.8% in the nine
months ended September 30, 1996. This increase was primarily
attributable to an increase in the average license fee of the
Company's application software licenses as well as a decrease in third
party software expenses as a percentage of total software license
revenue. This increase was also attributable, to a lesser extent, to
improved margins on third party software sold in conjunction with
licensing the Company's FraudBuster product.
Services and Other. Cost of services increased from $513,000 in
the nine months ended September 30, 1995 to $585,000 in the nine
months ended September 30, 1996, and increased as a percentage of
service revenue from 96.4% in the nine months ended September 30, 1995
to 143.4% in the nine months ended September 30, 1996. This increase
was due primarily to increased customer support expenses related to
the hiring and training of personnel in anticipation of new customer
installations and future support requirements. In addition, in the
1996 period the Company recognized a lower proportion of development
fee revenue, which has a higher gross margin than maintenance fee
revenue.
Hardware. Cost of hardware decreased from $607,000 in the nine
months ended September 30, 1995 to $470,000 in the nine months ended
September 30, 1996, and decreased as a percentage of hardware revenue
from 97.0% in the nine months ended September 30, 1995 to 76.4% in the
nine months ended September 30, 1996. This decrease was due to the
Company's ability to obtain improved margins on hardware revenue.
Research and Development. Research and development costs primarily consist
of salaries and other personnel-related expenses, supplies, depreciation for
development equipment and third party contract resources used in the development
of the Company's software products. Research and development expenses increased
from $1.5 million in the nine months ended September 30, 1995 to $2.0 million in
the nine months ended September 30, 1996, primarily due to costs related to
enhancing existing products and the development
20
<PAGE> 22
of new products. Research and development expenses represented 48.4% and 28.5%
of total revenue in the nine months ended September 30, 1995 and 1996,
respectively. The Company has not capitalized any software costs to date. The
Company believes that it will continue to devote substantial resources to
product development and that research and development expenses will continue to
increase in absolute dollars.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other personnel-related expenses including commissions, promotional
activities, public relations, consulting services and travel expenses related to
sales and marketing activities. Sales and marketing expenses increased from $1.4
million in the nine months ended September 30, 1995 to $2.6 million in the nine
months ended September 30, 1996. This increase was primarily due to increased
personnel and related costs, increased revenue from international customers, and
increased promotional spending. Sales and marketing expenses represented 46.1%
and 38.1% of total revenue in the nine months ended September 30, 1995 and 1996,
respectively. The Company believes that sales and marketing expenses will
increase in absolute dollars due to increased promotional activities and the
costs associated with increasing international sales activities.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related expenses, as well as
occupancy, insurance and professional services expenses. General and
administrative expenses increased from $1.1 million in the nine months ended
September 30, 1995 to $1.8 million in the nine months ended September 30, 1996.
This increase was primarily due to the addition of executive management and
support personnel to manage operations, legal fees associated with an
extraordinary gain from the extinguishment of debt, as well as facility
expansion and other related expenses necessary to support the Company's growth.
General and administrative expenses represented 34.4% and 25.8% of total revenue
in the nine months ended September 30, 1995 and 1996, respectively. The Company
believes that general and administrative expenses will increase in absolute
dollars as the Company expands its operations and becomes a public company.
Extraordinary Gain on Extinguishment of Debt and Other Liabilities. During
the nine months ended September 30, 1996 the Company extinguished a previously
recorded net liability of $658,000. The Company settled the above obligation for
$415,000, resulting in a $243,000 extraordinary gain. The Company incurred
$127,000 in legal fees associated with this transaction that was included in
general and administrative expenses.
Provision (Benefit) for Income Taxes. Income taxes are accounted for in
accordance with Statement of Financial Accounting Standards No. 109. Due to the
Company's history of pre-tax losses and uncertainty surrounding the timing of
realizing the benefits of its favorable tax attributes, the Company has recorded
a valuation allowance against all of its net deferred tax assets as of September
30, 1996.
YEARS ENDED DECEMBER 31, 1993, 1994, 1995
Revenue. Total revenue increased from $504,000 in 1993 to $1.4 million in
1994 and to $3.9 million in 1995, due to significant increases in software
license revenue during such periods.
Software Licenses. Software license revenue was $215,000, $1.0
million and $2.5 million in 1993, 1994 and 1995, respectively. In
1993, software license revenue consisted primarily of a sale of the
Company's HLR product design. In 1994 and 1995, software license
revenue consisted primarily of licenses of the Company's FraudBuster
product.
Services and Other. Service revenue was $179,000, $240,000 and
$625,000, in 1993, 1994 and 1995, respectively. In 1993, service
revenue consisted solely of product development fees for FraudBuster.
In 1994 and 1995, respectively, service revenue consisted of product
development fees for both FraudBuster and ChurnAlert of $203,000 and
$373,000. The remaining service revenue in 1994 and 1995 was primarily
from maintenance, installation and training fees derived from the
Company's software product licenses. In 1993, 1994 and 1995, the
portion of service revenue derived from product development fees was
100%, 84.6% and 59.7%, respectively.
Hardware. Hardware revenue was $110,000, $141,000 and $780,000 in
1993, 1994 and 1995, respectively. The increase in hardware revenue in
1993 and the substantial increase from 1994 to
21
<PAGE> 23
1995 was the result of increased customer demand for the Company to provide
hardware in conjunction with its software product licenses.
Cost of Revenue. Cost of revenue was $244,000, $508,000 and $1.9 million in
1993, 1994 and 1995, respectively. Overall gross profit as a percentage of
revenue increased from 51.6% in 1993 to 64.1% in 1994 and decreased to 50.9% in
1995. Overall gross profit fluctuated as a percentage of total revenue due to
changes in the amount of lower margin hardware sold as a percentage of total
revenue.
Software Licenses. The cost of software licenses increased from
$58,000 in 1993 to $122,000 in 1994 and increased to $526,000 in 1995,
each as a direct result of increased revenue from software licenses.
Software license gross profit increased as a percentage of software
license revenue from 73.0% in 1993 to 88.2% in 1994, and decreased to
78.8% in 1995. The changes in gross profit of software licenses were
primarily due to the cost of third party software associated with
specific software application licenses.
Services and Other. Cost of services increased from $75,000 in
1993 to $258,000 in 1994, and increased to $645,000 in 1995. Cost of
services as a percentage of service revenue increased from 41.9% in
1993 to 107.5% in 1994, and decreased to 103.2% in 1995. The increase
in cost of services as a percentage of service revenue from 1993 to
1994 was due to an increase in customer support personnel and related
maintenance expenses as well as the recognition of a lower proportion
of development fee revenue, which has a higher gross margin than
maintenance fee revenue. Higher margin product development revenue
decreased as a percentage of service revenue from 1994 to 1995.
However, due to improved margins on maintenance services, cost of
services as a percentage of service revenue decreased slightly from
1994 to 1995.
Hardware. Cost of hardware increased from $111,000 in 1993 to
$128,000 in 1994, and increased to $738,000 in 1995, primarily due to
increased levels of hardware sold in conjunction with software
licenses. Cost of hardware as a percentage of hardware revenue
decreased from 100.9% in 1993 to 90.8% in 1994, and increased to 94.6%
in 1995.
Research and Development. Research and development expenses were $414,000,
$573,000 and $2.2 million in 1993, 1994 and 1995, respectively, and represented
82.1%, 40.4% and 55.5% of the Company's total revenue in such periods. The
increase in absolute dollars in 1994 was primarily attributable to increased
personnel and related expenses for the enhancement of the Company's FraudBuster
product. The increase in absolute dollars in 1995 was the result of increased
personnel and related expenses for the development of the Company's core
technology, its new ChurnAlert and veRiFier products, as well as additional
enhancements to FraudBuster. During 1995, the Company also incurred $460,000 in
third party contract development costs for veRiFier.
Sales and Marketing. Sales and marketing expenses were $158,000, $645,000
and $1.9 million in 1993, 1994 and 1995, respectively, and represented 31.4%,
45.5% and 48.1% of the Company's total revenue in such periods. Prior to 1994,
the Company relied primarily on reseller and distribution channels for the
marketing and sale of the Company's products. In 1994, the Company began
building a direct sales force as well as an infrastructure to manage
distribution channels, which significantly contributed to the increase in sales
and marketing expenses from 1993 to 1994. The increase in sales and marketing
expenses from 1994 to 1995 was a result of increased personnel and related
expenses for the Company's continued development of a direct sales force and
distribution channels, which in 1995 began to expand into international markets.
General and Administrative. General and administrative expenses were
$677,000, $886,000 and $1.4 million in 1993, 1994 and 1995, respectively, and
represented 134.3%, 62.5% and 34.7% of the Company's total revenue in such
periods. The increase in general and administrative expenses in each period
primarily resulted from increased personnel, facilities, professional services
and other expenses necessary to manage and support the Company's growth.
Provision (Benefit) for Income Taxes. The Company did not report any tax
provision (benefit) during any of three years ended December 31, 1993, 1994 or
1995. The Company recorded a valuation allowance against all of its net deferred
tax assets as of each of these respective year ends.
22
<PAGE> 24
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables present the Company's results of operations for each
of the last five quarters and the percentage relationship of certain items to
total revenue for the respective periods. The quarterly information is unaudited
but the Company believes that the information regarding each of these quarters
has been prepared on the same basis as the audited Financial Statements
appearing elsewhere in the Prospectus. In the opinion of management, all
necessary adjustments (consisting only of normal recurring adjustments) have
been included to present fairly the unaudited quarterly results when read in
conjunction with the Financial Statements and Notes thereto appearing elsewhere
in the Prospectus. The results of operations for any quarter are not necessarily
indicative of the results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1996 1996 1996
------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses............................... $ 71 $ 549 $ 877 $1,905 $ 3,047
Services and other.............................. 129 93 111 111 186
Hardware........................................ 74 154 41 178 397
------- ------- ------- ------ ------
Total revenue................................. 274 796 1,029 2,194 3,630
------- ------- ------- ------ ------
Cost of revenue:
Software licenses............................... 35 104 51 131 237
Services and other.............................. 148 132 185 134 266
Hardware........................................ 68 130 21 128 320
------- ------- ------- ------ ------
Total cost of revenue......................... 251 366 257 393 823
------- ------- ------- ------ ------
Gross profit...................................... 23 430 772 1,801 2,807
Operating expenses:
Research and development........................ 540 663 699 585 668
Sales and marketing............................. 464 443 659 814 1,142
General and administrative...................... 288 285 399 651 716
------- ------- ------- ------ ------
Total operating expenses...................... 1,292 1,391 1,757 2,050 2,526
------- ------- ------- ------ ------
Income (loss) from operations..................... (1,269) (961) (985) (249) 281
Other income (expense), net....................... 7 (7) (37) 7 (2)
------- ------- ------- ------ ------
Income (loss) before extraordinary item........... (1,262) (968) (1,022) (242) 279
Extraordinary item:
Gain on extinguishment of debt and other
liabilities(1)................................ -- -- -- -- 243
------- ------- ------- ------ ------
Net income (loss)................................. $(1,262) $ (968) $(1,022) $ (242) $ 522
======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1996 1996 1996
------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses............................... 25.9% 69.0% 85.2% 86.8% 84.0%
Services and other.............................. 47.1 11.7 10.8 5.1 5.1
Hardware........................................ 27.0 19.3 4.0 8.1 10.9
------- ------- ------- ------ ------
Total revenue................................. 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------ ------
Cost of revenue:
Software licenses............................... 12.8 13.1 5.0 6.0 6.6
Services and other.............................. 54.0 16.6 18.0 6.1 7.3
Hardware........................................ 24.8 16.3 2.0 5.8 8.8
------- ------- ------- ------ ------
Total cost of revenue......................... 91.6 46.0 25.0 17.9 22.7
------- ------- ------- ------ ------
Gross profit...................................... 8.4 54.0 75.0 82.1 77.3
Operating expenses:
Research and development........................ 197.1 83.3 67.9 26.7 18.4
Sales and marketing............................. 169.3 55.6 64.0 37.1 31.5
General and administrative...................... 105.1 35.8 38.8 29.6 19.7
------- ------- ------- ------ ------
Total operating expenses...................... 471.5 174.7 170.7 93.4 69.6
------- ------- ------- ------ ------
Income (loss) from operations..................... (463.1) (120.7) (95.7) (11.3) 7.7
Other income (expense), net....................... 2.5 (0.9) (3.6) 0.3 --
------- ------- ------- ------ ------
Income (loss) before extraordinary item........... (460.6) (121.6) (99.3) (11.0) 7.7
Extraordinary item:
Gain on extinguishment of debt and other
liabilities(1)................................ -- -- -- -- 6.7
------- ------- ------- ------ ------
Net income (loss)................................. (460.6)% (121.6)% (99.3)% (11.0)% 14.4%
======= ======= ======= ====== ======
</TABLE>
- ---------------
(1) In September 1996, the Company extinguished a previously recorded net
liability of $658,300. The Company settled this obligation for $415,000,
resulting in a gain of $243,300 which was recorded as an extraordinary item.
23
<PAGE> 25
The Company has experienced, and expects to continue to experience,
significant fluctuations in operating results due to a variety of factors,
including the size and rate of growth of the wireless telecommunications market,
market acceptance of the Company's products and those of its competitors, the
timing of orders from major customers, development and marketing expenses
relating to the introduction of new or enhanced products, the timing and degree
of success of product introductions by the Company and its competitors, changes
in pricing policies by the Company and its competitors, the long sales cycles
associated with the Company's products, the mix of products and services
delivered by the Company, the accuracy of forecasts of carrier demand,
development delays, changes in hardware platforms and general economic
conditions. In response to competitive pressures or otherwise, the Company may
take certain pricing or marketing actions that could materially adversely affect
its business or operating results. Because of the relatively large dollar size
of the Company's software licenses, any delay in the closing of a transaction
could adversely impact the Company's operating results for a particular quarter.
The Company may also be required to reduce license fees or undertake significant
custom development without compensation in connection with its licensing
transactions. Due in part to the time required to implement the Company's
products, the Company may experience potentially significant delays in
recognizing revenue. The Company's expense levels are relatively fixed and are
based, in part, on its expectations regarding future sales and, as a result, the
Company's business, operating results or financial condition would be materially
and adversely affected by a decrease in sales or a failure to meet the Company's
sales expectations. There can be no assurance that the Company will achieve or
sustain profitability on a quarterly or annual basis. It is likely that in some
future quarter the Company's revenue or operating results will be below the
expectations of stock market securities analysts and investors. In such event,
the price of the Company's Common Stock would likely decline, perhaps
substantially.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through the private
placements of equity and debt securities, capital equipment leases, and, to a
lesser extent, bank borrowings. Since inception, the Company has raised $10.9
million of gross proceeds from the sale of its capital stock. Net cash used in
operations for 1993, 1994, 1995, and the nine months ended September 30, 1996,
totaled $952,000, $1.3 million, $3.0 million and $727,000, respectively.
Net cash used in investing activities for 1993, 1994, 1995, and the nine
months ended September 30, 1996, totaled $95,000, $195,000, $316,000 and
$337,000, respectively. Investment activities have been primarily for the
purchase of hardware and software used in product development, as well as
fixtures and equipment to support the Company's operations. During 1995, the
Company secured a $750,000 capital equipment lease line, of which $694,000 had
been drawn as of September 30, 1996. The lease line requires monthly payments
over three years, commencing from the date of the funding of each equipment
schedule. As the Company expands its operations, it expects to incur capital
expenditures for additional computer equipment for product development, fixtures
and equipment for new employees and expansion of the Company's facilities. The
Company may utilize a portion of the net proceeds of this offering for such
expenditures.
In addition to the capital equipment lease line, the Company has a $750,000
revolving variable rate note with a bank. At September 30, 1996, the Company had
drawn down $150,000 on the note. The note matures on April 26, 1997 and provides
for monthly interest payments at the bank's prime rate plus 1.25%, with the
principal due at maturity. The note is secured by all cash, accounts receivable,
furniture and equipment, inventory and all transferable third party software
rights of the Company and includes a requirement that the Company maintain a
minimum deposit balance of $250,000 at the bank when the outstanding balance on
the note exceeds $500,000.
A hardware manufacturer advanced the Company $400,000 in 1992 for the
development of one of the Company's products to operate on the manufacturer's
hardware. The Company has an agreement with the hardware manufacturer by which
the Company earns revenue based on a percentage of the sales price of the
manufacturer's hardware sold by the Company. Any revenue earned by the Company
from the sale of the manufacturer's hardware will first be applied to this
advance. The $400,000 advance has been recorded as
24
<PAGE> 26
deferred revenue until earned from the sale of the manufacturer's hardware. At
September 30, 1996, deferred revenue related to this agreement was $385,000.
The Company believes that the net proceeds from this offering, together
with existing cash and cash equivalents as well as amounts available under
existing credit facilities, will be sufficient to finance the Company's needs
through at least the next 12 months.
25
<PAGE> 27
BUSINESS
Coral Systems provides client-server software products for the wireless
telecommunications industry to enable carriers to reduce fraud and customer
turnover, or "churn," and increase operating efficiencies. The Company's
products are based upon its proprietary core technology, which provides several
key advantages, including rapid product development, portability, technology
independence and enhanced scalability. The Company's fraud management software,
FraudBuster, includes a fraud profiler and subscription monitoring techniques
and is designed to combat most currently-identified types of wireless fraud.
Unlike many other fraud prevention techniques which typically address specific
types of fraud, FraudBuster detects multiple types of existing and emerging
fraud, including cloning, subscription fraud, tumbling fraud and cellular
telephone theft. Coral Systems' veRiFier line extension, when released, will
expand the FraudBuster solution by providing interfaces to complementary fraud
prevention products, including radio frequency ("RF") signature detection. The
Company's churn prevention product, ChurnAlert, allows carriers to analyze and
identify potential churn candidates before they seek customer service assistance
or deactivate service. The Company's Home Location Register ("HLR") networking
product facilitates seamless roaming and enhanced services and optimizes switch
capacity with minimal capital outlays. The Company's Data Message Handler
("DMH") networking product, when released, will enable carriers to capture and
distribute data on a near real-time basis to facilitate billing, wireless fraud
detection, churn prevention and customer service applications.
INDUSTRY BACKGROUND
Over the past decade, wireless telecommunications has been one of the
fastest growing segments of the U.S. telecommunications industry. According to
the CTIA, the number of cellular subscribers in the U.S. increased 207%, from 11
million in December 1992 to 34 million in December 1995, representing
approximately 13% of the U.S. population. A number of factors have contributed
to this growth, including the increased mobility of the U.S. population, greater
acceptance of wireless telephone use and more widespread availability of
incentive pricing plans for cellular phones and service. Industry sources
estimate that worldwide cellular subscribers grew from 52 million in 1994 to 86
million in 1995, with a predicted increase in worldwide subscribers to 284
million by the year 2001. The rapid growth in international wireless services is
attributable to the lower relative cost and faster implementation time of
deploying wireless technology in countries without an adequate wireline
infrastructure, deregulation of communications services and privatization of
state-run enterprises.
The wireless telecommunications industry is becoming increasingly
competitive and complex as a result of a number of recent regulatory and
technological changes resulting in increasing pressure on the profitability of
carriers. Cellular carriers originally licensed by the Federal Communications
Commission ("FCC") are facing increased competition from new digital wireless
services being offered by Personal Communications Services ("PCS") and Enhanced
Specialized Mobile Radio ("ESMR") carriers, which offer increased capacity and
service capabilities. Wireless carriers are facing pressure on profitability due
to high marketing costs and lower average revenue per subscriber associated with
a shift from predominantly high-usage business subscribers to a "mass market"
service. In this regard, an increasing number of wireless phones are being
distributed through mass market techniques, including retail sales channels,
resulting in reduced carrier control over the quality of subscribers and
increased cost of acquiring new subscribers. The lower usage rates of the new
mass market subscribers have resulted in a reduction in average revenue per
subscriber of 40% from 1989 to 1995. As a result, carriers must retain
subscribers for longer periods to recoup their marketing investment and, in the
case of new entrants, to recoup the high costs of spectrum acquisition that
resulted from the FCC's auction process. In order to combat new entrants,
existing wireless carriers seek to improve subscriber satisfaction by increasing
system capacity, offering enhanced services, such as voice-activated dialing,
one number service and location services, and improving network security.
Subscriber growth, increased competition, declining revenue per subscriber and
the transition to a mass market subscriber base have created significant
challenges for wireless telecommunications carriers, including rising losses
from fraud and churn, growing strains on network capacity and increasing demand
for enhanced services.
Industry sources estimate that in the U.S. the total revenue lost to
wireless telecommunications fraud was approximately $650 million in 1995, up
from $482 million in 1994. In addition to lost revenue, carriers are
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forced to incur significant operating costs associated with the creation of
internal fraud management departments, customer service efforts to retain
subscribers who have been affected by fraud and infrastructure costs to replace
capacity used by fraud. The major types of fraud are cloning, subscription
fraud, tumbling fraud and cellular telephone theft. Cloning fraud, which
industry sources estimate comprised 50% of U.S. fraud losses in 1995, occurs
when cellular thieves capture the mobile identification number and electronic
serial number ("MIN/ESN") of a valid subscriber's cellular phone by using a
MIN/ESN reader to monitor the airwaves and then reprogram the internal chip in
other phones using the stolen information. When a cloned phone is used, the
valid subscriber may be billed for the fraudulent usage. Subscription fraud,
which industry sources estimate comprised 30% of U.S. fraud losses in 1995, is
the activation and use of cellular service with no intent to pay for the
service, and often involves use of stolen or forged identification. Wireless
carriers are increasingly concerned with subscription fraud as competitive
pressures lead carriers to acquire subscribers through mass market distribution
channels which permit less control over the quality of new subscribers. Tumbling
fraud, where a cellular phone is altered so that it tumbles through a number of
MINs or ESNs to disguise the fraudulent user, comprised 15% of U.S. fraud losses
in 1995. Theft of cellular phones comprised the remaining 5% of U.S. fraud
losses. These types of fraud are also expected to pose a significant problem for
carriers in many international markets.
To address these different types of wireless telecommunications fraud, a
number of fraud prevention techniques have been developed, including fraud
profilers, subscription fraud monitoring techniques, personal identification
numbers ("PINs"), RF fingerprinting, voice recognition and authentication. A
fraud profiler monitors subscriber calling patterns and creates a profile of the
subscriber's characteristics, such as average number and length of calls and
location of calls. If calling activity becomes unusual when compared with the
subscriber profile, the carrier is notified that fraud is suspected.
Subscription fraud monitoring techniques include credit checks, credit limits,
monitoring suspicious calling activity and alerts on high usage for new users.
PINs involve the use of a password that must be dialed by the subscriber before
the call can be connected. RF fingerprinting involves the use of hardware
installed in the carrier's base stations which captures the unique electronic
characteristics of a phone to differentiate between the valid phone and cloned
phone. With RF fingerprinting, a call identified as originating from a cloned
phone may be terminated. Voice recognition technology has been viewed as an
adjunct to the PIN method of fraud prevention and requires each subscriber to
select a spoken password which is provided whenever a PIN is required.
Authentication is a complex signaling and data protection technique based on
encryption and requires a phone to prove that it is the valid phone before
service is granted and would require that most currently available analog phones
be serviced to add this feature. Carriers have tried to reduce fraud by
implementing one or more of these techniques. However, with the exception of
fraud profilers, these techniques have been unable to provide a long-term
solution to multiple types of fraud. As technology advances, fraud also is
expected to evolve into new and different forms, requiring carriers to seek a
solution that monitors and identifies all currently known and emerging types of
fraud.
In addition to fraud management, wireless carriers are focusing increasing
attention on improved customer retention in order to reduce subscriber turnover,
or churn, as the cost of acquiring new subscribers continues to increase.
According to an industry report published in October 1995, wireless carriers in
the U.S. have recently experienced average annual subscriber churn at rates of
26% to 36%, which represents 6 to 9 million subscribers lost per year. At an
average acquisition cost of $500 per subscriber, churn costs the U.S. cellular
industry over $3.5 billion per year. Churn is also expected to pose a
significant problem in international markets as governmental deregulation opens
such markets to competing carriers. Factors that lead to churn include
competitive pricing and, to a lesser extent, lack of geographic coverage,
customer service problems, poor voice quality and inaccurate billing. Current
techniques for reducing churn are limited to taking corrective action once it is
known that a subscriber is terminating service. Carriers are expected to look
for systems that will assist them in predicting churn so steps may be taken to
prevent subscriber turnover before it occurs.
As the number of wireless subscribers grows and competition intensifies,
carriers are seeking ways to increase the efficiency and capacity of their
systems with minimal capital outlays. Carriers are also expected to adopt
products and systems that provide open interfaces to ensure they have the
flexibility to purchase new
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network equipment from various network providers. By relocating functionality
from the wireless telecommunications switch to a stand-alone platform, carriers
free up overloaded switches, increase operating efficiency and create a platform
for enhanced services, such as voice-activated dialing, one number service and
location capabilities. To further increase operating efficiency, reduce costs
and provide differentiated services, carriers must be able to implement near
real-time billing.
THE CORAL SYSTEMS SOLUTION
Coral Systems provides client-server software products for the wireless
telecommunications industry to enable carriers to reduce fraud and customer
churn and increase operating efficiencies. The Company's products are based upon
its proprietary core technology, which provides several key advantages,
including rapid product development, portability, technology independence and
enhanced scalability. The Company's fraud management software, FraudBuster,
includes a fraud profiler and subscription monitoring techniques and is designed
to combat most currently identified types of wireless fraud. FraudBuster
software utilizes proprietary algorithms to enable wireless carriers to focus on
usage patterns by creating individual subscriber profiles that are continuously
updated, referenced and analyzed on a near real-time, call-by-call basis.
FraudBuster also incorporates subscription monitoring techniques to detect
fraudulent subscriptions. These techniques include usage limit checks,
identification of suspicious calling activity and high usage fraud alerts for
new subscribers. Unlike many other fraud prevention techniques which typically
address specific types of fraud, FraudBuster detects multiple types of existing
and emerging fraud, including cloning, subscription fraud, tumbling fraud and
cellular telephone theft. Coral Systems' veRiFier line extension, when released,
will expand the FraudBuster fraud management solution by providing interfaces to
complementary fraud prevention products, including RF signature detection. The
Company's churn prevention product, ChurnAlert, allows carriers to analyze and
identify potential churn candidates before they seek customer service assistance
or deactivate service. Coral Systems' HLR networking product facilitates
seamless roaming and enhanced services and optimizes switch capacity with
minimal capital outlays. Coral Systems' DMH networking product, when released,
will enable carriers to capture and distribute data on a near real-time basis to
facilitate billing, wireless fraud detection, churn prevention and customer
service applications.
BUSINESS STRATEGY
The Company's strategy includes the following key elements:
Leverage Proprietary Core Technology. The Company intends to leverage its
proprietary core technology, which enables the Company to reduce development
times for new applications, to rapidly port Coral Systems applications to
various third party software platforms and to offer carriers
technology-independent solutions that are scalable for rapid growth. Once
installed, the Company's core technology provides a platform on which additional
Company applications can be installed with increased efficiency and at reduced
customer costs.
Expand Products and Services for Wireless Carriers. The Company plans to
expand the products and services it offers to wireless carriers to provide
comprehensive solutions which address a broad range of carriers' needs. New
applications will be based on the Company's proprietary core technology,
allowing for flexible configuration and reduced development times for new
applications that can be deployed in a wide variety of hardware environments.
The Company is developing its DMH product and an enhanced version of its HLR
product to compliment and enhance the performance of FraudBuster and ChurnAlert.
Capitalize on Growth of Wireless Markets. The Company's goal is to
capitalize on the growth of the wireless telecommunications industry in order to
become a leading provider of software designed to address a range of problems
confronting wireless carriers. Due to the introduction of new and more complex
technologies that improve the capacity and quality of wireless networks, an
increasing number of carriers are seeking to outsource the software solutions
required to manage these networks in order to enable them to focus on their core
businesses.
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Maximize Recurring Revenue Stream. Coral Systems focuses on offering
products and services that will generate recurring revenue for the Company. The
Company's products are licensed pursuant to agreements that typically provide
for an initial license fee and an annual maintenance for a defined number of
subscribers, as well as additional license and maintenance fees for new
subscriber additions.
Leverage Strategic Relationships. The Company enters into strategic
development and distribution relationships with leading providers of wireless
telecommunications services and equipment in order to accelerate new or enhanced
product introductions, shorten the Company's sales cycle and increase market
penetration. The Company has entered into strategic relationships with Lucent,
CBIS, Ericsson and Nortel and plans to continue to develop relationships with
other companies to achieve synergies with their products, establish interfaces
with a wide range of switches and components and broaden its distribution
network.
PRODUCTS
The following table sets forth information regarding certain of the current
and anticipated Coral Systems product offerings:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PRODUCTS DESCRIPTION DATE OF INTRODUCTION
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Products
FraudBuster Combats most commonly known types of January 1993
fraud by tracking subscriber usage
patterns and alerting the carrier of
suspected fraud.
ChurnAlert Analyzes a carrier's customer base to September 1995
identify subscribers likely to
discontinue service or churn.
HLR Enables a carrier to offer seamless January 1993
roaming and enhanced services and to
free up switch capacity without costly
capital outlays.
- -------------------------------------------------------------------------------------------------
Products Under Development
DMH Enables a carrier to provide near In development
real-time billing, fraud detection and
customer care applications.
veRiFier Integrates FraudBuster with In development
complementary fraud prevention products,
including RF signature detection.
- -------------------------------------------------------------------------------------------------
</TABLE>
FraudBuster. FraudBuster, the Company's principal product, is a fraud
management software product which includes a fraud profiler and subscription
fraud monitoring techniques and is designed to identify most commonly known
types of wireless fraud (e.g., cloning, subscription, tumbling and cellular
theft). FraudBuster collects subscriber account information and call usage data
from telecommunications switches, billing systems and other commonly accepted
data sources to create individual subscriber profiles that are continuously
updated, referenced and analyzed on a near real-time, call-by-call basis. In
addition, for subscription and enhanced clone fraud detection FraudBuster
monitors usage limits and identifies suspicious call activity, including
simultaneous call attempts, calls to suspicious locations, abnormally high usage
and calls from different cities in illogical time sequences. When suspicious
account activity occurs, FraudBuster notifies the carriers with details of the
questionable activity and suggests responses. FraudBuster addresses the evolving
needs of carriers to include more sophisticated customer care capabilities to
proactively manage the impact of fraud on their subscribers. For example,
FraudBuster can enable the carrier's billing system to automatically credit
subscribers for fraudulent calls charged to their account before they are
invoiced. By using a client-server architecture, FraudBuster may be located
anywhere on the carrier's premises, including at the switching center or at the
carrier's business offices. Cellular carriers may locate the servers in a
switching
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center for closer monitoring and management of the application, with the clients
residing in the departments using the applications. FraudBuster was introduced
in January 1993 and is now installed in analog, digital and PCS carriers.
ChurnAlert. ChurnAlert is a software product that enables carriers to use
adjustable analyses to proactively address the needs of subscribers who are
likely to terminate service, or churn. Other churn products currently available
are reactive in that they merely provide information about a subscriber in
response to a query from the customer service representative when the subscriber
calls customer service to deactivate service, which is often too late to prevent
the subscriber from churning. ChurnAlert collects information from multiple data
sources (e.g. switches, billing systems), analyzes key churn indicators, such as
competitive rate plans and quality of service, and assigns a probability "value"
based on the output of various analyses. ChurnAlert also incorporates a customer
evaluation feature which permits a user to assign higher customer care
priorities to specific segments of subscribers, such as heavy users. ChurnAlert
allows carriers to predict the vulnerability of their subscriber bases to
competitor rate plans and promotions and enables carriers to model scenarios for
other key indicators of churn, such as feature usage and network quality. By
utilizing a client-server architecture, ChurnAlert may be located anywhere on
the carrier's premises. For example, cellular carriers may locate the servers in
a switching center for closer monitoring and management of the application, with
the clients residing in the departments using the applications. ChurnAlert was
introduced in September 1995.
Home Location Register (HLR). Home location registers ("HLRs") provide for
the management of roaming and enhanced services, in accordance with
Telecommunications Industry Association ("TIA") Interim Standard 41 ("IS-41").
Carriers can optimize switch capacity and thereby minimize costly capital
outlays for new switches by moving this functionality from the switch to a
standalone HLR architecture. In addition, as new, smaller and scalable
programmable switches gain market acceptance, carriers adopting these lower
capacity switches will require stand-alone HLRs to manage certain switch related
functionality. By providing roamer and enhanced services management, the
Company's stand-alone HLR networking product extends the functionality of the
telecommunications switch while utilizing the open interface defined by IS-41
Revision B. In addition, by utilizing a client-server architecture, the
Company's HLR is designed to offer carriers rapid transaction processing,
reliability and scalability for growth. The Company's initial IS-41 Revision
A-compliant HLR was introduced in January 1993 and the Company is developing a
new version of its HLR product that meets the requirements of IS-41 Revision C.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend on its ability to
maintain and improve its current technologies, enhance its existing products and
develop new products that meet an expanding range of carrier requirements. At
September 30, 1996, the Company's development staff consisted of 29 employees.
For 1993, 1994 and 1995 and the nine months ended September 30, 1996, the
Company's expenditures on research and development were $414,000, $572,700, $2.2
million and $2.0 million, respectively. The Company anticipates that it will
continue to commit substantial resources to product development in the future.
To date, the Company has not capitalized any software development costs.
The Company's principal products under development include its DMH and
veRiFier products:
Data Message Handler (DMH). The DMH network is defined by the TIA Interim
Standard 124 ("IS-124"), which was developed to specify an intersystem protocol
for sharing service, call and subscriber information collected from a variety of
information sources, including different and incompatible manufacturers'
switches. Because the DMH network can distribute details of both the local and
roaming calling activity of a carrier's full subscriber base, the carrier can
track service usage and subscriber activity in near real-time, enabling the
carrier to bill for services more quickly and to use such information to address
fraud and customer service issues. The Company is currently developing its DMH
product which will provide a data generation, collection and distribution
platform for near real-time billing, fraud detection and prevention, churn and
customer service applications. The Company's DMH will comply with industry
standards in the collection and distribution of billing data to facilitate these
multiple downstream applications. By utilizing a client-server
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architecture, the Company's DMH is designed to offer carriers rapid transaction
processing, reliability and scalability for subscriber growth.
veRiFier. The Company's veRiFier product, when released, will extend the
capability of FraudBuster to interface with RF signature products, with
interfaces to other fraud detection products. The Company is developing an
interface to RF signature devices that utilize technology originally developed
for military purposes to differentiate between two wireless phones (one cloned)
by the unique electronic characteristics of each phone. The veRiFier RF
interface augments RF signature detection by using a series of real-time fraud
checks to improve the accuracy of fraud determinations and distinctions between
bona fide and fraudulent calls, thus minimizing valid subscriber impact. While
RF signature devices may distinguish between two cloned phones, the veRiFier RF
interface can assist in the determination of which is the valid user.
The Company's success depends in part on the timely introduction and
success of new products or product enhancements. A significant delay in the
introduction of, or the presence of a defect in, one or more new products or
product enhancements could have a material adverse effect on the ultimate
success of such products or product enhancements and on the Company's business,
operating results and financial condition. Further, because of the revenue
typically associated with initial shipments of a new product or product
enhancement, delaying the introduction of a new product or product enhancement
expected near the end of a fiscal quarter may materially adversely affect
operating results for that quarter or beyond. The process of developing software
products such as those offered by the Company is extremely complex and is
expected to become more complex and expensive in the future as new platforms and
technologies emerge. In the past, the Company has experienced significant delays
in the introduction of certain new products and product enhancements and the
Company anticipates that there will be similar delays in developing and
introducing new products and product enhancements in the future. There can be no
assurance that new products or product enhancements will be introduced on
schedule or at all or that they will achieve market acceptance or generate
significant revenue. Software products as complex as those offered by the
Company may contain undetected errors when first introduced or when new versions
are released. There can be no assurance that, despite testing by the Company,
errors will not be found in new products or product enhancements after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, which could have a material adverse effect on the Company's
business, operating results and financial condition.
TECHNOLOGY
The Company's products are based upon its proprietary core technology,
which provides several key development advantages, including enabling the
Company to quickly develop new applications, to rapidly port Coral Systems'
applications to alternative third party software platforms and to offer carriers
technology-independent solutions that are scalable for rapid growth. The
Company's core technology allows new applications to be built by using applets
and services that were developed for previous releases of other applications. An
"applet" is a self-contained mini-application that provides complete application
functionality for a given task. The Company's consistent re-use of applets and
services reduces the amount of code that it must develop and maintain, enables
rapid development of new applications and improves the quality of the code
through reuse. In addition, the flexibility of the Company's core proprietary
technology will enable the Company to reduce the development time for native
language versions of its existing products for use in foreign countries. The
Company has encapsulated many of the external links of its core technology in
order to insulate it from changes or obsolescence of third party hardware and
software. Coral Systems' core technology provides enhanced scalability to permit
the rapid and efficient growth of the wireless subscriber bases and the
deployment of new software technologies. The Company believes that these
features (rapid development, portability, protection against technology
obsolescence and enhanced scalability) provide carriers with a significant
development advantage in integrating evolving technologies into the Company's
products for increased application efficiency and performance. The Company's
core technology operates on Hewlett-Packard and Sun Microsystems hardware
platforms, and includes interfaces to Oracle and Informix databases, allowing
for flexible configuration to each customer's environment. In addition, the core
technology enables Coral Systems to offer applications that support all air
interfaces and IS-41 and GSM network protocols,
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permitting multi-national wireless carriers to utilize the Company's products in
diverse technology and standards settings.
SALES, MARKETING AND DISTRIBUTION
The Company markets its products to cellular, PCS and other wireless
carriers domestically and internationally. The Company distributes its products
through its direct sales force, international sales agents and distributors.
Coral Systems licenses its products pursuant to agreements that typically
provide for an initial license fee and an annual maintenance for a defined
number of subscribers, as well as additional license and maintenance fees for
net subscriber additions. The Company's products typically require a significant
investment by the carrier and involve multilevel testing, integration,
implementation and support requirements. As a result, product sales cycles
generally range from 6 to 18 months.
Revenue from international customers accounted for approximately 27.2%,
34.7% and 14.1% of the Company's total revenue in 1994 and 1995 and the nine
months ended September 30, 1996, respectively, and the Company expects that
revenue from international customers will continue to account for a significant
portion of the Company's total revenue. The Company expects to expand its sales
efforts outside of the U.S., which will require significant management attention
and financial resources. Revenue from international customers is subject to
inherent risks, including unexpected changes in regulatory requirements, tariffs
and other trade barriers, political and economic instability in foreign markets,
difficulties in staffing and management and integration of foreign operations,
longer payment cycles, greater difficulty in accounts receivable collection,
currency fluctuations and potentially adverse tax consequences. Since most of
the Company's foreign sales are denominated in U.S. dollars, the Company's
products may also become less price competitive in countries in which local
currencies decline in value relative to the U.S. dollar.
As part of its marketing and distribution strategy, the Company has
established strategic relationships with the following companies:
Cincinnati Bell Information Systems. The Company's marketing license
agreement with CBIS grants CBIS the right to sublicense or exclusively offer in
a service bureau environment the Company's FraudBuster and ChurnAlert products,
provides CBIS with a right of first refusal under similar circumstances for the
Company's future products and further provides for the joint solicitation of
certain customers. CBIS produced approximately 120 million cellular bills in the
U.S. in 1995 and its wireless customers include AT&T Wireless Services, PrimeCo
Personal Communications, Sprint Spectrum and 360 Degrees Communications Company.
CBIS generally operates as a service bureau, and charges on a per subscriber
bill, per month basis. By offering FraudBuster and ChurnAlert in a similar
fashion, CBIS can charge an additional per subscriber fee per month for the
benefits of these applications, a portion of which is paid to the Company.
Ericsson Radio Systems. The Company has a joint development and
distribution agreement with Ericsson, a large manufacturer and marketer of
cellular switching equipment, pursuant to which Ericsson offers FraudBuster for
sublicense under the private label of Cellular Fraud Detection Systems ("CFDS").
This agreement provides for Coral Systems and Ericsson to jointly enhance CFDS
to create a customized solution which takes advantage of the unique features of
Ericsson's wireless telecommunications switches.
Lucent Technologies. The Company has a worldwide distribution agreement
with Lucent, which provides Lucent with the ability to sublicense the Company's
FraudBuster product to wireless carriers worldwide.
Nortel. The Company has marketing agreements with Nortel, a worldwide
manufacturer of telecommunications switching equipment. These agreements provide
for the recommendation and promotion by Nortel of FraudBuster and the
customization of FraudBuster for unique Nortel wireless telecommunication
switching features, in exchange for which, Nortel receives a portion of the net
software license fee.
CUSTOMERS AND CUSTOMER SUPPORT
The end users of the Company's products are wireless telecommunications
providers both domestically and internationally. Comcast Cellular
Communications, Pacific Synergy, Motorola, and AirTouch accounted for 22.1%,
22.1%, 11.7% and 11.2%, respectively, of the Company's total revenue in 1995 and
Lucent and DSC
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Technologies accounted for 60.0% and 12.4%, respectively, of the Company's total
revenue in the nine months ended September 30, 1996. Lucent, Motorola and
Pacific Synergy are distributors of the Company's products and sublicense the
Company's products to carriers. See "Risk Factors -- Customer Concentration;
Dependence on Distributors."
The following is a list of wireless carriers who use the Company's
products, each of which has licensed at least $250,000 of the Company's
products:
<TABLE>
<S> <C>
AirTouch Communications Mobikom (Malaysia)
American Personal Communications Orange Personal Communications Services
Austria PTT (United Kingdom)
BellSouth PCS Pilipino Telephone Company
Comcast Cellular Communications (Philippines)
Cox Communications Radiophone
DSC Technologies Corporation Sprint Spectrum
US WEST New Vector Group
Western Wireless
</TABLE>
The Company provides its customers with support including project
management, database navigation and trouble shooting, product training,
technical expertise in network communications and interface development, as well
as hardware and software installation skills. As part of its standard
maintenance services, the Company provides support services five days a week,
eight hours per day, via telephone, remote login, e-mail, and, if necessary,
on-site assistance. The Company offers a range of support packages for
additional fees, including support seven days a week, 24 hours per day. The
Company also offers consulting services to its customers for a separate fee.
COMPETITION
The markets for the Company's software products are new, intensely and
increasingly competitive, rapidly evolving and subject to rapid technological
change. The Company's competitors include computer hardware and software
providers, telecommunications services and billing providers and range from
small companies with limited resources to large companies with substantially
greater financial, technical and marketing resources than those of the Company.
In addition, the Company competes against the internal development efforts of
the Company's customers and potential customers. As a result, some of the
Company's competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than the Company. Further,
existing companies may broaden their product lines or increase their focus to
compete more directly with the Company's current and future products. Currently,
the Company's principal competitors are GTE-TSI in the United States and Digital
Equipment Corporation in international markets. The Company's FraudBuster
product competes with a number of other profiler products and several
alternative technologies, including RF signature systems, PINs and
authentication. In addition, the Company has licensed the source code for
FraudBuster to AirTouch for the purpose of enabling AirTouch to use, reproduce
and develop enhancements to FraudBuster in AirTouch's markets and to sublicense
FraudBuster to cellular carriers in which AirTouch directly owns at least a 10%
equity interest, in exchange for a royalty to the Company on such sublicenses.
As a result, AirTouch could compete with the Company in those markets covered by
cellular carriers in which AirTouch owns such an equity interest. GTE-TSI is
also the Company's primary competitor in the churn prevention software market.
Tandem Computers is the Company's principal competitor for its HLR products and
services. In addition, with the deployment of its own HLR products, the Company
will begin to compete with vendors who have licensed the Company's HLR product
source code. To the extent that competitors achieve higher product quality,
lower price, greater functionality or other advantages relative to the Company's
products, the Company's business, operating results and financial condition
could be materially and adversely affected. There can be no assurance that the
Company will have the resources required to respond effectively to market or
technological changes or to compete successfully in the future. Furthermore,
increasing competition in the wireless telecommunications industry may cause
prices to fall, which may materially and adversely affect the Company's
business, operating results and financial condition.
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Current and potential competitors have established or may in the future
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address the needs of the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share. If this were
to occur, the Company's business, operating results and financial condition
would be materially adversely affected.
INTELLECTUAL PROPERTY
The Company regards its software as proprietary and relies primarily on a
combination of patent, trademark, copyright and trade secret laws, employee and
third-party nondisclosure agreements and other methods to protect its
proprietary rights. The Company currently has one issued U.S. patent and five
applications pending in the U.S. Patent and Trademark Office, six applications
for foreign patents pending and two Patent Cooperation Treaty applications
preserving the Company's ability to obtain patent protection in a number of
foreign countries. There can be no assurance that any of such pending patent
applications will result in the issuance of any patents, or that the Company's
current patent or any future patents will provide meaningful protection to the
Company. In particular, there can be no assurance that third parties have not or
will not develop equivalent technologies or products that avoid infringing the
Company's current patent or any future patents or that the Company's current
patent or any future patents would be held valid and enforceable by a court
having jurisdiction over a dispute involving such patents. In addition, since
patent applications in the United States are not publicly disclosed until the
patent issues and foreign patent applications generally are not publicly
disclosed for at least a portion of the time that they are pending, applications
may have been filed by entities other than the Company which, if issued as
patents, may relate to the Company's products. There can be no assurance that
third parties will not assert infringement claims against the Company in the
future based on existing patents or future patents or that such claims will not
be successful.
The Company does not include in its products any mechanism to prevent or
inhibit unauthorized copying. Unauthorized copying is common within the software
industry, and if a significant amount of unauthorized copying of the Company's
products were to occur, the Company's business, operating results and financial
condition could be materially and adversely affected. Furthermore, the Company
may enter into transactions in countries where intellectual property laws are
not well developed and where legal protection of the Company's rights may be
ineffective. Also, as the number of software products in the industry increases,
and the possibility for overlapping functionality increases, software developers
may increasingly become subject to infringement claims. There can be no
assurance that third parties will not assert infringement claims against the
Company with respect to current or future products. From time to time, the
Company receives notices from third parties claiming infringement of
intellectual property rights of such parties. The Company investigates these
claims and responds as it deems appropriate. However, there can be no assurance
that the Company's response will satisfy the party sending the notice, or that
such party will not institute a claim against the Company. The scope of
protection accorded to patents covering software-related inventions is evolving
and is subject to a significant degree of uncertainty. Any claims or litigation,
with or without merit, could be costly, time-consuming and could result in a
diversion of management's attention, which could have a material adverse effect
on the Company's business, operating results and financial condition. In
addition, such claims could cause product shipment delays or require the Company
to enter into royalty or licensing agreements which may not be available on
terms acceptable to the Company or at all, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. There has been substantial litigation regarding copyright, trademark
and other intellectual property rights involving computer software companies and
there can be no assurance that the Company will not be subject to litigation
regarding these matters in the future. Adverse determinations in such claims or
litigation could also have a material adverse effect on the Company's business,
operating results and financial condition.
The Company's one issued U.S. patent relates to specific aspects of its
fraud detection and profiling technology, including aspects that have been or
may in the future be used in FraudBuster or other Company products. The Company
has filed a continuation application for this issued patent to pursue additional
claims. The Company received notice from the United States Patent and Trademark
Office that the issued patent and the continuation application are being
reviewed to determine if an interference action should be declared
34
<PAGE> 36
between the Company and another party. Such an interference action may be
declared if there is interfering subject matter in the Company's patent or
patent application and the other party's patent or patent application to
determine whether the Company or the other party is entitled to a patent
claiming such subject matter. Interference actions may be complex and expensive,
and the outcome of such actions is often difficult to predict. Accordingly, in
the event that an interference action is declared, the Company may consider
opportunities to settle the interference action on terms acceptable to the
Company. Any such settlement may require licensing of the Company's patent
rights which may diminish their value to the Company. In addition, there can be
no assurance that the Company will pursue a settlement or that a settlement
would be reached on terms acceptable to the Company. In the event that the
Company could not settle any such interference action and were declared to have
interfered, it could lose some or all of the claims in the Company's existing
patent and/or the continuation application and be subject to patent infringement
claims for its use of the technology in question. Any such action or claim could
have a material adverse effect on the Company's business, operating results and
financial condition.
The Company has received notice from Tadiran Corporation regarding an
alleged trademark infringement by the Company's use of the name Coral Systems,
Inc. The Company believes that it can settle such matter on terms acceptable to
the Company.
EMPLOYEES
As of September 30, 1996, the Company had 80 employees, including 29 in
research and development, 7 in customer support, 13 in domestic sales, 2 in
international sales, 6 in consulting services, 8 in marketing and 15 in finance
and administration. The Company also retains consultants from time to time to
assist it with particular software development projects. The Company believes
that its future success will depend in part on its ability to attract, motivate
and retain highly qualified personnel. None of the Company's employees are
represented by a collective bargaining agreement, nor has the Company
experienced any work stoppage. The Company considers its employee relations to
be good.
FACILITIES
The Company currently leases approximately 14,400 square feet in Longmont,
Colorado as its only office. The lease on the Company's premises will expire in
February 1999. The Company is presently negotiating with its landlord for the
leasing of an additional 9,400 square feet in an adjacent building, which the
Company expects to obtain on commercially reasonable terms. Upon obtaining this
additional space, the Company believes that such facilities will be adequate for
the next 12 months and that additional space will be available in the future on
commercially reasonable terms.
LEGAL PROCEEDINGS
From time to time, the Company has been involved in litigation relating to
claims arising out of its operations in the ordinary course of business. As of
the date of this Prospectus, the Company is not a party to any legal
proceedings, the adverse outcome of which would, in management's opinion have a
material adverse effect on the Company's business, operating results and
financial condition.
35
<PAGE> 37
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their ages as of
September 30, 1996, and their positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------- --- ------------------------------------------------------
<S> <C> <C>
Eric A. Johnson.............. 37 Chairman of the Board, President and Chief Executive
Officer
Kyle D. Hubbart.............. 40 Chief Financial Officer and Treasurer
Howard Kaushansky............ 38 Vice President of Strategic Planning, General Counsel
and Secretary
Thomas E. Fedro.............. 36 Vice President of Sales and Consulting Services
Sunil Prakash................ 39 Vice President of Product Development
Thomas F. Prosia............. 38 Vice President of Marketing
Donald J. Winters, Jr........ 44 Vice President of Business Development
David J. Cowan............... 30 Director
Bruce K. Graham(1)(2)........ 36 Director
Jeffrey R. Hultman(1)(2)..... 57 Director
Robert J. Marino............. 49 Director
William F. Nicklin(1)........ 53 Director
Thomas G. Washing(2)......... 55 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Eric A. Johnson has served as President, Chief Executive Officer and a
Director of the Company since July 1991 and as Chairman of the Board since March
1995. Prior to founding the Company, he served as Director of Marketing and
Strategic Planning for ACI Telecom, a wholly-owned subsidiary of US West, from
January 1991 to July 1991. From 1989 to 1991, he served in several positions at
AirTouch Communications, Inc. (formerly PacTel Cellular), a wireless
telecommunications company, most recently as Director of Business Development.
Kyle D. Hubbart has served as Chief Financial Officer of the Company since
February 1993 and as Treasurer since October 1993. From February 1993 until
March 1995, he also served as Controller of the Company. From 1985 to 1993, he
served as Treasurer and Chief Financial Officer of Round the Corner Restaurants,
Inc. and Good Times Restaurants, Inc., a national restaurant chain headquartered
in Denver, Colorado. He has been a Certified Public Accountant since 1980.
Howard Kaushansky has served as Vice President of Strategic Planning and
General Counsel of the Company since March 1992 and as Secretary since October
1993. From 1990 to 1992, he was an attorney with the law firm of Caplan &
Earnest and, prior thereto, he was an attorney with the law firms of Gray, Cary,
Ames & Frye and Gendel, Raskoff, Shapiro and Quittner.
Thomas E. Fedro has served as the Company's Vice President of Sales and
Consulting Services since February 1996 and was the Company's Vice President of
Sales and Marketing from August 1994 to February 1996. From January 1992 to July
1994, Mr. Fedro served in various sales positions at PI Systems, a mobile
computing software applications and hardware tools company, including Vice
President of Sales beginning in September 1992. From August 1986 to December
1991, he served as a Sales Manager for Grid Systems, a computer software
company.
Sunil Prakash has served as the Company's Vice President of Product
Development since December 1994. From January 1993 to December 1994, Mr. Prakash
was the Director of Engineering at XVT Software, a computer software company.
From July 1993 to December 1993, he was the Director of Engineering at APEX Data
Services, Inc., a software company. From November 1989 to July 1993, he served
36
<PAGE> 38
in various project management and engineering positions at Autotrol Technology
Corporation, a software company.
Thomas F. Prosia has served as the Company's Vice President of Marketing
since February 1996. From October 1990 to January 1996, Mr. Prosia served in
various marketing and sales positions at Covia Technologies, a software and
services company and a division of Galileo International, including Vice
President of Sales from July 1994 to January 1996.
Donald J. Winters, Jr. has served as the Company's Vice President of
Business Development since April 1996. From April 1991 to April 1996, Mr.
Winters held various management positions at AirTouch Communications, a wireless
telecommunications company, including Managing Director of Corporate Technology,
Director of Technology Transfer and Director of Network Management Systems. From
1978 to 1991, Mr. Winters held various management and engineering positions in
the telecommunications industry at PacTel Cellular, Pacific Bell and PacTel
Spectrum Services.
David J. Cowan has served as a director of the Company since March 1995.
Since July 1996, Mr. Cowan has been a general partner of certain venture capital
funds affiliated with Bessemer Venture Partners, a venture capital firm. From
July 1992 to June 1996, Mr. Cowan was an associate with Bessemer Venture
Partners. He currently serves on the Board of Directors of Worldtalk
Communications Corporation.
Bruce K. Graham has served as a director of the Company since March 1995.
Mr. Graham has been a Vice President with Vertex Management Inc., an investment
management company, since July 1994. From 1991 to June 1994, he was an associate
with Vertex Management Inc. From 1982 to 1991, he held various technical,
management and consulting positions in the U.S., Asia and Europe with Intel
Corporation, Siemens AG and the Boston Consulting Group.
Jeffrey R. Hultman has served as a director of the Company since December
1995. From 1991 to 1996, Mr. Hultman was the President, Chief Executive Officer
and a Director of Dial Page, Inc., a provider of wireless telecommunications
throughout the Southeast that merged with Nextel Communications, Inc. in January
1996. From 1987 to 1991, Mr. Hultman was the President and Chief Executive
Officer of AirTouch Communications, Inc., a wireless telecommunications company.
Robert J. Marino has served as a director of the Company since March 1996.
Mr. Marino has served as President and Chief Executive Officer of CBIS, an
information management company and a wholly-owned subsidiary of Cincinnati Bell,
Inc., since September 1996. From October 1995 to August 1996, he served as the
Chief Operating Officer of CBIS. From October 1993 to October 1995, he served as
the President of the Northeast Region for Nextel Communications, Inc., and from
November 1990 through October 1993, he served as the President of Houston
Cellular Telephone Company.
William F. Nicklin has served as a director of the Company since March
1994. Mr. Nicklin has been a Managing Director at Alex. Brown & Sons
Incorporated, an investment banking firm, since January 1991. Prior to joining
Alex. Brown & Sons in 1978, Mr. Nicklin was an officer in several brokerage
firms, including Spencer Trask & Company, White Weld & Company and Merrill
Lynch, Pierce, Fenner & Smith, Incorporated. He currently serves on the Board of
Directors of Baltek Corporation and Carco Electronics.
Thomas G. Washing has served as a director of the Company since December
1994. Since 1994, Mr. Washing has served as President of Sanitas Capital
Management, a firm providing strategic and financial assistance to emerging
growth technology companies. From 1986 to 1994, he served as a general partner
of Hill, Carman & Washing, a venture capital firm. Prior thereto, he was a
founding general partner of Horsley Keogh Associates, a venture capital firm. He
currently serves on the Board of Directors of Exabyte Corporation.
Each officer is elected at the discretion of the Board of Directors and
serves at the discretion of the Board of Directors and the President. There are
no family relationships among any of the directors, officers or key employees of
the Company.
37
<PAGE> 39
BOARD COMPOSITION
The Company currently has seven authorized directors. Upon the closing of
this offering, the terms of office of the Board of Directors will be divided
into three classes: Class I, whose term will expire at the annual meeting of
stockholders to be held in 1997, Class II, whose term will expire at the annual
meeting of stockholders to be held in 1998 and Class III, whose term will expire
at the annual meeting of stockholders to be held in 1999. The Class I directors
are Bruce K. Graham and David J. Cowan, the Class II directors are William F.
Nicklin and Robert J. Marino and the Class III directors are Eric A. Johnson,
Jeffrey R. Hultman and Thomas G. Washing. At each annual meeting of stockholders
beginning with the 1997 annual meeting, the successors to directors whose terms
will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election and until their
successors have been duly elected and qualified.
Mr. Nicklin was elected to the Board of Directors as the representative of
the holders of Series A Preferred Stock, Messrs. Cowan and Graham were elected
to the Board of Directors as the representatives of the holders of Series B
Preferred Stock and Mr. Marino was elected to the Board of Directors as the
representative of the holder of Series C Preferred Stock pursuant to certain
arrangements entered into at the time such classes of stock were purchased. All
such arrangements regarding the election of directors shall terminate upon the
consummation of this offering. See "Certain Transactions."
BOARD COMMITTEES
The Audit Committee was formed in March 1994 and presently consists of
Messrs. Nicklin, Graham and Hultman. The Audit Committee makes recommendations
to the Board of Directors regarding the selection of independent accountants,
reviews the results and scope of the audit and other services provided by the
Company's independent accountants and reviews and evaluates the Company's audit
and control functions.
The Compensation Committee was formed in October 1992 and presently
consists of Messrs. Hultman, Graham and Washing. The Compensation Committee
administers the Company's employee stock plans and makes decisions concerning
salaries and incentive compensation for the Company's employees and consultants.
DIRECTOR COMPENSATION
Directors are reimbursed for certain expenses in connection with attendance
at Board and committee meetings. In addition, Messrs. Washing, Hultman and
Nicklin receive $1500 per month in consideration for their services as
directors. In February 1995, each of Messrs. Nicklin and Washing was granted an
option to purchase 56,501 shares of Common Stock at an exercise price of $0.20
per share. In December 1995, Mr. Hultman was granted an option to purchase
56,501 shares of Common Stock at an exercise price of $0.22 per share. All of
such options vest in four equal annual installments beginning on the date one
year from the date of grant. In May 1995, Mr. Washing exercised his option prior
to full vesting and the unvested shares are subject to the Company's right to
repurchase such unvested shares at the exercise price upon the termination of
his service to the Company. Each such grant was made pursuant to the Company's
Stock Option Plan. See "Management -- Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Company's Compensation Committee in October
1992, the Board of Directors made all determinations with respect to executive
officer compensation. The Compensation Committee is currently comprised of
Messrs. Hultman, Graham and Washing. No member of the Compensation Committee has
served as an officer or employee of the Company. No member of the Compensation
Committee serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee. See "Certain
Transactions" for a description of transactions between the Company and members
of the Compensation Committee, or entities affiliated with such members.
38
<PAGE> 40
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth the compensation paid
by the Company in 1995 to the Company's Chief Executive Officer and the one
other executive officer whose total annual salary and bonus exceeded $100,000
for services rendered to the Company during 1995 (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS
-------------------- ---------------------
SALARY BONUS OPTIONS GRANTED
NAME AND PRINCIPAL POSITION(1) ($) ($) (#)
--------------------------------------------- -------- ------- ---------------------
<S> <C> <C> <C>
Eric A. Johnson.............................. 127,500 -- --
Chairman of the Board, President and Chief
Executive Officer
Thomas E. Fedro.............................. 86,900 44,136(2) 25,000
Vice President of Sales and
Consulting
</TABLE>
- ---------------
(1) In July 1996, the Company granted options to Mr. Johnson to purchase 50,000
shares of Common Stock at an exercise price of $6.00 per share and to Mr.
Fedro to purchase 37,500 shares of Common Stock at an exercise price of
$6.00 per share. Such options were granted at an exercise price equal to the
fair market value of the Company's stock, as determined by the Board of
Directors on the date of grant, and vest in four equal annual installments
with the first such installment vesting in July 1997. Messrs. Johnson and
Fedro have the right to immediately exercise such options, subject to
repurchase of the shares acquired upon such exercise by the Company at the
original exercise price paid per share upon their respective termination of
service to the Company prior to the vesting of such shares.
(2) Comprised of sales commissions.
39
<PAGE> 41
Option Grants. The following table sets forth each grant of stock options
made during 1995 to each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------
NAME(1) GRANTED FISCAL YEAR(2) ($/SH)(3) DATE 5% 10%
- -------------------------------- --------- -------------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Johnson................. -- -- -- -- -- --
Thomas E. Fedro................. 25,000(5) 7.1% .22 07/26/05 $3,459 $8,766
</TABLE>
- ---------------
(1) In July 1996, the Company granted options to Mr. Johnson to purchase 50,000
shares of Common Stock at an exercise price of $6.00 and to Mr. Fedro to
purchase 37,500 shares of Common Stock at an exercise price of $6.00. Such
options vest in four equal annual installments, with the first such
installment vesting in July 1997. Messrs. Johnson and Fedro have the right
to immediately exercise such options, subject to repurchase of the shares
acquired upon such exercise by the Company at the original exercise price
paid per share upon their respective termination of service to the Company
prior to the vesting of such shares.
(2) Based on an aggregate of 353,003 shares subject to options granted in 1995,
excluding options to purchase 104,000 shares due to the termination of such
options pursuant to their terms.
(3) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by the Board of Directors on the
date of grant.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years) and is calculated by assuming that the stock
price on the date of grant as determined by the Board of Directors
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated price. The 5% and 10% assumed rates of
appreciation are derived from the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. The potential realizable value of the options
held by Mr. Fedro, at an assumed initial public offering price of $11.00 per
share and annual rates of stock price appreciation of 5% and 10% from the
date of grant through the expiration date of the options would be $442,446
and $707,779, respectively.
(5) Options vest in four equal annual installments with the first such
installment vesting in July 1996.
40
<PAGE> 42
AGGREGATE OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
number and value of securities underlying unexercised in-the-money options held
as of December 31, 1995. Neither of the Named Executive Officers exercised
options during the fiscal year ended December 31, 1995.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995(#)(1) DECEMBER 31, 1995($)(2)
-------------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ---------------- ---------- -------------
<S> <C> <C> <C> <C>
Eric A. Johnson...................... 219,226 -- $2,405,666 --
Thomas E. Fedro...................... 70,000 -- $ 755,500 --
</TABLE>
- ---------------
(1) Optionees have the right to immediately exercise such options, subject to
repurchase of the shares acquired upon exercise of such options by the
Company at the original exercise price paid per share upon the optionee's
termination of service to the Company prior to the vesting of such shares.
Such options vest in four equal annual installments beginning on the date
one year from the date of grant.
(2) There was no public trading market for the Common Stock as of December 31,
1995. Accordingly, these values have been calculated based on the difference
between an assumed initial public offering price of $11.00 per share and the
exercise price.
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Stock Option Plan") was adopted by
the Board of Directors in October 1992 and was amended and restated in August
1996. There are currently 2,089,189 shares of Common Stock reserved for issuance
under the Stock Option Plan.
The Stock Option Plan provides for the grant of incentive stock options
under the Internal Revenue Code (the "Code"), to employees (including officers
and employee-directors) and nonstatutory stock options to employees, directors
and consultants. The Stock Option Plan is administered presently by the
Compensation Committee, which determines recipients and types of options to be
granted, including the exercise price, number of shares subject to the option
and the exercisability thereof.
The terms of stock options granted under the Stock Option Plan generally
may not exceed 10 years. Shares subject to options that have expired or
otherwise terminated without having been exercised in full shall again become
available for the grant of options under the Stock Option Plan. The exercise
price of options granted under the Stock Option Plan is determined by the
Compensation Committee, provided that the exercise price for an incentive stock
option cannot be less than 100% of the fair market value of the Common Stock on
the date of the option grant and the exercise price for a nonstatutory stock
option cannot be less than 85% of the fair market value of the Common Stock on
the date of option grant. The Compensation Committee has the authority to
reprice outstanding options and to offer optionees the opportunity to replace
outstanding options with new options for the same or a different number of
shares. Options granted under the Stock Option Plan vest at the rate specified
in the option agreement, which generally provide that options vest in either
three or four equal annual installments. No stock option may be transferred by
the optionee other than by will or the laws of descent and distribution or, in
certain limited instances, pursuant to a domestic relations order, provided that
the Compensation Committee may grant a nonstatutory stock option that is
transferable, and provided further that an optionee may designate a beneficiary
who may exercise the option following the optionee's death. An optionee whose
relationship with the Company or any affiliate ceases for any reason (other than
by death or disability) may exercise options in the three month period following
such cessation (unless such options expire sooner or later by their terms).
Options may be exercised for up to twelve months after an optionee's
relationship with the Company and its affiliates ceases due to death or
disability (unless such options expire sooner or later by their terms).
41
<PAGE> 43
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the option
does not exceed five years from the date of grant. The aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year (under all such plans of the Company and
its affiliates) may not exceed $100,000. Upon expiration of the transition rule
under Code section 162(m) for newly public companies, no optionee shall be
eligible for option grants in a calendar year covering more than 500,000 shares.
Upon certain changes in control of the Company, all outstanding options
under the Stock Option Plan shall be continued, assumed or substituted by the
surviving entity. In the event that a change in control is not approved by the
Board of Directors, the outstanding options of employees, directors or
consultants shall be fully vested immediately prior to the consummation of such
change in control. In addition, options of employees terminated other than for
cause within the 12 months following a change of control shall be fully vested.
If the surviving entity determines not to continue, assume or substitute such
options, and with respect to persons then performing services as employees,
directors or consultants, outstanding options shall be fully vested, the time
during which such options may be exercised shall be accelerated and the options
terminated if not exercised prior to the change of control.
As of September 30, 1996, 184,534 shares of Common Stock had been issued
upon the exercise of options granted under the Stock Option Plan, options to
purchase 1,102,346 shares of Common Stock at a weighted average exercise price
of $1.26 per share were outstanding and 802,309 shares remained available for
future grant. The Stock Option Plan will terminate in August 2006 unless sooner
terminated by the Board of Directors.
EMPLOYEE STOCK PURCHASE PLAN
In August 1996, the Company's Board of Directors approved the Employee
Stock Purchase Plan (the "Purchase Plan") with an aggregate of 450,000 shares of
Common Stock reserved for issuance thereunder. The Purchase Plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Code. Under the Purchase Plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the adoption of the Purchase Plan. The offering period for any
offering will be no more than 27 months. The Board has currently authorized an
offering commencing on the effectiveness of the initial public offering of the
Company's Common Stock and ending June 30, 1997, and sequential 6-months
offerings thereafter.
Employees, other than part-time or seasonal employees and 5% stockholders,
are eligible to participate in the currently authorized offerings if they are
employed by the Company or an affiliate of the Company incorporated in the U.S.
Employees can have up to 15% of their earnings withheld pursuant to the Purchase
Plan and applied on specified purchase dates (the last day of the currently
authorized offerings) to the purchase of shares of Common Stock. The price of
Common Stock purchased under the Purchase Plan will be equal to 85% of the lower
of the fair market value of the Common Stock on the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering, and participation
ends automatically on termination of employment.
In the event of certain changes of control, the Company and the Board of
Directors has discretion to provide that each right to purchase Common Stock
will be assumed or an equivalent right substituted by the successor corporation,
or the Board may shorten an offering and provide for all sums collected by
payroll deductions to be applied to purchase stock immediately prior to the
change in control. The Purchase Plan will terminate at the Board's discretion.
401(K) PLAN
As of January 1, 1995, the Company adopted a tax-qualified employee savings
and retirement plan (the "401(k) Plan") covering the Company's employees.
Pursuant to the 401(k) Plan, eligible employees may elect to reduce their
current compensation by up to the lesser of 20% of their annual compensation or
the
42
<PAGE> 44
statutorily prescribed annual limit ($9,500 in 1996) and have the amount of such
reduction contributed to the 401(k) Plan. The 401(k) Plan does not provide for
matching contributions. The trustees under the 401(k) Plan, at the direction of
each participant, invest the assets of the 401(k) Plan in designated investment
options. The 401(k) Plan is intended to qualify under Section 401 of the Code,
so that contributions to the 401(k) Plan, and income earned on the 401(k) Plan
contributions, are not taxable until withdrawn, and so that the contributions by
the Company will be deductible when made.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Bylaws provide that the Company will
indemnify its directors and executive officers and may indemnify its other
officers, employees and other agents to the fullest extent permitted by Delaware
law. The Company is also empowered under its Amended and Restated Bylaws to
enter into indemnification contracts with its directors and officers and to
purchase insurance on behalf of any person it is required or permitted to
indemnify. Pursuant to this provision, the Company has entered into
indemnification agreements with each of its directors and executive officers.
The Company has obtained officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act. In addition, the Company's Restated Certificate of
Incorporation provides that, to the fullest extent permitted by Delaware law,
the Company's directors will not be liable for monetary damages for breach of
the directors' fiduciary duty of care to the Company and its stockholders. This
provision in the Restated Certificate of Incorporation does not eliminate the
duty of care, and in appropriate circumstances equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
Delaware law. Under current Delaware law, a director's liability to the Company
or its stockholders may not be limited with respect to any breach of the
director's duty of loyalty to the Company or its stockholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, for improper transactions between the director and
the Company and for improper distributions to stockholders and loans to
directors and officers. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may
result in claims for indemnification by any director or officer.
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<PAGE> 45
CERTAIN TRANSACTIONS
In August 1996, pursuant to authority granted in the Company's Bylaws, the
Company entered into indemnification agreements (the "Indemnification
Agreements") with its directors and executive officers. Pursuant to the
Indemnification Agreements, the Company shall indemnify and advance expenses to
such directors and executive officers in connection with their involvement in
any event or occurrence which arises in their capacity as, or as a result of,
their position with the Company. See "Management -- Limitation of Liability and
Indemnification Matters."
In June 1996, Bessemer Venture Partners III L.P. ("BVP III") and Vertex
Investment (II) Ltd. ("Vertex") purchased 338,425 shares and 338,424 shares,
respectively, of Common Stock of the Company from a former officer of the
Company at a purchase price of $1.50 per share. In accordance with the terms of
a letter agreement dated June 20, 1996 between BVP III, Vertex and the Company
(the "Letter Agreement"), in July 1996, BVP III and Vertex each sold 53,710 of
such shares at a purchase price of $1.50 per share, to the Company pursuant to a
purchase agreement between BVP III, Vertex and the Company. The Company has
subsequently retired such shares. In July 1996, BVP III and Vertex sold 205,045
and 205,046 of such shares, respectively, at a purchase price of $1.50 per
share, to certain stockholders of the Company pursuant to purchase agreements
between BVP III and Vertex and each of such stockholders. The following
directors, 5% stockholders and their affiliates purchased shares from BVP III
and Vertex: (i) BVP Special Situations L.P. (2,897 shares), (ii) Unterberg
Harris Private Equity Partners L.P. (30,019 shares), (iii) Unterberg Harris
Private Equity Partners C.V. (6,412 shares), (iv) P/A Fund (34,012 shares), (v)
Cincinnati Bell Information Systems, Inc. ("CBIS") (85,935 shares), (vi) CVM
Equity Fund III ("CVM") (133,333 shares), (vii) Mr. Nicklin (5,670 shares), and
(viii) Mr. Washing (2,984 shares, of which 2,686 shares were purchased by Mr.
Washing's spouse and children). In addition, BVP III transferred 9,356 of such
shares to certain individuals associated with BVP III, including 248 shares to
Mr. Cowan.
In March 1996, the Company entered into a Marketing License Agreement with
CBIS whereby CBIS was granted the exclusive right in a service bureau
environment to sell the Company's FraudBuster and ChurnAlert products in the
United States, North America, South America, Central America and many European
countries. In addition, CBIS has a right of first refusal to be the exclusive
distributor of the Company's future products in a service bureau environment.
In March 1996, CBIS purchased 1,824,920 shares of Series C Preferred Stock
of the Company, which will convert into 912,453 shares of Common Stock upon the
closing of this offering, at an aggregate purchase price of $4,222,198. Pursuant
to an Amended and Restated Voting Agreement between CBIS, the Company and
certain stockholders of the Company, dated as of March 21, 1996, and the
Company's Restated Certificate of Incorporation, CBIS has the right to designate
one director of the Company. Mr. Marino has been elected to the Board of
Directors as the CBIS representative. The terms of such voting agreement and
such provisions of the Company's Restated Certificate of Incorporation shall
terminate upon the closing of this offering.
In March 1995, the Company issued an aggregate of 2,083,333 shares of
Series B Preferred Stock (the "Series B Stock"), which will convert into
2,083,290 shares of Common Stock upon the closing of this offering, at $2.16 per
share, for $4,096,821 in cash and cancellation of indebtedness in the amount of
$403,178. In connection with such financing, the Company issued the following
number of shares of Series B Stock (expressed on an as-converted to Common Stock
basis) to certain directors, 5% stockholders and their respective affiliates:
(i) 489,654 shares to BVP III, (ii) 21,042 shares to BVP III Special Situations
L.P., (iii) 67,986 shares to several individuals associated with BVP III,
including 1,799 shares to Mr. Cowan, who became a director of the Company in
connection with such financing, (iv) 578,699 shares to Vertex, (v) 307,784
shares to Unterberg Harris Private Equity Partners L.P., (vi) 77,861 shares to
Unterberg Harris Private Equity Partners C.V., (vii) 360,037 shares to P/A Fund,
and (viii) 4,999 shares to Mr. Nicklin, a director of the Company. All such
purchasers of Series B Stock acquired their stock in exchange for cash with the
exception of BVP III who purchased its shares for $654,481 in cash and the
cancellation of $403,178 of indebtedness in connection with a bridge loan from
BVP III to the Company made in February 1995. In connection with such financing,
the holders of Series B Stock were entitled to elect two members of the Board of
Directors of the Company to be designated by BVP III and Vertex. Mr. Cowan was
elected as the designee
44
<PAGE> 46
of BVP III and Mr. Graham was elected as the designee of Vertex. The right of
the holders of Series B Stock to elect directors of the Company will terminate
upon the closing of this offering.
From January to March 1994, the Company issued an aggregate of 2,000,000
shares of Series A Preferred Stock (the "Series A Stock"), which will convert
into 999,960 shares of Common Stock upon the closing of this offering, at a
price of $1.00 per share. Mr. Nicklin purchased 42,498 shares of Series A Stock
(expressed on an as-converted to Common Stock basis) in exchange for
approximately $55,000 cash and the cancellation of approximately $30,000 of
indebtedness. He also was elected to the Board of Directors of the Company as
the representative of the holders of Series A Stock. Mr. Washing, who became a
director of the Company in December 1994, purchased 24,999 shares of Series A
Stock (expressed on an as-converted to Common Stock basis). The right of the
holders of Series A Stock to elect a director of the Company will terminate upon
the closing of this offering.
In August 1993, certain persons provided bridge loans to the Company
totaling $300,000, of which Mr. Nicklin contributed $30,000. In January 1994,
the Company paid to Mr. Nicklin $1,019 as accrued interest on the $30,000 loan
and the principal of such loan was canceled in exchange for Mr. Nicklin's
purchase of 42,498 shares of Series A Stock. In connection with the bridge
financing, Mr. Nicklin received warrants to purchase 22,601 shares of Common
Stock at an exercise price of $0.66 per share.
From September 1994 through March 1995, Mr. Washing provided certain
financial consulting services to the Company. The Company paid Mr. Washing
$54,000 in cash and issued him 14,000 shares of Common Stock in exchange for
such services.
In July 1993, CVM provided a bridge loan to the Company of $130,000, which
CVM converted into 195,872 shares of Common Stock in March 1994 at a conversion
price of $0.66 per share. In connection with such bridge loan, CVM received
warrants to purchase 48,968 shares of Common Stock of the Company at an exercise
price of $0.66 per share. R. D. Bloomer, who is a partner of CVM, served as a
director of the Company from November 1993 to March 1996.
The Company believes that the foregoing transactions were on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
45
<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 30, 1996, as
adjusted to reflect the sale of the Common Stock being offered hereby (assuming
no exercise of the Underwriters' over-allotment option) by (i) each person (or
group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Executive Officers, and (iv) all directors and executive
officers of the Company as a group. This table assumes the conversion of all
outstanding preferred stock into Common Stock upon the completion of this
offering and reflects the 1-for-2 reverse stock split to occur prior to the
closing of this offering. Unless otherwise specified, the address of the
stockholder is the address of the Company.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED(1)
SHARES -----------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESSES OF BENEFICIAL OWNER OWNED(#)(1) OFFERING OFFERING(2)
- ------------------------------------------------------------ ----------- -------- -----------
<S> <C> <C> <C>
Eric Johnson(3)............................................. 1,236,153 16.5% 12.1%
CVM Equity Fund III(4)...................................... 1,131,525 15.5% 11.3%
4845 Pearl East Circle, Suite 300
Boulder, CO 80301
Cincinnati Bell Information Systems......................... 998,388 13.8% 10.1%
600 Vine Street
Cincinnati, OH 45201
Robert Marino(5)............................................ -- -- --
Vertex Investment (II) Ltd.................................. 658,367 9.1% 6.6%
3 Lagoon Drive, Suite 220
Redwood City, CA 94065
Bruce Graham(6)............................................. -- -- --
Bessemer Venture Partners III L.P.(7)....................... 581,004 8.1% 5.9%
1025 Old Country Road, Suite 205
Westbury, NY 11590
David Cowan(8).............................................. 583,051 8.1% 5.9%
Unterberg Harris Private Equity Partners(9)................. 422,076 5.8% 4.3%
65 East 55th Street, 18th Floor
New York, NY 10022
P/A Fund, L.P............................................... 394,049 5.5% 4.0%
518 Broad Street
Sewickley, PA 15143
William F. Nicklin(10)...................................... 137,269 1.9% 1.4%
Tom Fedro(11)............................................... 107,500 1.5% 1.1%
Thomas G. Washing(12)....................................... 87,289 1.2% *
Jeffrey Hultman(13)......................................... 56,501 * *
All directors and executive officers as a group
(13 persons)(14).......................................... 2,881,215 35.0% 26.3%
</TABLE>
- ---------------
* Represents less than one percent of the outstanding shares.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within 60 days of September 30,
1996, are deemed outstanding for computing the percentage of the person or
entity holding such securities but are not outstanding for computing the
percentage of any other person or entity. Except as indicated by footnote,
and subject to community property laws where applicable, the persons named
in the table above have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them.
46
<PAGE> 48
(2) Percentage ownership is based on 7,230,137 shares of Common Stock
outstanding before the offering and 9,930,137 shares of Common Stock
outstanding after the offering and assumes no exercise of the underwriters'
over-allotment option. In the event such option is exercised in full (i)
Mr. Johnson will sell 60,000 shares in the offering and will beneficially
own 1,176,153 shares, or 11.2% of the Common Stock outstanding after this
offering, and (ii) Mr. Fedro will sell 10,500 shares in the offering
(issued upon exercise of outstanding options) and will beneficially own
97,000 shares, or 1.0% of the Common Stock outstanding after this offering.
Additionally, certain other executive officers will sell 44,500 shares
(issued upon exercise of outstanding options and warrants) in the offering
such that, assuming the over-allotment option is exercised in full, the
directors and executive officers as a group will beneficially own 2,766,215
shares, or 24.7% of the Common Stock outstanding after this offering.
(3) Includes 269,226 shares issuable upon exercise of outstanding options
subject to vesting through July 2000.
(4) Includes 48,968 shares issuable upon exercise of outstanding warrants.
(5) Mr. Marino, a director of the Company, is the President and Chief Executive
Officer of Cincinnati Bell Information Systems, Inc. ("CBIS"), a principal
stockholder of the Company. Mr. Marino has no beneficial ownership of the
shares owned by CBIS.
(6) Mr. Graham, a director of the Company, is a Vice President of Vertex
Management Inc., which provides investment advice to Vertex Investment (II)
Ltd. ("Vertex"). Mr. Graham has no beneficial ownership of the shares owned
by Vertex.
(7) Represents 557,065 shares held by Bessemer Venture Partners III, L.P. ("BVP
III") and 23,939 shares held by BVP III Special Situations L.P. ("BVP").
(8) Includes 557,065 shares held by BVP III and 23,939 shares held by BVP. Mr.
Cowan, a director of the Company, is a partner of Deer III & Co., which is
the general partner of Bessemer and BVP and, as such, may be deemed to
share voting and investment power with respect to such shares. Mr. Cowan
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein.
(9) Represents 337,803 shares held by Unterberg Harris Private Equity Partners
L.P. and 84,273 shares held by Unterberg Harris Private Equity Partners
C.V.
(10) Includes 22,601 shares issuable upon exercise of outstanding warrants. Also
includes 56,501 shares issuable upon exercise of outstanding options
subject to vesting through February 1999.
(11) Represents 107,500 shares issuable upon exercise of outstanding options
subject to vesting through July 2000.
(12) Includes 42,376 shares subject to a repurchase option in favor of the
Company which expires ratably through October 1998. Also includes 13,991
shares held by Mr. Washing's spouse and 2,500 shares held in a trust for
the benefit of Mr. Washing's daughter. Mr. Washing disclaims beneficial
ownership of the shares held by his spouse.
(13) Represents 56,501 shares issuable upon exercise of outstanding options
subject to vesting through December 1999.
(14) Excludes 998,388 shares held by CBIS and 658,367 shares held by Vertex, and
includes 581,004 shares held by BVP III and BVP. See footnotes (5), (6) and
(7) above. Also includes (i) 777,732 shares issuable upon exercise of
outstanding options held by all directors and officers subject to vesting
of such shares on various dates through July 2000; (ii) 42,376 shares held
by Mr. Washing subject to a repurchase option in favor of the Company which
expires ratably through February 1999; and (iii) 235,549 shares issuable
upon exercise of warrants held by all directors and officers. See footnotes
(3) and (10) through (13) above.
47
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
Following the closing of this offering, the authorized capital stock of the
Company, after giving effect to the conversion of all outstanding preferred
stock into Common Stock, will consist of 25,000,000 shares of Common Stock,
$0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par
value per share. As of September 30, 1996, there were approximately 80
stockholders of record.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors. Subject to preferences that may be applicable to any then
outstanding shares of preferred stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
WARRANTS
As of September 30, 1996, there were warrants outstanding to purchase an
aggregate of 979,937 shares of Common Stock at a weighted average exercise price
of approximately $0.28 per share. All of such warrants contain provisions for
the adjustment of exercise prices in certain events, including stock dividends,
stock splits, reorganizations, reclassifications or mergers, and warrants to
purchase approximately 251,000 shares contain provisions for adjustment of the
exercise price in the event of sales of Common Stock at less than the exercise
price. The warrants expire at various dates between July 1998 and March 2003.
Holders of warrants to purchase approximately 251,000 shares of Common Stock are
entitled to certain registration rights with respect to the Common Stock issued
upon exercise thereof. See "Description of Capital Stock -- Registration
Rights."
UNDESIGNATED PREFERRED STOCK
Upon the closing of this offering, the Board of Directors will have the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, without any further vote or action by stockholders.
The issuance of preferred stock could adversely affect the voting power of
holders of Common Stock and the likelihood that such holders will receive
dividend payments and payments upon liquidation and could have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any shares of preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 5,138,000 shares of
Common Stock (the "Common Stock Holders") and warrants to purchase approximately
251,000 shares of Common Stock (the "Warrant Holders") will be entitled to
certain rights with respect to the registration of such shares under the
Securities Act, pursuant to the Amended and Restated Investors' Rights Agreement
among such holders and the Company, dated March 21, 1996 (the "Investors' Rights
Agreement"). Under the terms of the Investors' Rights Agreement, if the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled, subject to certain limitations, to include shares therein.
CBIS and/or twenty percent (20%) of the Common Stock Holders may also require
the Company to file a
48
<PAGE> 50
registration statement under the Securities Act with respect to their shares.
However, the Company is not required to effect more than two registrations
demanded by CBIS nor more than two registrations demanded by the twenty percent
(20%) of the Common Stock Holders. Furthermore, the Common Stock Holders may
require the Company to register their shares on Form S-3 when use of such form
becomes available to the Company. Generally, the Company is required to bear all
registration and selling expenses incurred in connection with any such
registrations. These rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration. Such registration rights terminate seven
years after the date following the closing of this offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Upon the closing of this offering, the Company's Board of Directors will be
divided into three classes of directors. See "Management-Board Composition." The
Company's Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws also require that, effective upon the closing of this offering,
any action required or permitted to be taken by stockholders of the Company must
be effected at a duly called annual or special meeting of the stockholders and
may not be effected by a consent in writing. In addition, special meetings of
the stockholders of the Company may be called only by the Board of Directors,
the Chairman of the Board or the Chief Executive Officer. The Company's Amended
and Restated Certificate of Incorporation also provides that the authorized
number of directors may be changed only by resolution of the Board of Directors.
In addition, directors may not be removed without cause. These provisions could
discourage potential acquisition proposals and may have the effect of deterring
hostile takeovers or delaying changes in control or management of the Company.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute 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.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston has been appointed as the transfer agent
and registrar for the Company's Common Stock.
49
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and assuming no exercise of outstanding
options and warrants after September 30, 1996, and no exercise of the
Underwriters over-allotment option, the Company will have 9,930,137 shares of
Common Stock outstanding. Of these shares, the 2,700,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except for any shares held by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act
("Affiliates"), which shares will be subject to the resale limitations of Rule
144. The remaining 7,230,137 shares of Common Stock held by existing
stockholders (the "Restricted Shares") were issued and sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act.
These shares may be sold in the public market only if registered or pursuant to
an exemption from registration such as Rules 144, 144(k), or 701 under the
Securities Act, which are summarized below.
In the absence of the restrictions contained in the agreements not to sell
described below, approximately of these Restricted Shares reflected as of
September 30, 1996 will be eligible for sale in the public market upon the date
of this Prospectus pursuant to Rule 144(k). In the absence of the restrictions
contained in the agreements not to sell described below, approximately
additional Restricted Shares will be eligible for sale beginning 90 days after
the date of this Prospectus pursuant to Rule 144 and Rule 701. Holders of
approximately of the Restricted Shares are subject to agreements not
to sell or otherwise transfer their shares for 180 days following the date of
this Prospectus (the "Lock-up Shares"). Of such Lock-up Shares, will
become available for sale in the public market 180 days after the date of this
Prospectus, although of the Lock-up Shares will still be subject to
certain volume and other restrictions on resale under Rule 144 at the expiration
of such lock-up period. The remaining shares held by existing
shareholders will become eligible for sale at various times over a period of
less than two years and could be sold earlier if the holders exercise
registrations rights. Montgomery Securities may, in its sole discretion and at
any time without notice, release any or all of the holders of the Lock-up Shares
from any or all of their obligations under their respective agreements not to
sell.
As of September 30, 1996, there were 1,102,346 shares of Common Stock
issuable upon exercise of outstanding options. The Company intends to file a
registration statement on Form S-8 under the Securities Act to register shares
of Common Stock reserved for issuance under the Stock Option Plan and the
Purchase Plan within 90 days after the date of this Prospectus thus permitting
the sale of such shares by non-Affiliates in the public market without
restriction under the Securities Act. Such registration statement will become
effective immediately upon filing. Upon effectiveness of such registration
statement, holders of vested options to purchase approximately 109,000 shares
will be entitled to exercise such options and immediately sell such shares. In
addition, holders of vested options to purchase approximately 451,000 shares
have entered into agreements not to sell any shares of Common Stock received
upon exercise of such options for 180 days following the date of this offering.
Montgomery Securities, in its sole discretion and at any time without notice,
may release any or all of such option holders from any or all of their
obligations under their respective agreements not to sell.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares that
were not acquired from the Company or an Affiliate of the Company within the
previous two years, will be entitled to sell in any three-month period a number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of the Company's Common Stock (approximately 99,000 shares immediately
after this offering) or (ii) the average weekly trading volume of the Company's
Common Stock in the Nasdaq National Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an Affiliate of the Company at
any time during the 90 days immediately preceding the sale and who beneficially
owns Restricted Shares is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above; provided that at least three
years have elapsed since the later of the date the shares were acquired from the
Company or from an Affiliate of the Company.
50
<PAGE> 52
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares
without complying with the public information, volume and notice provisions of
Rule 144.
After the date of this Prospectus, warrants to purchase 979,937 shares of
Common Stock will be outstanding. If these warrants are executed by payment of
the applicable exercise price the holding period of such Common Stock for
purposes of Rule 144 will commence on the date any such warrant is exercised as
to such shares, unless such warrant is exercised pursuant to a net exercise
provision in which case the holding period will commence on the date the warrant
was originally issued. In the absence of the restrictions contained in the
agreements not to sell described above, holders of warrants to purchase 480,406
shares of Common Stock will be permitted to sell such shares beginning 90 days
after the date of this Prospectus pursuant to Rule 701.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to time.
As described herein, only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale. Sales of substantial amounts of Common Stock of the
Company in the public market could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future.
In addition, after this offering, the holders of approximately 5,138,000
shares and warrants to purchase approximately 251,000 shares of Common Stock
will be entitled to certain rights with respect to registration of such shares
under the Securities Act. Registration of such shares under the Securities Act
would result in such shares becoming freely tradable without restriction under
the Securities Act (except for shares purchased by affiliates of the Company)
immediately upon the effectiveness of such registration. See "Description of
Capital Stock -- Registration Rights."
51
<PAGE> 53
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities, Cowen &
Company and UBS Securities LLC (the "Representatives"), have severally agreed,
subject to the terms and conditions set forth in the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters to pay
for and accept delivery of the shares of Common Stock are subject to certain
conditions precedent, and that the Underwriters are committed to purchase all of
such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities.....................................................
Cowen & Company...........................................................
UBS Securities LLC........................................................
---------
Total........................................................... 2,700,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After this offering, the
price and concessions and reallowances to dealers may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company and certain stockholders of the Company (the "Selling
Stockholders") have granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 405,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 2,700,000 shares to be purchased by
the Underwriters. To the extent the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover
over-allotments made in connection with this offering.
The holders of approximately shares of the Company's Common
Stock, including all of the Company's directors and executive officers, have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of Montgomery Securities, directly
or indirectly sell, offer to sell or otherwise dispose of any such shares of
Common Stock or any right to acquire such shares. In addition, the Company has
agreed that, for a period of 180 days after the date of this Prospectus, it will
not, without the prior written consent of Montgomery Securities, issue, offer,
sell, grant options to purchase or otherwise dispose of any of the Company's
equity securities or any other securities convertible into or exchangeable for
the Common Stock or other equity security, other than the grant of options to
purchase Common Stock or the issuance of shares of Common Stock under the Stock
Option Plan and the Purchase Plan and the issuance of shares of Common Stock
pursuant to the exercise of outstanding options and warrants.
52
<PAGE> 54
The Representatives have informed the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors
considered in such negotiations are the history of, and the prospects for, the
Company and the industry in which it competes, an assessment of the Company's
management, the Company's past and present operations, its past and present
financial performance, the prospects for future earnings of the Company, the
present state of the Company's development, the general condition of the
securities markets at the time of the offering and the market prices of and
demand for publicly traded common stock of comparable companies in recent
periods.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward LLP, Boulder, Colorado. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The financial statements of Coral Systems, Inc. as of December 31, 1994 and
1995, and September 30, 1996, for each of the three years in the period ended
December 31, 1995 and for the nine month period ended September 30, 1996
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
53
<PAGE> 55
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the shares of Common Stock offered hereby has been filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus concerning the contents of any contract
or document are necessarily summaries of such contracts or documents. Although
all material elements of such contracts or documents required to be disclosed in
this Prospectus are disclosed, each statement concerning such contracts or
documents is qualified in all respects by reference to the copy of such contract
or document filed as an exhibit to the Registration Statement. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to such Registration Statement, exhibits and schedules. A copy
of the Registration Statement may be inspected by anyone without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from those offices upon the payment of certain fees
prescribed by the Commission. The Registration Statement and such exhibits and
schedules are also available on the Commission's Web site (http://www.sec.gov).
Upon completion of the offering, the Company will be subject to the
informational reporting requirements of the Exchange Act and, in accordance
therewith, will file reports, proxy statements and other information with the
Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by the Company's independent accountants
and quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited interim financial information.
54
<PAGE> 56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Price Waterhouse LLP, Independent Accountants................................ F-2
Balance Sheet.......................................................................... F-3
Statement of Operations................................................................ F-4
Statement of Changes in Stockholders' Equity (Deficit)................................. F-5
Statement of Cash Flows................................................................ F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Coral Systems, Inc.
The stock split described in Note 4 has not been consummated as of October 17,
1996. When it has been consummated, we will be in a position to furnish the
following report:
"In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position of
Coral Systems, Inc. at December 31, 1994, December 31, 1995, and September
30, 1996, and the results of its operations and its cash flows and for each
of the three years in the period ended December 31, 1995, and for the
nine-month period ended September 30, 1996 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
PRICE WATERHOUSE LLP
Boulder, Colorado
October 17, 1996
F-2
<PAGE> 58
CORAL SYSTEMS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
------------ ------------ ------------- --------------
(NOTE 1)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 82,900 $1,022,500 $3,373,500
Accounts receivable, net of allowance for doubtful accounts of
$75,000 at September 30, 1996.................................. 740,800 1,119,300 2,449,200
Other current assets............................................. 2,800 149,300 328,000
---------- ---------- ----------
Total current assets........................................... 826,500 2,291,100 6,150,700
---------- ---------- ----------
Property and equipment, net........................................ 255,400 625,800 1,264,300
Other assets....................................................... 10,000 41,100 39,100
---------- ---------- ----------
$1,091,900 $2,958,000 $7,454,100
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................. $ 291,500 $ 412,900 $ 446,800
Accrued liabilities.............................................. 90,000 526,100 1,010,800
Current portion of long-term debt................................ 666,700 796,700 380,100
Deferred revenue................................................. 300,300 463,700 1,479,600
---------- ---------- ----------
Total current liabilities...................................... 1,348,500 2,199,400 3,317,300
---------- ---------- ----------
Deferred revenue and other......................................... 475,200 475,200 385,000
Long-term debt..................................................... 22,000 145,800 313,400
Commitments and contingencies (Notes 3 and 8)
Stockholders' Equity (Deficit)
Series A preferred stock, $.001 par value; 2,000,000 shares
authorized, issued and outstanding; none outstanding pro
forma.......................................................... 2,000 2,000 2,000 --
Series B preferred stock, $.001 par value; 2,083,333 shares
authorized; 2,083,333 shares issued and outstanding at December
31, 1995 and September 30, 1996; none outstanding pro forma.... -- 2,083 2,083 --
Series C preferred stock, $.001 par value; 1,850,000 shares
authorized; 1,824,920 shares issued and outstanding at
September 30, 1996; none outstanding pro forma................. -- -- 1,825 --
Preferred stock $.001 par value; 9,066,667 shares authorized; no
shares issued or outstanding................................... -- -- -- --
Common stock, $.001 par value; 20,000,000 shares authorized at
December 31, 1994 and 1995, 30,000,000 shares authorized at
September 30, 1996; 4,124,358, 4,265,508 and 3,235,183 shares
issued at December 31, 1994, 1995 and September 30, 1996,
respectively and 7,230,887 at September 30, 1996 pro forma..... 4,124 4,265 3,235 7,231
Additional paid-in capital....................................... 2,163,176 6,449,252 10,467,157 10,469,069
Accumulated deficit.............................................. (2,905,100 ) (6,296,000 ) (7,037,700) (7,037,700)
Less treasury stock at cost; 676,887, 966,965, and 750 shares at
December 31, 1994, 1995 and September 30, 1996, respectively... (18,000 ) (24,000 ) (200) (200)
---------- ---------- ---------- ----------
Total stockholders' equity (deficit)........................... (753,800 ) 137,600 3,438,400 3,438,400
---------- ---------- ---------- ----------
$1,091,900 $2,958,000 $7,454,100
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 59
CORAL SYSTEMS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1993 1994 1995 1996
----------- ----------- ----------- 1995 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses...................... $ 215,200 $ 1,036,400 $ 2,484,600 $ 1,935,400 $ 5,828,700
Services and other..................... 178,700 239,700 624,700 531,900 408,400
Hardware............................... 110,200 140,800 780,500 626,300 615,300
----------- ----------- ----------- ----------- -----------
Total revenue....................... 504,100 1,416,900 3,889,800 3,093,600 6,852,400
Cost of revenue:
Software licenses...................... 57,600 122,000 526,000 421,800 419,100
Services and other..................... 74,500 258,000 644,700 513,200 584,800
Hardware............................... 111,800 128,300 738,300 607,400 469,600
----------- ----------- ----------- ----------- -----------
Total cost of revenue............... 243,900 508,300 1,909,000 1,542,400 1,473,500
----------- ----------- ----------- ----------- -----------
Gross profit........................ 260,200 908,600 1,980,800 1,551,200 5,378,900
Operating expenses:
Research and development............... 414,000 572,700 2,159,700 1,496,400 1,953,100
Sales and marketing.................... 158,300 645,300 1,869,700 1,427,100 2,614,000
General and administrative............. 677,100 885,600 1,351,000 1,065,700 1,765,400
----------- ----------- ----------- ----------- -----------
Total operating expenses............ 1,249,400 2,103,600 5,380,400 3,989,200 6,332,500
Loss from operations..................... (989,200) (1,195,000) (3,399,600) (2,438,000) (953,600)
Other income (expense), net.............. (60,600) (32,800) 8,700 15,100 (31,400)
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item........... (1,049,800) (1,227,800) (3,390,900) (2,422,900) (985,000)
Extraordinary item:
Gain on extinguishment of debt and
other liabilities................... -- -- -- -- 243,300
----------- ----------- ----------- ----------- -----------
Net loss................................. $(1,049,800) $(1,227,800) $(3,390,900) $(2,422,900) $ (741,700)
=========== =========== =========== =========== ===========
Pro forma net loss per common share
before extraordinary item
(unaudited)............................ $ (.12)
===========
Pro forma net loss per common share
(unaudited)............................ $ (.48) $ (.09)
=========== ===========
Pro forma weighted average number of
common shares outstanding
(unaudited)............................ 7,097,479 8,096,439
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 60
CORAL SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ------------------ ------------------ -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------ --------- ------ --------- ------ ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992.................. -- -- -- -- -- -- 3,731,728 $3,732 $ 173,768
Purchase of treasury
stock.................
Net loss................
--------- ------ --------- ------ --------- ------ ---------- ------- -----------
Balance at December 31,
1993.................. -- -- -- -- -- -- 3,731,728 3,732 173,768
Exercise of stock
options and
warrants.............. 196,758 197 1,303
Conversion of bridge
loan.................. 195,872 195 129,805
Private placement of
Series A preferred
stock, net............ 2,000,000 $2,000 1,858,300
Net loss................
--------- ------ --------- ------ --------- ------ ---------- ------- -----------
Balance at December 31,
1994.................. 2,000,000 2,000 -- -- -- -- 4,124,358 4,124 2,163,176
Private placement of
Series B preferred
stock, net............ 2,083,383 $2,083 4,269,317
Exercise of stock
options and warrants
and other stock issued
for services.......... 141,150 141 16,759
Purchase of treasury
stock.................
Net loss................
--------- ------ --------- ------ --------- ------ ---------- ------- -----------
Balance at December 31,
1995.................. 2,000,000 2,000 2,083,333 2,083 -- -- 4,265,508 4,265 6,449,252
Purchase of treasury
stock.................
Retirement of treasury
stock................. (1,074,400) (1,074) (187,326)
Private placement of
Series C preferred
stock, net............ 1,824,920 $1,825 4,191,275
Exercise of stock
options and
warrants.............. 44,075 44 13,956
Net loss................
--------- ------ --------- ------ --------- ------ ---------- ------- -----------
Balance at September 30,
1996.................. 2,000,000 $2,000 2,083,333 $2,083 1,824,920 $1,825 3,235,183 $3,235 $10,467,157
========= ====== ========= ====== ========= ====== ========== ======= ===========
<CAPTION>
TOTAL
TREASURY STOCK STOCKHOLDERS'
ACCUMULATED ---------------------- EQUITY
DEFICIT SHARES AMOUNT (DEFICIT)
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Balance at December 31,
1992.................. $ (627,500) -- -- $ (450,000)
Purchase of treasury
stock................. 676,887 $(18,000) (18,000)
Net loss................ (1,049,800) (1,049,800)
----------- ---------- -------- -----------
Balance at December 31,
1993.................. (1,677,300) 676,887 (18,000) (1,517,800)
Exercise of stock
options and
warrants.............. 1,500
Conversion of bridge
loan.................. 130,000
Private placement of
Series A preferred
stock, net............ 1,860,300
Net loss................ (1,227,800) (1,227,800)
----------- ---------- -------- -----------
Balance at December 31,
1994.................. (2,905,100) 676,887 (18,000) (753,800)
Private placement of
Series B preferred
stock, net............ 4,271,400
Exercise of stock
options and warrants
and other stock issued
for services.......... 16,900
Purchase of treasury
stock................. 290,078 (6,000) (6,000)
Net loss................ (3,390,900) (3,390,900)
----------- ---------- -------- -----------
Balance at December 31,
1995.................. (6,296,000) 966,965 (24,000) 137,600
Purchase of treasury
stock................. 108,185 (164,600) (164,600)
Retirement of treasury
stock................. (1,074,400) 188,400
Private placement of
Series C preferred
stock, net............ 4,193,100
Exercise of stock
options and
warrants.............. 14,000
Net loss................ (741,700) (741,700)
----------- ---------- -------- -----------
Balance at September 30,
1996.................. $(7,037,700) 750 $ (200) $ 3,438,400
=========== ========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 61
CORAL SYSTEMS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................. $(1,049,800) $(1,227,800) $(3,390,900) $(2,422,900) $ (741,700)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 38,100 90,100 198,700 145,400 296,100
Provision for doubtful accounts......... -- -- -- -- 75,000
Write-offs of uncollectible
receivables.......................... -- -- -- -- 26,900
Gain on disposal of property and
equipment............................ -- -- (2,600) (1,800) (5,300)
Extraordinary gain...................... -- -- -- -- (243,300)
Changes in:
Accounts receivable.................. (136,800) (604,000) (378,500) (242,100) (1,553,200)
Other assets......................... (2,000) (7,000) (177,600) (213,400) (310,800)
Accounts payable and accrued
liabilities........................ 198,400 158,600 576,900 416,200 719,000
Deferred revenue..................... -- 291,200 163,400 108,100 1,010,000
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities......................... (952,100) (1,298,900) (3,010,600) (2,210,500) (727,300)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and
equipment............................... -- -- 198,300 176,400 206,400
Property and equipment additions.......... (95,200) (195,400) (514,000) (471,300) (542,900)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities......................... (95,200) (195,400) (315,700) (294,900) (336,500)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of preferred stock,
net..................................... -- 1,580,300 3,874,500 3,871,400 4,193,100
Proceeds from sale of common stock........ -- 1,500 13,900 13,400 14,000
Purchase of treasury stock................ -- -- (6,000) (6,000) (164,600)
Proceeds from the issuance of bridge loans
and long-term debt...................... 921,500 205,200 760,000 760,000 250,000
Payment on borrowings..................... (27,000) (271,900) (376,500) (350,700) (877,700)
----------- ----------- ----------- ----------- -----------
Net cash from financing activities... 894,500 1,515,100 4,265,900 4,288,100 3,414,800
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................. (152,800) 20,800 939,600 1,782,700 2,351,000
Cash and cash equivalents, beginning of
period.................................. 214,900 62,100 82,900 82,900 1,022,500
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period.................................. $ 62,100 $ 82,900 $ 1,022,500 $ 1,865,600 $ 3,373,500
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES AND OTHER CASH FLOW
INFORMATION
Conversion of bridge loans to preferred
stock................................... $ -- $ 280,000 $ 400,000 $ 400,000 $ --
Conversion of accrued liabilities to
debt.................................... -- 36,200 11,600 11,600 5,000
Conversion of bridge loan to common
stock................................... -- 130,000 -- -- --
Capital lease obligations................. -- -- 253,000 196,100 458,700
Issuance of note payable to acquire
stock................................... 18,000 -- -- -- --
Interest paid............................. 3,500 73,700 26,700 14,900 64,600
Transfer of other assets to property and
equipment............................... -- -- -- -- 134,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 62
CORAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Coral Systems, Inc. (the "Company") was incorporated in August 1991. The
Company develops and provides software solutions for the wireless
telecommunications industry. The solutions enable carriers to reduce fraud and
customer turnover and increase operating efficiencies.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company generates revenue from software licenses; services (including
maintenance, installation and training); development and consulting contracts;
and certain hardware sold in conjunction with software licenses. The Company's
software license agreements typically provide for an initial license fee and
annual maintenance based on a defined number of subscribers, as well as
additional license and maintenance fees for net subscriber additions. The
Company also has entered into license agreements that provide for either a one-
time license fee or a monthly license fee with no additional fees based on
incremental subscriber growth.
Revenue from initial license fees is recognized when the product has been
delivered and the Company has satisfied all significant performance obligations
or the customer accepts the products. Revenue for incremental subscriber growth,
if any, is recognized at the date subscriber growth is calculated and the
revenue is earned pursuant to the terms of the relevant software license
agreement. Monthly license fees are recognized as earned on a monthly basis.
Maintenance revenue is recognized ratably over the term of the maintenance
agreement. Service revenue for installation and training is recognized as the
services are performed. Revenue from development and consulting contracts is
generally recognized as the services are performed, using the percentage of
completion method. Hardware is sold only in conjunction with software licenses
when required by the customer and such revenue is deferred until the related
license revenue is recognized.
CONCENTRATION OF CREDIT RISK
Accounts receivable are concentrated in the wireless telecommunications
industry, with both domestic and international customers. During the years ended
December 31, 1993, 1994, 1995 and the nine months ended September 30, 1996, the
Company recognized approximately 100%, 89%, 77% and 82% of its revenue from
three, four, five and three customers, respectively.
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable and cash
equivalents. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The Company has a cash investment policy which restricts investments to ensure
preservation of principal and maintenance of liquidity.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks, and investment
instruments purchased with original maturities of less than three months to be
cash and cash equivalents. Cash equivalents are carried at amortized cost which
approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
respective assets which range from three to seven years. Maintenance and repairs
are expensed as incurred.
F-7
<PAGE> 63
CORAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Statement of
Financial Accounting Standards No. 86 (SFAS No. 86) requires the capitalization
of certain software development costs once technological feasibility is
established. The capitalized cost is then amortized on a straight-line basis
over the estimated product life, or on the ratio of current revenue to total
projected product revenue, whichever is greater. To date, the period between
achieving technological feasibility and the general availability of such
software has been short. Consequently, software development costs qualifying for
capitalization have been insignificant and therefore, the Company has not
capitalized any software development costs to date.
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 liabilities as well as the reported amounts of revenue
and expenses. Actual results could differ from these estimates, making it
reasonably possible that a change in these estimates could occur in the near
term.
UNAUDITED INTERIM FINANCIAL DATA
The interim financial data as of September 30, 1995 and for the nine months
ended September 30, 1995 is unaudited; however, in the opinion of management of
the Company, the unaudited interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results for the interim period presented. All data presented in these notes at
such date and for such period is unaudited.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
The Board of Directors authorized management of the Company to file a
registration statement with the Securities and Exchange Commission ("SEC") with
respect to sales of shares of its common stock to the public. If the Company's
initial public offering is consummated under the terms presently anticipated,
all of the convertible preferred stock outstanding will automatically convert
into 3,995,704 shares of common stock. Pro forma stockholders' equity as of
September 30, 1996, as set forth on the accompanying balance sheet, is adjusted
for the anticipated conversion of such preferred stock.
PRO FORMA NET LOSS PER COMMON SHARE
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
convertible preferred stock into common stock concurrent with the closing of the
Company's anticipated initial public offering. Accordingly, historical net loss
per common share is not considered meaningful and has not been presented herein.
Pro forma net loss per share is computed based on the weighted average
number of common shares outstanding and gives effect to certain adjustments
described below. Common equivalent shares are not included in the per share
calculation where the effect of their inclusion would be antidilutive, except
that, in conformity with SEC requirements, common and common equivalent shares
issued during the twelve-month period prior to the filing of the registration
statement related to the Company's proposed initial public offering have been
included in the calculation as if they were outstanding for all periods, using
the treasury stock method and the assumed initial public offering price.
Additionally, all outstanding shares of convertible preferred stock are assumed
to have been converted to common stock at the time of their issuance.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash, short-term trade receivables and payables and long-term debt, approximate
their fair values.
F-8
<PAGE> 64
CORAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK COMPENSATION PLANS
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its stock option and employee stock purchase plans.
The Company has adopted the disclosure provisions of SFAS No. 123, Accounting
for Stock-Based Compensation.
EXPORT SALES
The Company had export sales totaling approximately $386,200, $1,349,900
and $964,700 for the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1996, respectively, to Sweden, Mexico, Germany, Puerto Rico,
Malaysia and Taiwan.
ADOPTION OF NEW ACCOUNTING STANDARDS
The Company has reviewed Statement of Financial Accounting Standards No.
121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of for applicability. Adoption of this standard did not have a
material effect on the Company's financial position and results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Furniture and office equipment................. $ 241,100 $ 410,000 $ 738,400
Computer equipment............................. 73,700 293,300 834,300
Purchased software............................. 83,700 210,700 254,300
--------- --------- -----------
398,500 914,000 1,827,000
Less accumulated depreciation and
amortization................................. (143,100) (288,200) (562,700)
--------- --------- -----------
$ 255,400 $ 625,800 $ 1,264,300
========= ========= ===========
</TABLE>
Included in property and equipment at September 30, 1996 is $712,600 of
equipment under capital leases with accumulated amortization aggregating
$180,100. See Note 3.
F-9
<PAGE> 65
CORAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT, EXTRAORDINARY ITEM AND AVAILABLE CREDIT
Long-term debt, including capitalized lease obligations consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Line of credit with bank; interest at bank's prime plus 2%
through May 1995, prime plus 1.50% from June 1995 to May
1996, and prime plus 1.25% thereafter (actual rate of
9.5% at September 30, 1996); due April 1997; secured by
all cash, accounts receivable, equipment, inventory and
transferable third-party rights.......................... $ 110,000 $ 207,000 $ 150,000
Note payable to bank; interest at prime plus 2% (actual
rate of 10.5% at December 31, 1995); payable in monthly
installments of $2,744 through May 1996; secured by
equipment................................................ 41,500 11,600 --
Note payable to stockholder; interest at 10%; due April
1995; unsecured.......................................... 24,700 -- --
Note payable to supplier; interest at 10%; payable in
monthly installments of $3,183 through April 1995;
unsecured................................................ 12,500 -- --
Capital lease obligation; interest at 11.55%; payable in
monthly installments of $22,900 through May 1999......... -- 223,900 543,500
Convertible note payable to systems integrator; interest at
8% through May 31, 1995, 18% thereafter; due June 1,
1995; unsecured.......................................... 500,000 500,000 --
--------- --------- ---------
688,700 942,500 693,500
Less current portion....................................... (666,700) (796,700) (380,100)
--------- --------- ---------
$ 22,000 $ 145,800 $ 313,400
========= ========= =========
</TABLE>
Future maturities of long-term debt at September 30, 1996 are as follows:
<TABLE>
<S> <C>
Three months ending December 31, 1996..................................... $ 70,500
1997...................................................................... 432,000
1998...................................................................... 238,400
1999...................................................................... 31,300
--------
772,200
Less amount representing interest......................................... (78,700)
--------
$693,500
========
</TABLE>
In September 1996, the Company extinguished a previously recorded net
liability of $658,300, consisting of a $500,000 note plus accrued interest, and
a separate liability due to a systems integrator, as well as receivables owed to
the Company by the systems integrator. The Company paid $415,000 resulting in a
net gain of $243,300 which was recorded as an extraordinary item. The Company
also paid $127,200 of legal expenses associated with this matter, which were
included in general and administrative expenses.
At September 30, 1996, the Company had $600,000 available to draw on a
$750,000 line of credit with a bank. The line of credit expires on April 26,
1997. The Company is also subject to a compensating balance arrangement of
$250,000 if the loan balance on the line of credit exceeds $500,000.
F-10
<PAGE> 66
CORAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. CAPITAL STOCK, OPTIONS AND WARRANTS
STOCK SPLIT
In connection with its proposed initial public offering, a one-for-two
reverse split of the Company's stock has been approved and is to be consummated
prior to such offering. All common stock share and per share information and all
preferred stock conversion rates presented in these financial statements has
been restated for all periods presented to reflect the reverse stock split.
PREFERRED STOCK
In March 1996, the Company's certificate of incorporation was amended to
increase the authorized shares of preferred stock from 5,000,000 shares to
15,000,000 shares consisting of: 2,000,000 shares of Series A preferred stock,
2,083,333 shares of Series B preferred stock, 1,850,000 shares of Series C
preferred stock and 9,066,667 shares undesignated as to series.
Series A and Series C preferred stock are convertible at the option of the
holder into common stock on a one-for-two basis; Series B preferred stock is
convertible on a one-for-one basis. In the event of a qualified public offering,
all preferred shares will automatically convert to common stock. Additionally,
all preferred shares have certain voting rights on an as-converted basis and a
liquidation preference equal to the original purchase price plus a pro rata
portion of remaining liquidation proceeds in excess of the proceeds paid to
common stockholders.
EMPLOYEE STOCK PURCHASE PLAN
In August 1996, the Company's Board of Directors approved the Employee
Stock Purchase Plan (the "Purchase Plan") with 450,000 shares of Common Stock
reserved for issuance thereunder. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code. Under the Purchase Plan, the Board of Directors may authorize
participation by eligible employees, including officers, in periodic offerings
following the adoption of the Purchase Plan. Employees are eligible to
participate if they have been employed by the Company for at least one year
preceding the beginning of the offering. Employees may elect to have up to 15%
of their earnings withheld and applied to the purchase of common stock at a
price equal to 85% of the lower of the fair market value of the Common Stock on
the commencement date of each offering period or the relevant purchase date. No
shares of Common Stock have been issued to participants in the Purchase Plan to
date.
STOCK OPTIONS AND WARRANTS
In October 1992, the Company adopted a stock option plan with 941,690
shares reserved for issuance to employees, directors and consultants of the
Company. Subsequent to 1992, the Board of Directors increased the number of
authorized shares reserved under the Company' 1992 Stock Option Plan to
2,089,189. Options granted under the plan expire ten years from the date of
grant and generally vest over a period of three to four years.
The Company has 979,937 warrants outstanding and fully exercisable at
September 30, 1996. At September 30, 1996, 503,007 of the warrants are held by
an officer, a present director and a former director of the Company. The
warrants have five to ten year terms and expire from 1998 through 2003.
F-11
<PAGE> 67
CORAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of stock option and warrant activity for the
years ended December 31, 1993, 1994, 1995 and for the nine months ended
September 30, 1996:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
WARRANTS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1992........... 596,656 $ 0.0026 -- --
Granted............................... 607,580 0.3227 545,045 $ 0.0926
--------- -------- --------- --------
Outstanding December 31, 1993........... 1,204,236 0.1641 545,045 0.0926
Granted............................... 43,002 2.0000 149,500 0.2000
Forfeited............................. (112,852) 0.0027 (52,843) 0.1117
Exercised............................. (146,284) 0.0027 (50,474) 0.0265
--------- -------- --------- --------
Outstanding December 31, 1994........... 988,102 0.2864 591,228 0.1237
Granted............................... 29,000 0.2000 457,753 0.1853
Forfeited............................. -- -- (158,925) 0.2732
Exercised............................. (18,331) 0.0027 (108,819) 0.1238
--------- -------- --------- --------
Outstanding December 31, 1995........... 998,771 0.2891 781,237 0.1326
Granted............................... -- -- 395,500 3.2755
Forfeited............................. -- -- (49,150) 0.2165
Exercised............................. (18,834) 0.6637 (25,241) 0.0585
--------- -------- --------- --------
Outstanding September 30, 1996.......... 979,937 $ 0.2819 1,102,346 $ 1.2582
========= ======== ========= ========
</TABLE>
The weighted average fair value of options granted during the year ended
December 31, 1995 and the nine-month period ended September 30, 1996 was $.03
per share and $.53 per share, respectively. The weighted average fair value of
warrants granted during the year ended December 31, 1995 is $.03 per share.
The following table summarizes information about exercisable stock options
and warrants as of the following dates:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C> <C>
December 31, 1993....................... Options 49,458 $.10
Warrants 327,868 $.04
December 31, 1994....................... Options 162,834 $.11
Warrants 604,336 $.20
December 31, 1995....................... Options 284,009 $.09
Warrants 998,771 $.29
September 30, 1996...................... Options 315,297 $.11
Warrants 979,937 $.28
</TABLE>
F-12
<PAGE> 68
CORAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options and warrants
outstanding at September 30, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF OUTSTANDING REMAINING
EXERCISE PRICES AT 9/30/96 CONTRACTUAL LIFE
--------------- ----------- ----------------
<S> <C> <C> <C>
Options................................... $ .027 - $6.00 1,102,346 7.92
Warrants.................................. $ .003 - $2.00 979,937 4.51
</TABLE>
At September 30, 1996 there were 802,309 shares available for grant under
the stock option plan.
The Company applies APB Opinion 25 in accounting for its stock compensation
plans, and no compensation expense has been recognized in the financial
statements. Had compensation expense for the Company's stock option plan been
determined based on the fair values at the grant dates for awards under the plan
consistent with the method of accounting prescribed by FASB Statement 123, the
Company's net loss and loss per share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C> <C>
Net loss.................................. As reported $ (3,390,900) $(741,700)
Pro forma (3,398,100) (854,500)
Pro forma net loss per common share....... As reported $ (.48) $ (.09)
Pro forma (.48) (.11)
</TABLE>
In accordance with the guidance provided under SFAS 123, fair values are
based on minimum values. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in the year ended December 31, 1995
and the nine-month period ended September 30, 1996: dividend yield of zero;
expected volatility of zero; risk-free interest rates ranging from 5.62% to
7.13%; and an expected term of six years. The risk-free rate used in the
calculation is the yield on the grant date of a U.S. Treasury Strip with a
maturity equal to the expected term of the option.
5. INCOME TAXES
The Company's net deferred tax assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
Net operating loss carryforwards................ $ 898,500 $ 2,146,500 $ 2,367,100
Deferred revenue and other...................... 155,300 163,600 209,600
Tax credit carryforwards........................ 92,400 125,000 125,000
----------- ----------- ------------
Gross deferred tax assets..................... 1,146,200 2,435,100 2,701,700
Less deferred tax asset valuation allowance..... (1,146,200) (2,435,100) (2,701,700)
----------- ----------- ------------
Net deferred tax asset................ $ -- $ -- $ --
=========== =========== ============
</TABLE>
Based upon the Company's accumulated deficit and history of recurring net
losses, the ultimate realization of the deferred tax asset does not appear to be
more likely than not. Accordingly, a valuation allowance has been provided
against all potential future tax benefits.
F-13
<PAGE> 69
CORAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The benefit for income taxes differs from the amount computed by applying
the U.S. federal income tax rate of 34% to loss before income taxes as follows
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
--------- --------- ----------- --------------
<S> <C> <C> <C> <C>
U.S. federal income tax benefit at
statutory rate....................... $ 356,900 $ 417,500 $ 1,152,900 $ 252,200
Increases (decreases) resulting from:
Unrecognized benefit of net operating
loss carryforwards and future net
deductions........................ (418,500) (492,000) (1,288,800) (266,600)
Non-deductible items and other....... 61,600 74,500 135,900 14,400
--------- --------- ----------- ----------
Benefit for income taxes............... $ -- $ -- $ -- $ --
========= ========= =========== ==========
</TABLE>
At September 30, 1996, the Company has net operating loss carryforwards
aggregating approximately $6,312,100 which expire between 2006 and 2010. The
Internal Revenue Code places certain limitations on the annual amount of net
operating loss carryforwards which can be utilized if certain changes in the
Company's ownership occur. Such defined changes occurred in 1994, 1995 and 1996.
Those changes have substantially limited the amount of net operating loss
benefit that may be utilized in any given taxable year to approximately $30,000
for pre-January 1994 net operating losses, approximately $180,000 for pre-March
1995 net operating losses and approximately $900,000 for pre-June 1996 losses.
Future changes in the Company's ownership may further limit the use of the
carryforward benefits. There can be no assurance that the IRS will not challenge
the Company's factual and legal determination related to ownership changes.
6. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1996, the Company paid directors of the Company approximately
$85,500, $58,500 and $60,200, respectively, for their services and expenses as
Board members and consultants.
During 1995, the Company paid an additional $54,000 and issued 14,000
shares of common stock to a director of the Company for services performed in
connection with the Series B preferred stock private placement.
7. EMPLOYEE BENEFITS
During 1995, the Company established a 401(k) defined contribution plan
covering substantially all employees meeting minimum age and service
requirements. Participation in the plan is optional. Employer contributions are
made to the plan solely at the discretion of the Board of Directors. To date, no
Company contributions have been made.
F-14
<PAGE> 70
CORAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
The Company conducts its operations from leased facilities. Future minimum
non-cancelable rental payments for this facilities lease and other equipment
leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASE
OBLIGATIONS
-----------
<S> <C>
Three months ended December 31, 1996...................................... $ 30,000
1997...................................................................... 108,200
1998...................................................................... 104,100
1999...................................................................... 8,700
---------
$ 251,000
=========
</TABLE>
Rent expense related to the above operating leases approximated $35,300,
$80,000, $147,500, and $162,000 for the years ended December 31, 1993, 1994 and
1995 and the nine months ended September 30, 1996, respectively.
F-15
<PAGE> 71
[GRAPHIC DEPICTING A CORAL REEF WITH THE CORAL SYSTEMS LOGO AND SLOGAN
"THE SOFTWARE STANDARD IN WIRELESS."]
<PAGE> 72
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any Selling Stockholder or any of the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the shares of Common Stock to which it
relates or an offer to, or a solicitation of, any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof or that the information contained herein is
correct as of any time subsequent to the date hereof.
--------------------------
TABLE OF CONTENTS
--------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 26
Management............................ 36
Certain Transactions.................. 44
Principal and Selling Stockholders.... 46
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 50
Underwriting.......................... 52
Legal Matters......................... 53
Experts............................... 53
Additional Information................ 54
Index to Financial Statements......... F-1
</TABLE>
---------------------
Until , 1996 (25 days after the date of this Prospectus) all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,700,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
COWEN & COMPANY
UBS SECURITIES
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee........................................................... $ 11,291
NASD filing fee............................................................ 4,226
Nasdaq application fee..................................................... 20,525
Blue sky qualification fee and expenses....................................
Printing and engraving expenses............................................ *
Legal fees and expenses.................................................... *
Accounting fees and expenses............................................... *
Transfer agent and registrar fees.......................................... *
Directors and Officers Insurance........................................... *
Miscellaneous.............................................................. *
--------
Total............................................................ $821,000
========
</TABLE>
- ---------------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Amended and Restated Certificate of Incorporation provides
for the elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to the Registrant and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such an injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, under
current Delaware law, a director's liability to the Registrant or its
stockholders may not be limited with respect to liability for breach of the
director's duty of loyalty to the Registrant or its stockholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
II-1
<PAGE> 74
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 30, 1993, the Registrant has issued and/or sold
unregistered securities as set forth below. All share numbers and per share
prices reflect the 1-for-753.3521 stock split effected by the Registrant in
January 1994 and the 1-for-2 reverse stock split expected to occur prior to the
effectiveness of the offering.
(1) During the period, the Registrant granted stock options to purchase common
shares as provided in the following tables:
To officers, employees, directors and consultants under the 1992 Stock
Option Plan:
<TABLE>
<CAPTION>
DATE SHARES PRICE/SHARE
------------------------------------------------------ --------- -----------
<S> <C> <C>
October 1, 1993....................................... 420,746 $ .026
November 10, 1993..................................... 56,501 $ .66
May 17, 1994.......................................... 68,000 $ .20
October 25, 1994...................................... 81,500 $ .20
February 27, 1995..................................... 152,002 $ .20
May 12, 1995.......................................... 158,000 $ .22
July 27, 1995......................................... 54,000 $ .22
September 11, 1995.................................... 37,250 $ .22
December 8, 1995...................................... 56,501 $ .22
March 22, 1996........................................ 178,250 $ .22
June 5, 1996.......................................... 6,750 $1.50
July 24, 1996......................................... 210,500 $6.00
</TABLE>
(2) During the period, the Registrant sold shares of Common Stock pursuant to
the exercise of stock options as follows:
<TABLE>
<CAPTION>
DATE SHARES PRICE/SHARE
------------------------------------------------------ --------- -----------
<S> <C> <C>
October 3, 1994....................................... 41,434 $ .026
December 15, 1994..................................... 9,040 $ .026
May 16, 1995.......................................... 56,501 $ .020
June 16, 1995......................................... 34,385 $ .026
June 16, 1995......................................... 4,500 $ .20
November 27, 1995..................................... 13,433 $ .026
January 25, 1996...................................... 7,533 $ .026
January 29, 1996...................................... 13,183 $ .026
March 18, 1996........................................ 3,400 $ .22
May 29, 1996.......................................... 750 $ .22
September , 1996.................................... 375 $ .22
</TABLE>
(3) From January 1994 to March 1994, the Registrant sold 2,000,000 shares of
Series A Preferred Stock, which will convert into 999,960 shares of Common
Stock upon the completion of this offering, to a group of accredited
investors for cash in the aggregate amount of $1,720,000 and cancellation
of indebtedness in the aggregate amount of $280,000.
(4) In January 1994, the Registrant sold 94,169 shares of Common Stock,
pursuant to exercise of a warrant, to an officer of the Registrant for cash
in the aggregate amount of $249.92.
(5) In March 1994, the Registrant issued warrants to purchase 43,002 shares of
Common Stock, at a price of $2.00 per share, to consultants of the
Registrant.
(6) In June 1994, the Registrant sold 48,365 shares of Common Stock, pursuant
to exercise of a warrant, to a former officer of the Registrant for cash in
the aggregate amount of $128.36.
(7) In July 1995, the Registrant issued a warrant to purchase 29,000 shares of
Common Stock, at an exercise price of $.20 per share, to a consultant of
the Registrant.
(8) In November 1994, the Registrant sold 3,750 shares of Common Stock,
pursuant to exercise of a warrant, to a former director of the Registrant
for cash in the aggregate amount of $9.95.
II-2
<PAGE> 75
(9) In March 1995, the Registrant sold 2,083,333 shares of Series B Preferred
Stock, which will convert into 2,083,290 shares of Common Stock upon the
completion of this offering, to a group of accredited investors for cash in
the aggregate amount of $4,096,821.20 and cancellation of indebtedness in
the aggregate amount of $403,178.08.
(10) In July 1995, the Registrant sold 18,331 shares of common stock, pursuant
to exercise of a warrant, to an officer of the Registrant for cash in the
aggregate amount of $48.65.
(11) In March 1996, the Registrant sold 1,824,920 shares of Series C Preferred
Stock, which will convert into 912,453 shares of Common Stock upon the
completion of this offering, to an accredited investor for cash in the
aggregate amount of $4,222,198.
(12) In August 1996, the Registrant sold 18,834 shares of Common Stock, pursuant
to exercise of a warrant, to a former consultant of the Registrant for cash
in the aggregate amount of $12,500.13
With respect to the grant of stock options described in paragraph (1)
above, exemption from Registration under the Securities Act was unnecessary in
that none of such transactions involved a "sale" of securities as such term is
used in Section 2(3) of the Securities Act.
The sales and issuances of securities in the transactions described in
paragraphs (2), (4), (6) and (8) above, were deemed to be exempt from
registration under the Securities Act by virtue of Rule 701 promulgated
thereunder in that they were offered and sold either pursuant to written
compensating benefit plans or pursuant to a written contract relating to
compensation, as provided by Rule 701.
The sales and issuances of securities in the transactions described in
paragraphs (3), (5), (7) and (9) through (12) above were deemed to be exempt
from registration under the Securities Act by virtue of Section 4(2) and/or Rule
506 promulgated under the Securities Act. The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends are affixed to
the stock certificates issued in such transactions. Similar legends were imposed
in connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
3(i).1 -- Amended and Restated Certificate of Incorporation.
3(i).2 -- Form of Amended and Restated Certificate of Incorporation to be
effective upon the closing of the offering.
3(ii).1 -- Bylaws of the Registrant.
3(ii).2 -- Form of Amended and Restated Bylaws to be effective upon the closing
of the offering.
4.1 -- Reference is made to Exhibits 3(i).1 through 3(ii).2.
4.2* -- Specimen Stock Certificate.
5.1* -- Opinion of Cooley Godward LLP.
10.1 -- Form of Indemnity Agreement to be entered into between the Registrant
and its directors and officers, with related schedule.
10.2 -- Registrant's Amended and Restated Stock Option Plan, including forms
of stock option grant notice and stock option agreement.
10.3 -- Registrant's 1996 Employee Stock Purchase Plan.
</TABLE>
II-3
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.4 -- Lease Agreement, dated May 19, 1992, between the Registrant and
Lincoln National Life Insurance Company, Inc., as amended on November
22, 1993 and September 20, 1995.
10.5 -- Master Lease Agreement, dated August 9, 1995, between the Registrant
and Dominion Ventures, Inc.
10.6 -- Loan Agreement and Promissory Note, dated April 26, 1996, between the
Registrant and Pioneer Bank of Longmont.
10.7 -- Form of Warrant entered into between the Registrant and Howard
Kaushansky, CVM Equity Fund III, Ltd. and certain others, with
related schedule.
10.8 -- Form of Amended and Restated Warrant entered into between the
Registrant and William F. Nicklin and certain others, with related
schedule.
10.9 -- Letter Agreement, dated June 20, 1996, between the Registrant and
Bessemer Venture Partners III L.P. ("BVP III") and Vertex Investment
(II) Ltd. ("Vertex").
10.10 -- Stock Purchase Agreement, dated June 21, 1996, between the Jensen
Charitable Remainder Trust, BVP III and Vertex.
10.11 -- Stock Purchase Agreement, dated June 21, 1996, between Flemming B.
Jensen, BVP III and Vertex.
10.12 -- Stock Purchase Agreement, dated July 15, 1996, between the
Registrant, BVP III and Vertex.
10.13 -- Amended and Restated Investors' Rights Agreement, dated March 21,
1996, between the Registrant and certain stockholders and
warrantholders.
10.14** -- Marketing License Agreement, dated March 21, 1996, between the
Registrant and Cincinnati Bell Information Services, Inc., including
Addendum No. 1, dated August 15, 1996.
10.15** -- Software License Agreement, dated November 24, 1993, between the
Registrant and QUALCOMM, Inc.
10.16** -- Software License Agreement, dated January 19, 1996, between the
Registrant and DSC Technologies Corporation.
10.17** -- Joint Development and Licensing Agreement, dated September 30, 1994,
between the Registrant and AirTouch Communications, Inc.
("AirTouch"), including the First Amendment Agreement, dated June 30,
1995.
10.18** -- Patent License Agreement, dated December 21, 1995, between the
Registrant and AirTouch.
10.19* -- Form of Stock Option Grant Notice issued by the Company to certain
officers and directors, with related schedule.
11.1 -- Statement regarding calculation of net loss per share.
23.1 -- Consent of Price Waterhouse LLP, Independent Accountants. Reference
is made to page II-8.
23.2 -- Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 -- Power of Attorney. Reference is made to page II-7.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** The Company is applying for confidential treatment with respect to portions
of these Exhibits.
II-4
<PAGE> 77
(b) Financial Statement Schedules.
All schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide 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 provisions described in Item 14 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 as filed as part of the registration
statement in reliance upon Rule 430A and contained in the 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 the registration statement as of
the time it was declared effective, and (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-5
<PAGE> 78
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of Longmont,
State of Colorado, on the 17th day of October, 1996.
CORAL SYSTEMS, INC.
By: /s/ ERIC A. JOHNSON
------------------------------------
Eric A. Johnson
President, Chief Executive Officer
and Chairman of the Board
II-6
<PAGE> 79
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Eric A.
Johnson as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to the Registration
Statement on Form S-1 (including post-effective amendments or any abbreviated
registration statement, and any amendments thereto, filed pursuant to Rule
462(b) increasing the amount of securities for which registration is being
sought), and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
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 connection
therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or substitute or substitutes, 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>
/s/ ERIC A. JOHNSON President, Chief Executive October 17, 1996
- --------------------------------------------- Officer and Chairman of
Eric A. Johnson the Board (Principal
Executive Officer)
/s/ KYLE D. HUBBART Chief Financial Officer and October 17, 1996
- --------------------------------------------- Treasurer (Principal
Kyle D. Hubbart Financial and Accounting
Officer)
/s/ DAVID J. COWAN Director October 17, 1996
- ---------------------------------------------
David J. Cowan
/s/ BRUCE K. GRAHAM Director October 17, 1996
- ---------------------------------------------
Bruce K. Graham
/s/ JEFFREY R. HULTMAN Director October 17, 1996
- ---------------------------------------------
Jeffrey R. Hultman
/s/ ROBERT J. MARINO Director October 17, 1996
- ---------------------------------------------
Robert J. Marino
/s/ WILLIAM F. NICKLIN Director October 17, 1996
- ---------------------------------------------
William F. Nicklin
/s/ THOMAS G. WASHING Director October 17, 1996
- ---------------------------------------------
Thomas G. Washing
</TABLE>
II-7
<PAGE> 80
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated October 17, 1996 relating
to the financial statements of Coral Systems, Inc. appearing in such Prospectus.
We also consent to the references to us under the headings "Experts" and
"Selected Financial Data." However, it should be noted that Price Waterhouse LLP
has not prepared or certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
Boulder, Colorado
October 17, 1996
II-8
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
3(i).1 -- Amended and Restated Certificate of Incorporation.
3(i).2 -- Form of Amended and Restated Certificate of Incorporation to be
effective upon the closing of the offering.
3(ii).1 -- Bylaws of the Registrant.
3(ii).2 -- Form of Amended and Restated Bylaws to be effective upon the closing
of the offering.
4.1 -- Reference is made to Exhibits 3(i).1 through 3(ii).2.
4.2* -- Specimen Stock Certificate.
5.1* -- Opinion of Cooley Godward LLP.
10.1 -- Form of Indemnity Agreement to be entered into between the Registrant
and its directors and officers, with related schedule.
10.2 -- Registrant's Amended and Restated Stock Option Plan, including forms
of stock option grant notice and stock option agreement.
10.3 -- Registrant's 1996 Employee Stock Purchase Plan.
10.4 -- Lease Agreement, dated May 19, 1992, between the Registrant and
Lincoln National Life Insurance Company, Inc., as amended on November
22, 1993 and September 20, 1995.
10.5 -- Master Lease Agreement, dated August 9, 1995, between the Registrant
and Dominion Ventures, Inc.
10.6 -- Loan Agreement and Promissory Note, dated April 26, 1996, between the
Registrant and Pioneer Bank of Longmont.
10.7 -- Form of Warrant entered into between the Registrant and Howard
Kaushansky, CVM Equity Fund III, Ltd. and certain others, with
related schedule.
10.8 -- Form of Amended and Restated Warrant entered into between the
Registrant and William F. Nicklin and certain others, with related
schedule.
10.9 -- Letter Agreement, dated June 20, 1996, between the Registrant and
Bessemer Venture Partners III L.P. ("BVP III") and Vertex Investment
(II) Ltd. ("Vertex").
10.10 -- Stock Purchase Agreement, dated June 21, 1996, between the Jensen
Charitable Remainder Trust, BVP III and Vertex.
10.11 -- Stock Purchase Agreement, dated June 21, 1996, between Flemming B.
Jensen, BVP III and Vertex.
10.12 -- Stock Purchase Agreement, dated July 15, 1996, between the
Registrant, BVP III and Vertex.
10.13 -- Amended and Restated Investors' Rights Agreement, dated March 21,
1996, between the Registrant and certain stockholders and
warrantholders.
10.14** -- Marketing License Agreement, dated March 21, 1996, between the
Registrant and Cincinnati Bell Information Services, Inc., including
Addendum No. 1, dated August 15, 1996.
10.15** -- Software License Agreement, dated November 24, 1993, between the
Registrant and QUALCOMM, Inc.
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.16** -- Software License Agreement, dated January 19, 1996, between the
Registrant and DSC Technologies Corporation.
10.17** -- Joint Development and Licensing Agreement, dated September 30, 1994,
between the Registrant and AirTouch Communications, Inc.
("AirTouch"), including the First Amendment Agreement, dated June 30,
1995.
10.18** -- Patent License Agreement, dated December 21, 1995, between the
Registrant and AirTouch.
10.19* -- Form of Stock Option Grant Notice issued by the Company to certain
officers and directors, with related schedule.
11.1 -- Statement regarding calculation of net loss per share.
23.1 -- Consent of Price Waterhouse LLP, Independent Accountants. Reference
is made to page II-8.
23.2 -- Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 -- Power of Attorney. Reference is made to page II-7.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** The Company is applying for confidential treatment with respect to portions
of these Exhibits.
<PAGE> 1
EXHIBIT 1.1
_________ Shares
Coral Systems, Inc.
Common Stock
UNDERWRITING AGREEMENT
November __, 1996
MONTGOMERY SECURITIES
COWEN & COMPANY
UBS SECURITIES LLC
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies & Gentlemen:
SECTION 1
INTRODUCTORY
Coral Systems, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell _______ shares of its authorized but unissued Common Stock
(the "Common Stock") to the several underwriters named in Schedule A annexed
hereto (the "Underwriters"). Said aggregate of _________ shares are herein
called the "Firm Common Shares." In addition, the Company and certain
stockholders of the Company named in Schedule B annexed hereto (the "Selling
Stockholders") propose to grant to the Underwriters an option to purchase up to
_______ additional shares of Common Stock (the "Optional Common Shares"), as
provided in Section 5 hereof. The Firm Common Shares and, to the extent such
option is exercised, the Optional Common Shares are hereinafter collectively
referred to as the "Common Shares."
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-___________)
with respect to the Common Shares has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The Company has prepared and has filed or proposes
<PAGE> 2
to file prior to the effective date of such registration statement an amendment
or amendments to such registration statement, which amendment or amendments have
been or will be similarly prepared. There have been delivered to you two signed
copies of such registration statement and amendments, together with two copies
of each exhibit filed therewith. Conformed copies of such registration statement
and amendments (but without exhibits) and of the related preliminary prospectus
have been delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. The Company will next file with the Commission one
of the following: (i) prior to effectiveness of such registration statement, a
further amendment thereto, including the form of final prospectus, or (ii) a
final prospectus in accordance with Rules 430A and 424(b) of the Rules and
Regulations. As filed, such amendment and form of final prospectus, or such
final prospectus, shall include all Rule 430A Information and, except to the
extent that you shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the date and time
that this Agreement was executed and delivered by the parties hereto, or, to the
extent not completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the latest
Preliminary prospectus) as the Company shall have previously advised you in
writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date (as hereinafter defined), shall also
mean such registration statement as so amended; provided, however, that such
term shall also include (i) all Rule 430A Information deemed to be included in
such registration statement at the time such registration statement becomes
effective as provided by Rule 430A of the Rules and Regulations and (ii) a
registration statement, if any, filed pursuant to Rule 462(b) of the Rules and
Regulations relating to the Common Shares. The term "Preliminary Prospectus"
shall mean any preliminary prospectus referred to in the preceding paragraph and
any preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Common Shares
in the form in which it is first filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations or, if no filing pursuant to Rule 424(b) of
the Rules and Regulations is required, shall mean the form of final prospectus
included in the Registration Statement at the time such registration statement
becomes effective. The term "Rule 430A Information" means information with
respect to the Common Shares and the offering thereof permitted to be omitted
from the Registration Statement when it becomes effective pursuant to Rule 430A
of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the Rules
and Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including each Closing
Date hereinafter mentioned, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, will contain all material statements and
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of the
Act and the Rules and Regulations, and neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, no representation or warranty contained in this subsection
2(b) shall be applicable to information contained in or omitted from any
Preliminary Prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity. The Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
State of Delaware, with full power and authority (corporate and other) to own
and lease their properties and conduct its business as described in the
Prospectus; the Company is in possession of and operating in compliance with all
authorizations, licenses, permits, consents, certificates and orders material to
the conduct of its business, all of which are valid and in full force and
effect; the Company is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the ownership or leasing of
properties or the conduct of its business requires such qualification, except
for jurisdictions in which the failure to so qualify would not have a material
adverse effect upon the Company; and no proceeding
-2-
<PAGE> 3
has been instituted in any such jurisdiction, revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such power and authority or
qualification.
(d) The Company has an authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities,
and conform to the description thereof contained in the Prospectus. Except as
disclosed in the Prospectus, the Company has no outstanding options to purchase,
or any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set forth in
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the transfer and sale of
the Common Shares to be sold by the Selling Stockholders or the issuance and
sale of the Common Shares to be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company in accordance with its terms. The
making and performance of this Agreement by the Company and the consummation of
the transactions herein contemplated will not violate any provisions of the
certificate of incorporation or bylaws, or other organizational documents, of
the Company, and will not conflict with, result in the breach or violation of,
or constitute, either by itself or upon notice or the passage of time or both, a
default under any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company is a party or by
which the Company or any of its properties may be bound or affected, any statute
or any authorization, judgment, decree, order, rule or regulation of any court
or any regulatory body, administrative agency or other governmental body
applicable to the Company or any of its properties. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and delivery of
this Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Act, the Blue Sky laws applicable to
the public offering of the Common Shares by the several Underwriters and the
clearance of such offering with the National Association of Securities Dealers,
Inc. (the "NASD").
(g) Price Waterhouse LLP, who have expressed their opinion with respect
to the financial statements and schedules filed with the Commission as a part of
the Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the Act and
the Rules and Regulations.
(h) The financial statements and schedules of the Company, and the
related notes thereto, included in the Registration Statement and the Prospectus
present fairly the financial position of the Company as of the respective dates
of such financial statements and schedules, and the results of operations and
changes in financial position of the Company for the respective periods covered
thereby. Such statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis as certified by the independent accountants named in subsection 2(g). No
other financial statements or schedules are required to be included in the
Registration Statement. The selected financial data set forth in the Prospectus
under the captions "Capitalization" and "Selected Financial Data" fairly present
the information set forth therein on the basis stated in the Registration
Statement.
-3-
<PAGE> 4
(i) The Company maintains a system of internal accounting control
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The representations and warranties given by the Company and/or its
officers to independent public accountants for the purpose of supporting the
letters referred to in Section 8(c)(vi) are true and correct.
(j) The Company is not in violation or default of any provision of its
certificate of incorporation or bylaws, or other organizational documents, or is
in breach of or default with respect to any provision of any agreement,
judgment, decree, order, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which it is a party or by which it or
any of its properties are bound; and there does not exist any state of facts
which constitutes an event of default on the part of the Company as defined in
such documents or which, with notice or lapse of time or both, would constitute
such an event of default.
(k) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement or by the Rules and Regulations which have not been accurately and
completely described or filed as required. The contracts so described in the
Prospectus are in full force and effect on the date hereof; and neither the
Company, nor to the best of the Company's knowledge, any other party is in
breach of or default under any of such contracts.
(l) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company is or may be a party or of
which property owned or leased by the Company is or may be the subject, or
related to environmental or discrimination matters, which actions, suits or
proceedings might, individually or in the aggregate, prevent or adversely affect
the transactions contemplated by this Agreement or result in a material adverse
change in the condition (financial or otherwise), properties, business, results
of operations or prospects of the Company; and no labor disturbance by the
employees of the Company exists or is imminent which might be expected to affect
adversely such condition, properties, business, results of operations or
prospects. The Company is not a party or subject to the provisions of any
material injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(m) The Company has good and marketable title to all the properties and
assets reflected as owned in the financial statements hereinabove described (or
elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such financial
statements (or elsewhere in the Prospectus), or (ii) those which are not
material in amount and do not adversely affect the use made and proposed to be
made of such property by the Company. The Company holds its leased properties
under valid and binding leases, with such exceptions as are not materially
significant in relation to the business of the Company. Except as disclosed in
the Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be conducted.
(n) Since the respective dates as of which information is given in the
Registration Statement and Prospectus: (i) the Company has not incurred any
material liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other transaction which is not
in the ordinary course of business; (ii) the Company has not sustained any
material loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company has not paid or declared any dividends or other distributions
with respect to its capital stock and the Company is not in default in the
payment of principal or interest on any outstanding debt obligations; (iv) there
has not been any change in the capital stock (other than upon the sale of the
Common Shares hereunder and upon the exercise of options or warrants described
in the Registration Statement) or indebtedness material to the Company (other
than in the ordinary course of business); and (v) there has not been any
material adverse change in the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company.
(o) The Company has sufficient trademarks, trade names, patent rights,
mask works, copyrights, licenses, approvals and governmental authorizations to
conduct its business as now conducted and as proposed to be conducted; and
-4-
<PAGE> 5
the Company has no knowledge of any material infringement by it of trademark,
trade name rights, patent rights, mask works, copyrights, licenses, trade secret
or other similar rights of others, and there is no claim being made against the
Company regarding trademark, trade name, patent, mask work, copyright, license,
trade secret or other infringement which could have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of the Company.
(p) The Company is conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable local, state
and federal environmental laws and regulations; except where failure to be so in
compliance would not materially adversely affect the condition (financial or
otherwise), business, results of operations or prospects of the Company.
(q) The Company has filed all necessary federal, state and foreign
income and franchise tax returns, and all such tax returns are complete and
correct in all material respects, and the Company has paid all taxes shown as
due thereon. The Company has no knowledge of any tax deficiency which has been
or might be asserted or threatened against the Company which could materially
and adversely affect the business, operations or properties of the Company.
(r) The Company is not, and upon the closing of the offering
contemplated hereby will not be, an "investment company" or a company
"controlled by" an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(s) The Company has not distributed and will not distribute prior to
the First Closing Date any offering material in connection with the offering and
sale of the Common Shares other than the Prospectus, the Registration Statement
and the other materials permitted by the Act.
(t) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
The Company has not been refused any insurance coverage sought or applied for;
and the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), properties, business or results of operations of the
Company.
(u) Neither the Company nor, to the best of the Company's knowledge,
any of its employees or agents has at any time during the last five years (i)
made any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any federal or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States of any jurisdiction thereof.
(v) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(w) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba.
(x) The Company has caused (i) each of its executive officers and
directors and (ii) each other holder of Common Stock (including shares issuable
upon the exercise or conversion of any option, warrant or other security) to
furnish to the Representatives an agreement in the form provided by the
Representatives, pursuant to which each such party has agreed that during the
period of 180 days after the date of the Prospectus, without the prior written
consent of Montgomery Securities, such party will not directly or indirectly
offer, sell, contract to sell or otherwise dispose of any shares of the
Company's Common Stock or securities convertible into or exchangeable for, or
any rights to purchase or acquire, the Company's Common Stock (including without
limitation, Common Stock of the Company which may be deemed to be
-5-
<PAGE> 6
beneficially owned in accordance with the rules and regulations of the
Commission); provided, however, that bona fide gift transactions may be
permitted if the donee agrees in writing, prior to the consummation of the gift,
to be bound by the provisions applicable to the share in the hands of the donor.
SECTION 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SELLING STOCKHOLDERS
(a) Each of the Selling Stockholders represents and warrants, severally
and not jointly, to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the Second Closing
Date hereinafter mentioned will have, good and marketable title to the Common
Shares proposed to be sold by such Selling Stockholder hereunder on such Second
Closing Date and full right, power and authority to enter into this Agreement
and to sell, assign, transfer and deliver such Common Shares hereunder, free and
clear of all voting trust arrangements, liens, encumbrances, equities, security
interests, restrictions and claims whatsoever; and upon delivery of and payment
for such Common Shares hereunder, the Underwriters will acquire good and
marketable title thereto, free and clear of all liens, encumbrances, equities,
claims, restrictions, security interests, voting trusts or other defects of
title whatsoever.
(ii) Such Selling Stockholder has executed and delivered a
Power of Attorney and caused to be executed and delivered on his, or her or its
behalf a Custody Agreement (hereinafter collectively referred to as the
"Stockholders Agreement") and in connection herewith such Selling Stockholder
further represents, warrants and agrees that such Selling Stockholder has
deposited in custody, under the Stockholders Agreement, with the agent named
therein (the "Agent") as custodian, certificates in negotiable form for the
Common Shares to be sold hereunder by such Selling Stockholder, for the purpose
of further delivery pursuant to this Agreement. Such Selling Stockholder agrees
that the Common Shares to be sold by such Selling Stockholder on deposit with
the Agent are subject to the interests of the Company and the Underwriters, that
the arrangements made for such custody are to that extent irrevocable, and that
the obligations of such Selling Stockholder hereunder shall not be terminated,
except as provided in this Agreement or in the Stockholders Agreement, by any
act of such Selling Stockholder, by operation of law, by the death or incapacity
of such Selling Stockholder or by the occurrence of any other event. If the
Selling Stockholder should die or become incapacitated, or if any other event
should occur, before the delivery of the Common Shares hereunder, the documents
evidencing Common Shares then on deposit with the Agent shall be delivered by
the Agent in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether or
not the Agent shall have received notice thereof. This Agreement and the
Stockholders Agreement have been duly executed and delivered by or on behalf of
such Selling Stockholder and the form of such Stockholders Agreement has been
delivered to you.
(iii) The performance of this Agreement and the Stockholders
Agreement and the consummation of the transactions contemplated hereby and by
the Stockholders Agreement will not result in a breach or violation by such
Selling Stockholder of any of the terms or provisions of, or constitute a
default by such Selling Stockholder under, any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease, franchise, license
or other agreement or instrument to which such Selling Stockholder is a party or
by which such Selling Stockholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Stockholder or any of
his, her or its properties.
(iv) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Shares.
(v) Each Preliminary Prospectus and the Prospectus, insofar
as it has related to such Selling Stockholder, has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and has
not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein
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<PAGE> 7
not misleading in light of the circumstances under which they were made; and
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, as it relates to such Selling Stockholder, will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
(vi) The sale of the Common Shares by such Selling
Stockholder pursuant hereto is not prompted by any adverse information
concerning the Company which is not set forth in the Registration Statement and
Prospectus.
(vii) Such Selling Stockholder has carefully reviewed the
Registration Statement and Prospectus, and, although such Selling Stockholder
has not independently verified the accuracy or completeness of the information
contained therein (other than the information regarding such Selling Stockholder
set forth under the captions "Management" and "Principal and Selling
Stockholders"), nothing has come to the attention of such Selling Stockholder
that would lead such Selling Stockholder to believe that (A) upon the
effectiveness of the Registration Statement, the Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading or (B) as of the date of the Prospectus, the
Prospectus contained and, on the Closing Date, contains any untrue statement of
a material fact or omitted or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(viii) Such Selling Stockholder is not aware, and has no
reason to believe, that any of the representations or warranties set forth in
Section 2 above is untrue or inaccurate in any material respect.
(b) Each of the Selling Stockholders agrees with the Company and the
Underwriters not to offer to sell, sell or contract to sell or otherwise dispose
of any shares of Common Stock or securities convertible into or exchangeable for
any shares of Common Stock, for a period of 180 days after the date of the
Prospectus, without the prior written consent of Montgomery Securities which
consent may be withheld at the sole discretion of Montgomery Securities.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS
The Representatives, on behalf of several Underwriters' represent and
warrant to the Company and to the Selling Stockholders that the information set
forth (i) on the cover page of the Prospectus with respect to price,
underwriting discounts and commissions and terms of offering and (ii) under
"Underwriting" in the Prospectus was furnished to the Company by and on behalf
of the Underwriters for use in connection with the preparation of the
Registration Statement and the Prospectus and is correct in all material
respects. The Representatives represent and warrant that, except as expressly
provided herein, they have been authorized by each of the other Underwriters as
the Representatives to enter into this Agreement on its behalf and to act for it
in the manner herein provided.
SECTION 5
PURCHASE, SALE AND DELIVERY OF COMMON SHARES
On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, (i) the
Company agrees to issue and sell to the Underwriters _______ of the Firm Common
Shares. The Underwriters agree, severally and not jointly, to purchase from the
Company the number of Firm Common Shares described below. The purchase price per
share to be paid by the several Underwriters to the Company shall be $_____ per
share.
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<PAGE> 8
The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of full shares which (as nearly as practicable, as
determined by you) bears to _______ the same proportion as the number of shares
set forth opposite the name of such Underwriter in Schedule A hereto bears to
the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters and payment therefor shall be made at the offices of
[Montgomery Securities, 600 Montgomery Street, San Francisco, California] (or
such other place as may be agreed upon by the Company and the Underwriters) at
such time and date, not later than the third (or, if the Firm Common Shares are
priced as contemplated by Rule 15c6-1(c) of the Exchange Act, after 4:30 p.m.
Washington, D.C. time, the fourth) full business day following the first date
that any of the Common Shares are released by you for sale to the public, as you
shall designate by at least 48 hours prior notice to the Company (or at such
other time and date, not later than one week after such third or fourth, as the
case may be, full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the third or
fourth, as the case may be, full business day following the first date that any
of the Common Shares are released by you for sale to the public or the date that
is 48 hours after the date that the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or
on behalf of the Company to you, for the respective accounts of the Underwriters
with respect to the Firm Common Shares to be sold by the Company against payment
by you, for the accounts of the several Underwriters, of the purchase price
therefor by wire transfer of federal funds to an account designated in writing
by the Company. The certificates for the Firm Common Shares shall be registered
in such names and denominations as you shall have requested at least two full
business days prior to the First Closing Date, and shall be made available for
checking and packaging on the business day preceding the First Closing Date at a
location in New York, New York, as may be designated by you. Time shall be of
the essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the (i) Selling Stockholders, severally and not jointly, hereby grant
options to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of _______ Optional Common Shares in the respective amounts set
forth opposite the name of each such Selling Stockholder in Schedule B hereto
and (ii) the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to _______ Optional Common Shares; in
each case at the purchase price per share to be paid for the Firm Common Shares,
for use solely in covering any over-allotments made by you for the account of
the Underwriters in the sale and distribution of the Firm Common Shares. In the
event that the Underwriters elect to purchase less than all of the Optional
Common Shares, the number of Optional Common Shares to be purchased from each
Selling Stockholder and the Company shall be determined by multiplying the
aggregate number of Optional Common Shares to be purchased by a fraction, the
numerator of which is the total number of Optional Common Shares set forth
opposite the name of such Selling Stockholder or the Company in Schedule B
hereto and the denominator of which is _______. The option granted hereunder may
be exercised at any time (but not more than once) within 30 days after the first
date that any of the Common Shares are released by you for sale to the public,
upon notice by you to the Company and said Selling Stockholders setting forth
the aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, the names and denominations in which the certificates for
such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date shall not be earlier than three full business days after delivery
of such notice of exercise. The number of Optional Common Shares to be purchased
by each Underwriter shall be determined by multiplying the number of Optional
Common Shares to be sold by the Selling Stockholders and the Company pursuant to
such notice of exercise by a fraction, the numerator of which is the number of
Firm Common Shares to be purchased by such Underwriter as set forth opposite its
name in Schedule A and the denominator of which is _________ (subject to such
adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in New York, New York, as may be designated by you.
The manner of payment for and delivery of the Optional Common Shares shall be
the same as for the Firm Common Shares purchased from the Company as specified
in the two preceding paragraphs. At any time before lapse of the option, you may
cancel such option by giving written notice of such cancellation to the Company
and said Selling Stockholders. If the option is cancelled or expires unexercised
in whole or in part, the
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<PAGE> 9
Company will deregister under the Act the number of Optional Common Shares as to
which the option has not been exercised.
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to receipt therefor. You may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as soon
after the effective date of the Registration Statement as in the judgment of the
Underwriters is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the Prospectus.
SECTION 6
COVENANTS OF THE COMPANY
The Company covenants and agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly advise you in writing (i) of the receipt of
any comments of the Commission, (ii) of any request of the Commission for
amendment of or supplement to the Registration Statement (either before or after
it becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the lifting
of such order at the earliest possible moment. The Company will not file any
amendment or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus of which you
have not been furnished with a copy a reasonable time prior to such filing or to
which you reasonably object or which is not in compliance with the Act and the
Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, a registration statement pursuant to Rule 462(b) of the Rules
and Regulations related to the Common Shares and any amendments or supplements
to the Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue the
distribution of the Common Shares and will use its best efforts to cause the
same to become effective as promptly as possible. The Company will fully and
completely comply with the provisions of Rule 430A of the Rules and Regulations
with respect to information omitted from the Registration Statement in reliance
upon such Rule.
(c) The Company will immediately notify you in writing if, at any time
prior to the earliest of (i) the Second Closing Date on which all remaining
Optional Common Shares are purchased, (ii) the cancellation of the options to
purchase the Optional Common Shares as provided herein, and (iii) of the
expiration of the options to purchase the Optional Common Shares as provided
herein, any representation or warranty of the Company set forth herein shall not
be true and accurate in all material respects or, without limiting the
foregoing, if there shall have been any material adverse change, or a
development involving a material adverse change, in the condition (financial or
otherwise), properties, business, results of operations or prospects of the
Company.
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<PAGE> 10
(d) If at any time within the nine-month period referred to in Section
10(a)(3) of the Act during which a prospectus relating to the Common Shares is
required to be delivered under the Act any event occurs, as a result of which
the Prospectus, including any amendments or supplements, would include an untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or if
it is necessary at any time to amend the Prospectus, including any amendments or
supplements, to comply with the Act or the Rules and Regulations, the Company
will promptly advise you thereof and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will correct
such statement or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become effective
as soon as possible; and, in case any Underwriter is required to deliver a
prospectus after such nine-month period, the Company upon request, but at the
expense of such Underwriter, will promptly prepare such amendment or amendments
to the Registration Statement and such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act.
(e) As soon as practicable, but not later than 45 days after the end of
the first quarter ending after one year following the "effective date of the
Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security holders
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of the last paragraph of Section
11(a) of the Act.
(f) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the Company, at
its expense, but only for the nine-month period referred to in Section 10(a) (3)
of the Act, will furnish to you and the Selling Stockholders or mail to your
order copies of the Registration Statement, the Prospectus, the Preliminary
Prospectus and all amendments and supplements to any such documents in each case
as soon as available and in such quantities as you and the Selling Stockholders
may request, for the purposes contemplated by the Act.
(g) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions from
the application of) the Blue Sky laws of such jurisdictions as you designate,
will comply with such laws and will continue such qualifications, registrations
and exemptions in effect so long as reasonably required for the distribution of
the Common Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any jurisdiction
or any initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification, registration
or exemption, the Company, with your cooperation, will use its best efforts to
obtain the withdrawal thereof.
(h) During the period of five years hereafter, the Company will furnish
to the Representatives and, upon the request of the Representatives, to each of
the other Underwriters: (i) as soon as practicable after the end of each fiscal
year, copies of the Annual Report of the Company containing the balance sheet of
the Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other
report filed by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or communication
of the Company mailed generally to holders of its Common Stock.
(i) During the period of 180 days after the first date that any of the
Common Shares are released by you for sale to the public, without the prior
written consent of Montgomery Securities (which consent may be withheld at the
sole discretion of Montgomery Securities), the Company will not other than
pursuant to the Company's stock option plans or warrants disclosed in the
Prospectus issue, offer, sell, grant options to purchase or otherwise dispose of
any of the Company's equity securities or any other securities convertible into
or exchangeable with its Common Stock or other equity security.
(j) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.
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<PAGE> 11
(k) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain exemptions
from the application of) the Blue Sky laws of the State of California (and
thereby permit market making transactions and secondary trading in the Company's
Common Stock in California), will comply with such Blue Sky laws and will
continue such qualifications, registrations and exemptions in effect for a
period of five years after the date hereof.
(l) The Company will use its best efforts to designate the Common Stock
for listing on the Nasdaq National Market.
(m) The Company will maintain a transfer agent and registrar for its
Common Stock.
You, on behalf of the Underwriters, may, in your sole discretion, waive
in writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
SECTION 7
PAYMENT OF EXPENSES
Whether or not the transactions contemplated hereunder are consummated
or this Agreement becomes effective or is terminated, the Company and, unless
otherwise paid by the Company, the Selling Stockholders agree to pay in such
proportions as they may agree upon among themselves all costs, fees and expenses
incurred in connection with the performance of their obligations hereunder and
in connection with the transactions contemplated hereby, including without
limiting the generality of the foregoing, (i) all expenses incident to the
issuance and delivery of the Common Shares (including all printing and engraving
costs), (ii) all fees and expenses of the registrar and transfer agent of the
Common Stock, (iii) all necessary issue, transfer and other stamp taxes in
connection with the issuance and sale of the Common Shares to the Underwriters,
(iv) all fees and expenses of the Company's counsel and the Company's
independent accountants, (v) all costs and expenses incurred in connection with
the preparation, printing, filing, shipping and distribution of the Registration
Statement, each Preliminary Prospectus and the Prospectus (including all
exhibits and financial statements) and all amendments and supplements provided
for herein, any registration statement filed pursuant to Rule 462(b) of the
Rules and Regulations related to the Common Shares, this Agreement, the
Agreement Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney and the Blue Sky memorandum,
(vi) all filing fees, attorneys' fees and expenses incurred by the Company or
the Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the state or Canadian Blue Sky laws,
(vii) the filing fee of the National Association of Securities Dealers, Inc.,
and (viii) all other fees, costs and expenses referred to in Item 13 of the
Registration Statement. The Underwriters may deem the Company to be the primary
obligor with respect to all costs, fees and expenses to be paid by the Company
and by the Selling Stockholders. Except as provided in this Section 7, Section 9
and Section 11 hereof, the Underwriters shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those relating
to qualification, registration or exemption under the Blue Sky laws and the Blue
Sky memorandum referred to above). This Section 7 shall not affect any
agreements relating to the payment of expenses between the Company and the
Selling Stockholders to the extent that such agreements do not impair the
obligation of the Company and the Selling Stockholders hereunder to the several
Underwriters.
The Selling Stockholders will pay (directly or by reimbursement) all
fees and expenses incident to the performance of their obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of counsel for such Selling
Stockholders; (ii) any fees and expenses of the Agent; and (iii) all expenses
and taxes incident to the sale and delivery of the Common Shares to be sold by
such Selling Stockholders to the Underwriters hereunder.
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<PAGE> 12
SECTION 8
CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS
The obligations of the several Underwriters to purchase and pay for the
Firm Common Shares on the First Closing Date and the Optional Common Shares on
the Second Closing Date shall be subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Stockholders herein
set forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m.(or, in the case of a registration statement filed pursuant to
Rule 462(b) of the Rules and Regulations relating to the Common Shares, not
later than 10:00 p.m.), Washington, D.C. Time, on the date of this Agreement, or
at such later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, the Selling Stockholders or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have been
complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital stock other than pursuant to the
exercise of outstanding options and warrants disclosed in the Prospectus of the
Company or any material change in the indebtedness of the Company, (ii) except
as set forth or contemplated by the Registration Statement or the Prospectus, no
material verbal or written agreement or other transaction shall have been
entered into by the Company, which is not in the ordinary course of business,
(iii) no loss or damage (whether or not insured) to the property of the Company
shall have been sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects of the
Company, (iv) no legal or governmental action, suit or proceeding affecting the
Company which is material to the Company or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted or
threatened and (v) there shall not have been any material change in the
condition (financial or otherwise), business, management, results of operations
or prospects of the Company which makes it impractical or inadvisable in the
judgment of the Representatives to proceed with the public offering or purchase
the Common Shares as contemplated hereby.
(c) There shall have been furnished to you on each Closing Date, in
form and substance satisfactory to you, except as otherwise expressly provided
below:
(i) An opinion of Cooley Godward Castro Huddleson & Tatum,
counsel for the Company and the Selling Stockholders, addressed to the
Underwriters and dated the First Closing Date, or the Second Closing Date, as
the case may be, to the effect that:
(1) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, is duly qualified
to do business as a foreign corporation and is in good
standing in all other jurisdictions where the ownership or
leasing of properties or the conduct of its business requires
such qualification, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect
on the Company, has full corporate power and authority to own
its properties and conduct its business as described in the
Registration Statement and has no subsidiaries;
(2) The authorized, issued and outstanding capital
stock of the Company is as set forth under the caption
"Capitalization" in the Prospectus; all necessary and proper
corporate proceedings have been taken in order to authorize
validly such authorized Common Stock; all outstanding shares
of
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<PAGE> 13
Common Stock (including the Firm Common Shares and any
Optional Common Shares) have been duly and validly issued, are
fully paid and nonassessable, have been issued in compliance
with federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other
rights to subscribe for or purchase any securities and conform
to the description thereof in the Prospectus; without limiting
the foregoing, there are no preemptive or other rights to
subscribe for or purchase any of the Common Shares to be sold
by the Company or the Selling Stockholders hereunder;
(3) The certificates evidencing the Common Shares to
be delivered hereunder are in due and proper form under
Delaware law, and when duly countersigned by the Company's
transfer agent and registrar, and delivered to you or upon
your order against payment of the agreed consideration
therefor in accordance with the provisions of this Agreement,
the Common Shares represented thereby will be duly authorized
and validly issued, fully paid and nonassessable, will not
have been issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities
and will conform in all respects to the description thereof
contained in the Prospectus;
(4) Except as disclosed in the Prospectus, to the
best of such counsel's knowledge, there are no outstanding
options, warrants or other rights calling for the issuance of,
and no commitments, plans or arrangements to issue, any shares
of capital stock of the Company or any security convertible
into or exchangeable for capital stock of the Company;
(5) (a) The Registration Statement has become
effective under the Act, and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement or preventing the use of the Prospectus
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
any required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) of the Rules and Regulations
has been made in the manner and within the time period
required by such Rule 424(b);
(b) The Registration Statement, the
Prospectus and each amendment or supplement thereto (except
for the financial statements and schedules included therein as
to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Act
and the Rules and Regulations.
(c) To the best of such counsel's knowledge,
there are no franchises, leases, contracts, agreements or
documents of a character required to be disclosed in the
Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are not disclosed
or filed, as required; and
(d) To the best of such counsel's knowledge,
there are no legal or governmental actions, suits or
proceedings pending or threatened against the Company which
are required to be described in the Prospectus which are not
described as required.
(6) The Company has full right, power and authority
to enter into this Agreement and to sell and deliver the
Common Shares to be sold by it to the several Underwriters;
this Agreement has been duly and validly authorized by all
necessary corporate action by the Company, has been duly and
validly executed and delivered by and on behalf of the
Company, and is a valid and binding agreement of the Company
in accordance with its terms, except as enforceability may be
limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and except as to those provisions
relating to indemnity or contribution for liabilities arising
under the Act as to which no opinion need be expressed; and no
approval, authorization, order, consent, registration, filing,
qualification, license or permit of or with any court,
regulatory, administrative or other governmental body is
required for the execution and delivery of this Agreement by
the Company or the consummation of the transactions
contemplated by this Agreement, except such as have been
obtained and are in full force and effect under the Act and
such as may be required under applicable Blue Sky laws in
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<PAGE> 14
connection with the purchase and distribution of the Common
Shares by the Underwriters and the clearance of such offering
with the NASD;
(7) The execution and performance of this Agreement
and the consummation of the transactions herein contemplated
will not conflict with, result in the breach of, or
constitute, either by itself or upon notice or the passage of
time or both, a default under, any agreement, mortgage, deed
of trust, lease, franchise, license, indenture, permit or
other instrument known to such counsel to which the Company is
a party or by which the Company or any of its property may be
bound or affected which is material to the Company, or violate
any of the provisions of the certificate of incorporation or
bylaws, or other organizational documents, of the Company or,
so far as is known to such counsel, violate any statute,
judgment, decree, order, rule or regulation of any court or
governmental body having jurisdiction over the Company or any
of its property;
(8) The Company is not in violation of its
certificate of incorporation or bylaws, or other
organizational documents, or to the best of such counsel's
knowledge, in breach of or default with respect to any
provision of any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument
known to such counsel to which the Company is a party or by
which it or any of its properties may be bound or affected,
except where such default would not materially adversely
affect the Company; and, to the best of such counsel's
knowledge, the Company is in compliance with all laws, rules,
regulations, judgments, decrees, orders and statutes of any
court or jurisdiction to which it is subject, except where
noncompliance would not materially adversely affect the
Company;
(9) To the best of such counsel's knowledge, no
holders of securities of the Company have rights which have
not been waived to the registration of shares of Common Stock
or other securities, because of the filing of the Registration
Statement by the Company or the offering contemplated hereby;
(10) The statements in the Registration Statement and
Prospectus under the headings "Management," "Certain
Transactions," "Description of Capital Stock" and "Shares
Eligible for Future Sale" and in the Registration Statement in
Items 14 and 15, insofar as they are descriptions of
contracts, agreements or other legal documents or refer to
statements of law or legal conclusions, are accurate and
complete and present fairly the information required to be
shown.
(11) To the best of such counsel's knowledge, this
Agreement and the Stockholders Agreement have been duly
authorized, executed and delivered by or on behalf of each of
the Selling Stockholders; the Agent has been duly and validly
authorized to act as the custodian of the Common Shares to be
sold by each such Selling Stockholder; and the performance of
this Agreement and the Stockholders Agreement and the
consummation of the transactions herein contemplated by the
Selling Stockholders will not result in a breach of, or
constitute a default under, any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument to which
any of the Selling Stockholders is a party or by which any of
the Selling Stockholders or any of their properties may be
bound, or violate any statute, judgment, decree, order, rule
or regulation known to such counsel of any court or
governmental body having jurisdiction over any of the Selling
Stockholders or any of their properties; and to the best of
such counsel's knowledge, no approval, authorization, order or
consent of any court, regulatory body, administrative agency
or other governmental body is required for the execution and
delivery of this Agreement or the Stockholders Agreement or
the consummation by the Selling Stockholders of the
transactions contemplated by this Agreement, except such as
have been obtained and are in full force and effect under the
Act and such as may be required under the rules of the NASD
and applicable Blue Sky laws;
(12) To the best of such counsel's knowledge, the
Selling Stockholders have full right, power and authority to
enter into this Agreement and the Stockholders Agreement and
to sell, transfer and deliver the Common Shares to be sold on
the Second Closing Date by such Selling Stockholders hereunder
and good and marketable title to such Common Shares so sold,
free and clear of all liens,
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<PAGE> 15
encumbrances, equities, claims, restrictions, security
interests, voting trusts, or other defects of title
whatsoever, has been transferred to the Underwriters (whom
counsel may assume to be bona fide purchasers) who have
purchased such Common Shares hereunder;
(13) To the best of such counsel's knowledge, this
Agreement and the Stockholders Agreement are valid and binding
agreements of each of the Selling Stockholders in accordance
with their terms except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors'
rights generally and except with respect to those provisions
relating to indemnities or contributions for liabilities under
the Act, as to which no opinion need be expressed; and
(14) No transfer taxes are required to be paid in
connection with the sale and delivery of the Common Shares to
the Underwriters hereunder.
In rendering such opinion, such counsel may rely as to the
matters set forth in paragraphs (12), (13) and (14), on opinions of other
counsel retained by the Selling Stockholders, as to matters of local law, on
opinions of local counsel, and as to matters of fact, on certificates of the
Selling Stockholders and of officers of the Company and of governmental
officials, in which case their opinion is to state that they are so doing and
that the Underwriters are justified in relying on such opinions or certificates
and copies of said opinions or certificates are to be attached to the opinion.
Such counsel shall also include a statement to the effect that nothing has come
to such counsel's attention that would lead such counsel to believe that either
at the effective date of the Registration Statement or at the applicable Closing
Date the Registration Statement or the Prospectus, or any such amendment or
supplement, contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading;
(ii) An opinion of Sheridan, Ross & McIntosh addressed to the
Underwriters and dated the First Closing Date or the Second Closing
Date, as the case may be, with respect to certain intellectual property
matters, such opinion to be in form and substance satisfactory to
counsel for the Underwriters, and to the effect that:
(1) To the best of such counsel's knowledge, the
Company owns all patents, trademarks, trademark registrations,
service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by it or necessary
for the conduct of its business, and such counsel is not aware
of any claim to the contrary or any challenge by any other
person to the rights of the Company with respect to the
foregoing;
(2) Such counsel is not aware of any legal actions,
claims or proceedings pending or threatened against the
Company alleging that the Company is infringing or otherwise
violating any patents or trade secrets owned by others;
(3) Such counsel has reviewed the descriptions of
patents and patent applications under the captions "Risk
Factors--Limited Protection of Intellectual Property and
Proprietary Rights; Risk of Litigation" and
"Business--Intellectual Property" in the Registration
Statement and Prospectus, and, to the extent they constitute
matters of law or legal conclusions, these descriptions are
accurate in all material respects and fairly and completely
present the patent situation of the Company;
(4) To the best of such counsel's knowledge, for each
patent or patent application filed by the Company or described
in the Prospectus as being owned by it or necessary for the
conduct of its business, the Company has obtained a written
assignment of all rights and title therein to the Company from
all inventors and owners of such patent or patent application
and has properly recorded such written assignment with the
appropriate patent office or governmental agency;
(5) To the best of such counsel's knowledge, for each
copyrightable product described in the Prospectus, the Company
either (i) has registered all copyrights for such product and
has obtained and properly recorded written assignments of all
rights and title therein to the Company from all authors and
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<PAGE> 16
owners of such copyrights other than the Company, including
without limitation any and all independent contractors; or
(ii) was vested with original title to all copyrights for such
product and no written assignments for such copyrights are
required to perfect Company's rights and title thereto; and
(6) To the best of such counsel's knowledge after
review of the file history and patent attorney's file for each
patent or patent application described in the Prospectus as
being owned by the Company or necessary for the conduct of its
business, such counsel is aware of nothing that causes such
counsel to believe that, as of the date of the Registration
Statement became effective and as of the date of such opinion,
the description of patents and patent applications under the
captions "Risk Factors--Limited Protection of Intellectual
Property and Proprietary Rights; Risk of Litigation" and
"Business--Intellectual Property" in the Registration
Statement and Prospectus contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements made therein, in light of the
circumstances under which they were made, not misleading,
including without limitation, any undisclosed material issue
with respect to the subsequent validity or enforceability of
such patent or patent application.
(iii) Such opinion or opinions of Wilson Sonsini Goodrich &
Rosati, P.C., counsel for the Underwriters, dated the First Closing
Date or the Second Closing Date, as the case may be, with respect to
the incorporation of the Company, the sufficiency of all corporate
proceedings and other legal matters relating to this Agreement, the
validity of the Common Shares, the Registration Statement and the
Prospectus and other related matters as you may reasonably require, and
the Company and the Selling Stockholders shall have furnished to such
counsel such documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of enabling them
to pass upon such matters. In connection with such opinions, such
counsel may rely on representations or certificates of officers of the
Company and governmental officials.
(iv) A certificate of the Company executed by the Chairman of
the Board or President and the chief financial or accounting officer of
the Company, dated the First Closing Date or the Second Closing Date,
as the case may be, to the effect that:
(1) The representations and warranties of the Company
set forth in Section 2 of this Agreement are true and correct
as of the date of this Agreement and as of the First Closing
Date or the Second Closing Date, as the case may be, and the
Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied on or
prior to such Closing Date;
(2) The Commission has not issued any order
preventing or suspending the use of the Prospectus or any
Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending
the effectiveness of the Registration Statement has been
issued; and to the best of the knowledge of the respective
signers, no proceedings for that purpose have been instituted
or are pending or contemplated under the Act;
(3) Each of the respective signers of the certificate
has carefully examined the Registration Statement and the
Prospectus; in his opinion and to the best of his knowledge,
the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all statements
required to be stated therein regarding the Company; and
neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral,
transaction or event has occurred which should have been set
forth in an amendment to the Registration Statement or in a
supplement to or amendment of any prospectus which has not
been disclosed in such a supplement or amendment;
(5) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, there has not been any material adverse change or
a development involving a material
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<PAGE> 17
adverse change in the condition (financial or otherwise),
business, properties, results of operations, management or
prospects of the Company; and no legal or governmental action,
suit or proceeding is pending or threatened against the
Company which is material to the Company, whether or not
arising from transactions in the ordinary course of business,
or which may adversely affect the transactions contemplated by
this Agreement; since such dates the Company has not entered
into any verbal or written agreement or other transaction
which is not in the ordinary course of business or incurred
any material liability or obligation, direct, contingent or
indirect, made any change in its capital stock, made any
material change in its short-term debt or funded debt or
repurchased or otherwise acquired any of the Company's capital
stock; and the Company has not declared or paid any dividend,
or made any other distribution, upon its outstanding capital
stock payable to stockholders of record on a date prior to the
First Closing Date or Second Closing Date; and
(6) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, the Company has not sustained a material loss or
damage by strike, fire, flood, windstorm, accident or other
calamity (whether or not insured).
(v) On the Second Closing Date, a certificate, dated such
Closing Date and addressed to you, signed by or on behalf of each of
the Selling Stockholders to the effect that the representations and
warranties of such Selling Stockholder in this Agreement are true and
correct, as if made at and as of the Second Closing Date, and such
Selling Stockholder has complied with all the agreements and satisfied
all the conditions on his part to be performed or satisfied prior to
the Second Closing Date.
(vi) On the date before this Agreement is executed and also
on the First Closing Date and the Second Closing Date, a letter
addressed to you from Price Waterhouse, independent accountants, the
first one to be dated the day before the date of this Agreement, the
second one to be dated the First Closing Date and the third one (in the
event of a Second Closing) to be dated the Second Closing Date, in form
and substance satisfactory to you.
(vii) On or before the First Closing Date, letters from each
of the Selling Stockholders, each holder of the Company's Common Stock
and each director and executive officer of the Company, in form and
substance satisfactory to you, confirming that for a period of 180 days
after the date of the Prospectus, such person or entity will not
directly or indirectly sell or offer to sell or otherwise dispose of
any shares of Common Stock or any right to acquire any such shares
without the prior written consent of Montgomery Securities, which
consent may be withheld at the sole discretion of Montgomery
Securities.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Wilson Sonsini Goodrich & Rosati, P.C., counsel for the Underwriters. The
Company shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any officer of the Company and delivered to the Underwriters or to
counsel for the Underwriters shall be deemed to be a representation and warranty
by the Company to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you to the
Company without liability on the part of any Underwriter or the Company or the
Selling Stockholders except for the expenses to be paid or reimbursed by the
Company and by the Selling Stockholders pursuant to Sections 7 and 9 hereof and
except to the extent provided in Section 11 hereof.
SECTION 9
REIMBURSEMENT OF UNDERWRITERS' EXPENSES
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<PAGE> 18
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriters of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you and the other Underwriters upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by you and them in connection with the proposed purchase and the sale of the
Common Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, telegraph charges and telephone
charges relating directly to the offering contemplated by the Prospectus. Any
such termination shall be without liability of any party to any other party
except that the provisions of this Section , Section 7 and Section 11 shall at
all times be effective and shall apply.
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<PAGE> 19
SECTION 10
EFFECTIVENESS OF REGISTRATION STATEMENT
You, the Company and the Selling Stockholders will use your, its and
their best efforts to cause the Registration Statement to become effective, to
prevent the issuance of any stop order suspending the effectiveness of the
Registration Statement and, if such stop order be issued, to obtain as soon as
possible the lifting thereof.
SECTION 11
INDEMNIFICATION
(a) The Company and each of the Selling Stockholders, jointly and
severally, agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act
against any losses, claims, damages, liabilities or expenses, joint or several,
to which such Underwriter or such controlling person may become subject, under
the Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state in any of them a material
fact required to be stated therein or necessary to make the statements in any
of them not misleading, or arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company or the Selling
Stockholders contained herein or any failure of the Company or the Selling
Stockholders to perform their respective obligations hereunder or under law;
and will reimburse each Underwriter and each such controlling person for any
legal and other expenses as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that (i) neither the Company
nor the Selling Stockholders will be liable in any such case to the extent that
any such loss, claim, damage, liability or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 4
hereof, (ii) each Selling Stockholder shall not be liable under this paragraph
for an amount in excess of the proceeds received by such stockholder with
respect to the Common Shares sold to the Underwriters hereunder, and (iii) with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any Preliminary Prospectus, the indemnity agreement contained
in this subsection (a) shall not inure to the benefit of any Underwriter from
whom the person asserting any such loss, claim, damage or liability purchased
Common Shares to the extent that any such loss, claim, damage or liability of
such Underwriter results from the fact that a copy of the Prospectus was not
sent or given to such person at or prior to the written confirmation of the
sale of such Shares to such person as required by the Act, and if the untrue
statement or omission concerned has been corrected in the Prospectus, unless
such failure is the result of noncompliance by the Company with Section 6(e)
hereof. Notwithstanding the foregoing, no Selling Stockholder shall be required
to provide indemnification pursuant to this Section 11(a) unless the
Underwriter seeking indemnification shall have first made a written demand for
payment to the Company with respect to any losses, claims, damages or
liabilities for which the Company and the Stockholders are required to
indemnify the Underwriters pursuant to this Section 11(a) and the Company
shall have failed to make such demanded payment within sixty (60) days after
receipt thereof. The Company and the Selling Stockholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to their respective amounts of such liability for which they each
shall be responsible. In addition to their other obligations, under this
Section 11(a), the Company and the Selling Stockholders agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, or any inaccuracy in the
representations and warranties of the Company or the Selling Stockholders
herein or failure to perform their obligations hereunder, all as described in
this Section 11(a), they will reimburse each Underwriter on a quarterly basis
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's
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<PAGE> 20
or the Selling Stockholders' obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company and the Selling Stockholders together
with interest, compounded daily, determined on the basis of the prime rate (or
other commercial lending rate for borrowers of the highest credit standing)
announced from time to time by Bank of America NT&SA, San Francisco, California
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to an Underwriter within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which the Company or the Selling
Stockholders may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Stockholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon 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, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and will reimburse the
Company, or any such director, officer, Selling Stockholder or controlling
person for any legal and other expense reasonably incurred by the Company, or
any such director, officer, Selling Stockholder or controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action. In addition to its other
obligations under this Section 11(b), each Underwriter severally agrees that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 11(b)
which relates to information furnished to the Company pursuant to Section 4
hereof, it will reimburse the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) on a quarterly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Company (and, to the extent applicable, each officer, director, controlling
person or Selling Stockholder) for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) shall promptly
return it to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section , notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may
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<PAGE> 21
be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel, approved
by the Underwriters in the case of paragraph (a), representing the indemnified
parties who are parties to such action) or (ii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 11 is required
by its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Stockholders and the Underwriters from the offering of the
Common Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the Selling Stockholders and the Underwriters in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company, the
Selling Stockholders and the Underwriters shall be deemed to be in the same
proportion, in the case of the Company and the Selling Stockholders as the total
price paid to the Company and to the Selling Stockholders, respectively, for the
Common Shares sold by them to the Underwriters (net of underwriting commissions
but before deducting expenses), and in the case of the Underwriters as the
underwriting commissions received by them bears to the total of such amounts
paid to the Company and to the Selling Stockholders and received by the
Underwriters as underwriting commissions. The relative fault of the Company, the
Selling Stockholders and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact or the
inaccurate or the alleged inaccurate representation and/or warranty relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in subparagraph (c) of this Section 11, any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
subparagraph (c) of this Section 11 with respect to notice of commencement of
any action shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be required
with respect to any action for which notice has been given under subparagraph
(c) for purposes of indemnification. The Company, the Selling Stockholders and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 11 were determined solely by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considera-
tions referred to in the immediately preceding paragraph. Notwithstanding the
provisions of this Section 11, no Underwriter shall be required to contribute
any amount in excess of the amount of the total underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 11 are several in proportion to their respective underwriting
commitments and not joint.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 11(a) and 11(b)
hereof, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the
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<PAGE> 22
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Sections 11(a) and 11(b)
hereof and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of such
Sections 11(a) and 11(b) hereof.
SECTION 12
DEFAULT OF UNDERWRITERS
It shall be a condition to this Agreement and the obligation of the
Company and the Selling Stockholders to sell and deliver the Common Shares
hereunder, and of each Underwriter to purchase the Common Shares in the manner
as described herein, that, except as hereinafter in this paragraph provided,
each of the Underwriters shall purchase and pay for all the Common Shares agreed
to be purchased by such Underwriter hereunder upon tender to the Underwriters of
all such shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Common Shares hereunder on
either the First or Second Closing Date and the aggregate number of Common
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of Common
Shares with respect to which such default occurs is more than the above
percentage and arrangements satisfactory to the Underwriters and the Company for
the purchase of such Common Shares by other persons ore not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company or the Selling Stockholders
except for the expenses to be paid by the Company and the Selling Stockholders
pursuant to Section 7 hereof and except to the extent provided in Section 11
hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Underwriters or the Company shall have the right to postpone the First or Second
Closing Date, as the case may be, for not more than five business days in order
that the necessary changes in the Registration Statement, Prospectus and any
other documents, as well as any other arrangements, may be effected. As used in
this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section . Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13
EFFECTIVE DATE
This Agreement shall become effective immediately as to Sections 7, 9,
11, 14 and 16 and, as to all other provisions, (i) if at the time of execution
of this Agreement the Registration Statement has not become effective, at 2:00
P.M., California time, on the first full business day following the
effectiveness of the Registration Statement, or (ii) if at the time of execution
of this Agreement the Registration Statement has been declared effective, at
2:00 P.M., California time, on the first full business day following the date of
execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by release of
any of the Common Shares for sale to the public. For the purposes of this
Section 13, the Common Shares shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Common
Shares or upon the release by you of telegrams (i) advising Underwriters that
the Common Shares are released for public offering, or (ii) offering the Common
Shares for sale to securities dealers, whichever may occur first.
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<PAGE> 23
SECTION 14
TERMINATION
Without limiting the right to terminate this Agreement pursuant to any
other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
and the Selling Stockholders or by you by notice to the Company and the Selling
Stockholders at any time prior to the time this Agreement shall become effective
as to all its provisions, and any such termination shall be without liability on
the part of the Company or the Selling Stockholders to any Underwriter (except
for the expenses to be paid or reimbursed by the Company and the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof) or of any Underwriter to the Company or the
Selling Stockholders (except to the extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
Exchange or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any change in political, financial or economic
conditions shall have occurred or shall have accelerated or escalated to such an
extent, as, in the judgment of the Underwriters, to affect adversely the
marketability of the Common Shares, (iii) if any adverse event shall have
occurred or shall exist which makes untrue or incorrect in any material respect
any statement or information contained in the Registration Statement or
Prospectus or which is not reflected in the Registration Statement or Prospectus
but should be reflected therein in order to make the statements or information
contained therein not misleading in any material respect, or (iv) if there shall
be any action, suit or proceeding pending or threatened, or there shall have
been any development or prospective development involving particularly the
business or properties or securities of the Company or the transactions
contemplated by this Agreement, which, in the judgment of the Underwriters, may
materially and adversely affect the Company's business or earnings and makes it
impracticable or inadvisable to offer or sell the Common Shares. Any termination
pursuant to this subsection (b) shall be without liability on the part of any
Underwriter to the Company or the Selling Stockholders or on the part of the
Company or the Selling Stockholders to any Underwriter (except for expenses to
be paid or reimbursed by the Company and the Selling Stockholders pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof).
(c) This Agreement shall also terminate at 5:00 P.M., California Time,
on the tenth full business day after the Registration Statement shall have
become effective if the initial public offering price of the Common Shares
shall not then as yet have been determined as provided in Section 5 hereof.
Any termination pursuant to this subsection (c) shall be without liability on
the part of any Underwriter to the Company or the Selling Stockholders or on
the part of the Company or the Selling Stockholders to any Underwriter (except
for expenses to be paid or reimbursed by the Company and the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof).
SECTION 15
FAILURE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER
If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Stockholders at the Second Closing Date under the terms of this
Agreement, then the Underwriters may at their option, by written notice from you
to the Company and the Selling Stockholders, purchase the shares which the
Company and other Selling Stockholders have agreed to sell and deliver in
accordance with the terms hereof. In the event of a failure by one or more of
the Selling Stockholders to sell and deliver as referred to in this Section ,
either you or the Company shall have the right to postpone the Second Closing
Date for a period not exceeding seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected.
-23-
<PAGE> 24
SECTION 16
REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers, of the Selling Stockholders
and of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 17
NOTICES
All communications hereunder shall be in writing and, if sent to the
Underwriters shall be mailed, delivered or telegraphed and confirmed to you at
600 Montgomery Street, San Francisco, California 94111, Attention: Joseph
Schell, with a copy to Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill
Road, Palo Alto, California 94304, Attention: Jeffrey D. Saper, Esq.; and if
sent to the Company or the Selling Stockholders shall be mailed, delivered or
telegraphed and confirmed to the Company at 1500 Kansas Avenue, Suite 2E,
Longmont, Colorado 80302, Attention: Howard Kaushansky, Esq., with a copy to
Cooley Godward Castro Huddleson & Tatum, 2595 Canyon Boulevard, Suite 250,
Boulder, Colorado 80302, Attention: James Linfield, Esq. The Company, the
Selling Stockholders or you may change the address for receipt of communications
hereunder by giving notice to the others.
SECTION 18
SUCCESSORS
This Agreement will inure to the benefit of and be binding upon the
parties hereto, including any substitute Underwriters pursuant to Section 12
hereof, and to the benefit of the officers and directors and controlling persons
referred to in Section 11, and in each case their respective successors,
personal representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder. The term "successors" shall not include any purchaser of
the Common Shares as such from any of the Underwriters merely by reason of such
purchase.
SECTION 19
PARTIAL UNENFORCEABILITY
The invalidity or unenforceability of any Section , paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other Section , paragraph or provision hereof. If any Section , paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
-24-
<PAGE> 25
SECTION 20
APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
the internal laws (and not the laws pertaining to conflicts of laws) of the
State of California.
SECTION 21
GENERAL
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in several counterparts, each one of
which shall be an original, and all of which shall constitute one and the same
document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take such action. Any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Stockholders.
-25-
<PAGE> 26
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company, the Selling Stockholders and
the several Underwriters including you, all in accordance with its terms.
Very truly yours,
CORAL SYSTEMS, INC.
By: ____________________________
Title: ___________________________
SELLING STOCKHOLDERS
By: ____________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted by us in
San Francisco, California as of the date first above written.
MONTGOMERY SECURITIES
COWEN & COMPANY
UBS SECURITIES LLC
By: MONTGOMERY SECURITIES
By: ____________________________________
Richard A. Smith, Managing Director
-26-
<PAGE> 27
SCHEDULE A
<TABLE>
<CAPTION>
- Number of Firm
Common-Shares
Name of Underwriter to be Purchased
- ------------------------------------------------------------------------------ ---------------
<S> <C>
Montgomery Securities.........................................................
Cowen & Company...............................................................
UBS Securities LLC............................................................
-----------
TOTAL.....................................
===========
</TABLE>
A-1
<PAGE> 28
SCHEDULE B
<TABLE>
<CAPTION>
- Number of Optional
Common-Shares-to-be-Sold
Name of Selling Stockholder by Selling Stockholders*
- ------------------------------------------------------------------------------- -------------------------
<S> <C>
[to come] -------------
TOTAL.......................................
=============
</TABLE>
- ---------------------------
* In addition, the Company will sell up to _______ Optional Common Shares.
B-1
<PAGE> 1
EXHIBIT 3(i).1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CORAL SYSTEMS, INC.
Coral Systems, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is Coral Systems, Inc.
SECOND: The date of filing of its original Certificate of
Incorporation with the Secretary of State of Delaware was April 6, 1995.
THIRD: The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:
"I.
The name of this Corporation is Coral Systems, Inc.
II.
The address of the registered office of the Corporation in the State of
Delaware is:
The Corporation Trust Company
1209 Orange Street
Wilmington, DE 19801
County of New Castle
The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
III.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares the
<PAGE> 2
corporation is authorized to issue is Forty-five Million (45,000,000) shares,
(i) Thirty Million (30,000,000) shares of which shall be Common Stock (the
"Common Stock") and (ii) Fifteen Million (15,000,000) shares of which shall be
Preferred Stock (the "Preferred Stock"). The Common Stock and the Preferred
Stock shall have a par value of one-tenth of one cent ($.001) per share.
A. COMMON STOCK.
1. Voting Rights. Each holder of Common Stock of record
entitled to vote shall have one vote for each share of stock standing in his
name on the books of the Corporation, except that in the election of directors
he shall have the right to vote such number of shares for as many persons as
there are directors to be elected; provided, however, that the holders of
Common Stock shall not have the right to vote for the directors designated by
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock pursuant to Subsection C(3) of this Article IV. Cumulative voting shall
not be allowed in the election of directors.
B. PREFERRED STOCK. The Preferred Stock shall be divided into series.
The first series shall consist of 2,000,000 shares and is designated "Series A
Preferred Stock." The second series shall consist of 2,083,333 shares and is
designated "Series B Preferred Stock." The third series shall consist of
1,850,000 shares and is designated "Series C Preferred Stock." The remaining
shares of Preferred Stock may be divided into and issued in one or more series
as may be established and determined from time to time by resolution of the
board of directors. The board of directors shall have authority, within the
limitations set forth in the Delaware General Corporation Law and this
Certificate of Incorporation, to fix and determine the relative rights and
preferences of each series so established and the variations in the relative
rights and preferences as between series. Notwithstanding anything in this
Certificate of Incorporation, and in particular but without limitation Article
IV.C.3.d., to the contrary, the Board of Directors shall have the authority
without stockholder approval to designate a series of Preferred Stock
subsequent to the Series C Preferred Stock for issuance only to Cincinnati Bell
Information Systems Inc. or its successor or permitted assignee (the "Series C
Holder") with attributes substantially the same as the Series C Preferred Stock
but at a price and all associated price terms to be determined as set forth in
Article VI of that certain Amended and Restated Investor Rights Agreement,
dated as of March 15, 1996, by and among the Corporation, the Series C Holder
and the other parties set forth therein (the "Option").
Each series of Preferred Stock shall be so designated as to
distinguish it from the shares of all other series and classes. All shares of
any one series shall be identical in all respects with all other shares of the
same series. All series of Preferred Stock shall be identical with each other,
except that there may be variation as to the relative rights and preferences of
each series with respect to the following: (a) the number of shares initially
constituting such series and the distinctive designation of such series; (b)
the rate of dividend, time of payment of dividends, whether dividends are
cumulative and the date from which any dividends shall accrue; (c) whether
shares may be redeemed and, if so, the redemption price and the terms and
conditions of redemption; (d) the priority, if any, and the amount payable upon
shares in the
2
<PAGE> 3
event of liquidation (voluntary or involuntary); (e) sinking fund provisions,
if any, for the redemption or purchase of shares and the terms and amount of
any such fund; (f) the terms and conditions on which shares may be converted if
the shares of any series are issued with the privilege of conversion; and (g)
voting rights, if any, in addition to those provided by law.
Prior to the issuance of any shares of Preferred Stock of any
series authorized as hereinbefore provided, a statement setting forth a copy of
the resolution or resolutions with respect to such series adopted by the board
of directors of the Corporation pursuant to the foregoing authority vested in
said board shall be made and filed in accordance with the then applicable
requirements of the Delaware General Corporation Law.
The number of authorized shares of stock of any series may be
increased or decreased (but not below the number of shares thereof then
outstanding) by resolution or resolutions of the board of directors and the
filing of a statement complying with the foregoing requirements.
Subject to Section C.2 hereof, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of each series of Preferred Stock shall be entitled to such rights
as the Board of Directors in establishing such series shall determine. If the
assets of the Corporation distributable to the holders of the Preferred Stock
are not sufficient to pay the holders of each series in full in accordance with
the terms fixed for each series, holders of all shares of Preferred Stock shall
participate ratably in the distribution of assets in proportion to the full
amounts to which they are entitled, except that if any series, by the terms
fixed therefor, has a liquidation preference over any other series, the amount
distributable shall first be applied, on the same principle, to all such series
in order of preference.
C. RIGHTS AND PREFERENCES OF PREFERRED STOCK
1. Dividends. The holders of the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock shall be entitled to
receive, out of funds legally available therefor, dividends at the same rate as
dividends (other than dividends paid in additional shares of Common Stock) are
paid with respect to the Common Stock (treating each share of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock as being
equal to the number of shares of Common Stock into which each such share of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
could be converted pursuant to the provisions of Subsection 4 of this Section
C, as applicable, with such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend).
Such dividends shall be payable only when, as and if declared by the Board of
Directors. So long as any shares of Series B Preferred Stock or Series C
Preferred Stock shall be outstanding no dividend, whether in cash or property,
shall be paid or declared, on the Common Stock or any series of Preferred Stock
unless comparable dividends are paid on all of the Series B Preferred Stock and
Series C Preferred Stock (treating each share of Preferred Stock as being equal
to the number of shares of Common Stock into which each share of such
3
<PAGE> 4
Preferred Stock could be converted pursuant to the provisions of Subsection 4
hereof with such number determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend).
2. Liquidation.
a. In the event of a liquidation, dissolution or winding
up of the Corporation, the Series C Holder shall have a right of first refusal
(the "Right of First Refusal") to purchase the Intellectual Property of the
Corporation at fair market value prior to the payment of any liquidation
preferences and the proceeds received by the Corporation pursuant to such
purchase shall be distributed as provided herein; provided, however, that none
of the events described in Section 2.c hereof shall be deemed to be a
liquidation, dissolution or winding up for purposes of this Right of First
Refusal. Upon the occurrence of an event of liquidation, dissolution or
winding up of the Corporation, the Corporation promptly shall provide written
notice of such event to the Series C Holder. The Series C Holder must provide
written notice of its intent to exercise the Right of First Refusal within
thirty (30) days of the date of the notice provided by the Corporation. As
used herein, "Intellectual Property" shall mean each domestic and foreign
letter patent, patent application, patent license, software license, trade
name, trademark, unpatented invention, service mark, trademark registration,
trademark application, service mark registration, service mark application,
registered copyright, copyright registrations applied for and all copyrights in
software (whether registered or not), as are owned by, registered in the name
of, or licensed to and used by the Corporation in its business. The fair
market value of the Intellectual Property shall be determined by the
Corporation and the Purchaser. If the Corporation and the Purchaser cannot
agree upon a fair market value within thirty (30) days of the date of the
notice provided by the Purchaser to the Corporation, the parties shall mutually
agree upon an independent third party appraiser with experience in valuing
intellectual property of software companies who shall determine the fair market
value within thirty (30) days. If the parties cannot agree within fifteen (15)
days upon such independent third party appraiser, such appraiser shall be
selected by the American Arbitration Association. If either party disagrees
with the fair market value as determined by such appraiser, then the
Corporation and the Purchaser shall mutually agree upon a second appraiser in
accordance with the foregoing procedure. If the two appraisers cannot agree
upon a fair market value within thirty (30) days, the two appraisers shall
appoint a third appraiser who shall determine the fair market value within
thirty (30) days. The decision of the third appraiser shall be final and
binding. The cost of the appraisal shall be borne by the Corporation. The
closing of the purchase of the Intellectual Property shall take place on the
thirtieth (30th) day following the determination of the fair market value as
provided above at a time and place mutually agreeable to the parties.
b. In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the holders of the
Series C Preferred Stock shall be entitled to be paid prior and in preference
to any distribution of any assets, capital, surplus or earnings of the
Corporation to the holders of the Common Stock of the Corporation or any other
class of capital stock of the Corporation (including without limitation, the
Series B Preferred
4
<PAGE> 5
Stock and Series A Preferred Stock) out of the assets of the Corporation
available for distribution to its shareholders, an amount equal to $2.3207 per
share for each share of the Series C Preferred Stock then held by them
(adjusted for any stock split, combination, consolidation, or stock
distributions or stock dividends with respect to such shares) together with an
amount equal to all accrued and unpaid dividends with respect to shares of the
Series C Preferred Stock.
If upon the occurrence of such event, the assets and funds thus
distributable among the holders of the Series C Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series C Preferred Stock in proportion to the amount of such
stock owned by each such holder. After the payment in full of the liquidation
preference on the Series C Preferred Stock, before any distribution or payment
shall be made to any holders of Series A Preferred Stock or any Common Stock,
the holders of the Series B Preferred Stock shall be entitled to be paid out
the assets of the Corporation available for distribution to its shareholders,
an amount equal to $2.16 per share for each share of Series B Preferred Stock
then held by them (adjusted for any stock split, combination, consolidation, or
stock distributions or stock dividends with respect to such shares), plus
accrued and unpaid dividends, if any, on such shares, and no more, before any
payment shall be made or any assets distributed to the holders of the Series A
Preferred Stock or the Common Stock. If upon the occurrence of such event, the
assets and funds thus distributable among the holders of the Series B Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, subject to the rights of series Preferred
Stock which may from time to time come into existence, the entire assets and
funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series B Preferred Stock in
proportion to the amount of such stock owned by each such holder. Following
such distribution to the holders of the Series B Preferred Stock and Series C
Preferred Stock, the holders of the Series A Preferred Stock shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its shareholders, an amount equal to $1.00 per share for each share of Series A
Preferred Stock then held by them (adjusted for any stock split, combination,
consolidation, or stock distributions or stock dividends with respect to such
shares), plus accrued and unpaid dividends, if any, on such shares, and no
more, before any payment shall be made or any assets distributed to the holders
of the Common Stock. If upon the occurrence of such event, the assets and
funds thus distributable among the holders of Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the amount of such
stock owned by each such holder. Following such distribution to the holders of
the Series A Preferred Stock and Series B Preferred Stock and Series C
Preferred Stock, the holders of the Corporation's Common Stock shall be
entitled to receive out of the remaining assets of the Corporation available
for distribution an amount equal to $.33 per share. If upon the occurrence of
such event, the assets and funds thus distributable among the holders of the
Common Stock shall be insufficient to permit the payment to such holders of the
full aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Common Stock in
5
<PAGE> 6
proportion to the amount of such stock owned by each such holder. After
payment in full of the above rights to the holders of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock and the
Common Stock, the entire remaining assets and funds of the Corporation legally
available for distribution, if any, shall be distributed among the holders of
the Common Stock, the Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock in proportion of the number shares of Common
Stock then held by them (treating each share of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock as being equal to the
number of shares of Common Stock into which each such share of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, as
applicable, could be converted pursuant to the provisions of Subsection 4 of
this Section C, with such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such amounts).
c. A consolidation or merger (other than a merger where
the Corporation is the surviving entity and at least a majority of the
aggregate outstanding capital stock (on a fully diluted basis) of the surviving
entity is owned immediately after such merger by shareholders of the
Corporation immediately prior to such merger) of this Corporation with or into
any other corporation or entity (other than a wholly-owned subsidiary), or the
sale, transfer or other disposition of all or substantially all of the assets
of this Corporation or the effectuation by the Corporation of a transaction or
series of related transactions in which more than 51% of the voting power of
the Corporation is disposed of shall be deemed to be a liquidation, dissolution
or winding up within the meaning of this Subsection 2.
3. Voting Rights.
a. Each holder of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall have one vote for each share
(but not for any fractional share) of Common Stock that such holder would then
be entitled to receive if he were to convert his shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock as applicable, into
shares of Common Stock pursuant to Subsection 4 of this Section C and shall
have the right to vote on all matters in like manner as the holders of the
Corporation's Common Stock, except for the election of directors. Except as
may be otherwise required by law or set forth herein, the holders of the Series
A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock and
the holders of the Common Stock shall at all times vote together as one class
and the Preferred Stock shall otherwise have the same voting rights of the
Common Stock. In addition to the foregoing voting rights, the holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
shall also have the special voting rights set forth in this Subsection 3.
Cumulative voting shall not be allowed in the election of directors or for any
other purpose.
b. So long as any shares of Series B Preferred Stock are
outstanding, the Corporation's Board of Directors shall consist of seven
members and the holders of the Series B Preferred Stock, voting separately as a
single class, shall be entitled to elect two directors. So long as any shares
of Series C Preferred Stock are outstanding, the Corporation's
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Board of Directors shall consist of seven members and the holders of Series C
Preferred Stock, voting separately as a class, shall be entitled to elect one
director. So long as any shares of Series A Preferred Stock are outstanding,
the holders of the Series A Preferred Stock, voting separately as a class,
shall be entitled to elect one director. The holders of the Common Stock, as a
class, shall be entitled to elect three members of the Board of Directors
provided, however, that one such director shall be an independent director with
no affiliation with the Corporation or any of its executive officers. Until
the Series C Preferred Qualified Public Offering (as defined in Subsection
4.b(2) hereof), in the event that (i) the Board of Directors shall consist of
greater than seven members and (ii) the Series C Holder shall have purchased
all of the shares of Preferred Stock that it is entitled to purchase under the
Option, the Series C Holder shall be entitled to elect that number of members
of the Board of Directors (the "Number of Series C Directors") equal to the
product obtained by multiplying (x) the number of Equity Securities On A Fully
Diluted Basis owned by the Series C Holder divided by the number of Equity
Securities On A Fully Diluted Basis both outstanding as of a certain date, by
(y) the total number of members of the Board of Directors as of such certain
date; provided that if the product of the foregoing clauses (x) and (y) shall
include a fractional number, the Number of Series C Directors shall be rounded
to the nearest whole number and provided further that if the resulting Number
of Series C Directors has the effect of reducing the number of directors
elected by stockholders other than elected hereunder by the Series C Holder,
then the number of directors shall be increased by that number of directors
necessary to enable the holders of the Series C Preferred Stock, the Series B
Preferred Stock, the Series A Preferred Stock and the Common Stock to elect
such number of directors as is set forth in this Subsection 3.b. The Number of
Series C Directors shall be calculated in accordance with the foregoing only
upon the date upon which the conditions set forth in clauses (i) and (ii) of
this paragraph are first met.
c. For purposes of Subsection 3.b hereof, the following
terms are defined as hereinafter set forth. "Equity Securities" shall mean (i)
any stock or similar security of the Corporation, (ii) any security
convertible, with or without consideration, into any stock or similar security
(including any option to purchase such a convertible security), (iii) any
security carrying any warrant or right to subscribe to or purchase any stock or
similar security or (iv) any such warrant or right. "On A Fully Diluted Basis"
shall refer to the number of shares of Common Stock of the Corporation which
would be outstanding and issued assuming that all shares of Common Stock which
are issuable (i) upon the conversion or exchange of the Corporation's
outstanding convertible or exchangeable securities, including notes and
debentures, and (ii) upon the exercise of the Corporation's outstanding options
and warrants for the purchase of Common Stock and rights to subscribe for or
purchase Common Stock, were in fact issued.
d. So long as any Series A Preferred Stock is outstanding
with respect to the vote of holders of Series A Preferred Stock, so long as any
Series B Preferred Stock is outstanding with respect to the vote of holders of
Series B Preferred Stock and so long as the Series C Preferred Stock is
outstanding with respect to the vote of holders of Series C Preferred Stock,
the Corporation shall not:
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<PAGE> 8
(1) without the affirmative vote or written consent
of the holders of at least a majority of the then outstanding shares of Series
A Preferred Stock, the then outstanding shares of Series B Preferred Stock and
the then outstanding shares of Series C Preferred Stock (adjusted appropriately
for stock splits, stock dividends and the like and treating each share of
Preferred Stock as being equal to the number of shares of Common Stock into
which each such share of Preferred Stock could then be converted pursuant to
the provisions of Subsection 4 of this Section C), voting together as a single
class, authorize any (a) consolidation or merger of the Corporation with or
into any other corporation or entity (other than (A) a merger where at least a
majority of the aggregate outstanding capital stock (On A Fully Diluted Basis)
of the surviving entity is owned immediately after such merger by shareholders
of the Corporation immediately prior to such merger and (B) a merger into or
with a wholly-owned subsidiary of the Corporation with the requisite
shareholder approval); (b) the sale, lease or disposal of all or substantially
all of its assets, or any assets that are necessary for the conduct of the
Corporation's business; or (c) the dissolution, liquidation or winding up of
the Corporation;
(2) without the affirmative vote or written consent
of the holders of a majority of the of the then outstanding shares of Series A
Preferred Stock, voting separately as a class, (a) alter or change, the
preferences, special rights or powers given to the Series A Preferred Stock; or
(b) create any class of stock ranking equal or prior to the Series A Preferred
Stock as to dividends or upon liquidation;
(3) without the affirmative vote or written consent
of the holders of a majority of the then outstanding shares of the Series B
Preferred Stock, voting separately as a class, (adjusted appropriately for
stock splits, stock dividends and the like), authorize or issue any other
equity security senior to or on a parity with the Series B Preferred Stock as
to liquidation preferences, redemptions, or dividend rights or with any special
voting rights; or
(4) without the affirmative vote or written consent
of the holders of a majority of the then outstanding shares of the Series C
Preferred Stock, voting separately as a class (adjusted appropriately for stock
splits, stock dividends and the like), authorize or issue any other equity
security senior to or on a parity with the Series C Preferred Stock as to
liquidation preferences, redemptions, or dividend rights or with any special
voting rights.
4. Conversion.
a. Optional Conversion. The holders of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall
have the right, at their option, to convert shares of the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as applicable,
into shares of the Common Stock of the Corporation at any time and from time to
time on the following terms and conditions:
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<PAGE> 9
(1) Shares of the Series A Preferred Stock shall be
converted upon the written election of the holder thereof at the office of the
Corporation or any transfer agent for such stock, into shares of the Common
Stock at a conversion price equal to $1.00 per share of Common Stock, such that
as of February 16, 1995 each share of Series A Preferred Stock shall be
convertible into one share of Common Stock, which rate shall be adjusted as
hereinafter provided (and, as so adjusted, is hereinafter referred to as the
"Series A Conversion Rate").
(2) Each share of Series B Preferred Stock shall be
converted, at the written election of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any
transfer agent for such stock, into such number of shares of Common Stock as is
determined by dividing $2.16 by the Series B Conversion Price applicable to
such share, determined as hereinafter provided, in effect on the date the
certificate is surrendered for conversion (the "Series B Conversion Rate").
The price at which shares of Common Stock shall be deliverable upon conversion
of shares of the Series B Preferred Stock (the "Series B Conversion Price")
shall initially be $1.08 per share of Common Stock. Such initial Series B
Conversion Price shall be adjusted as hereinafter provided.
(3) Each share of Series C Preferred Stock shall be
converted, at the written election of the holder thereof, at any time after the
date of the issuance of such share, at the office of the Corporation or any
transfer agent for such stock into such number of shares of Common Stock as is
determined by dividing $2.3207 by the Series C Conversion Price applicable to
such share, determined as hereinafter provided, in effect on the date the
certificate is surrendered for conversion (the "Series C Conversion Rate").
The Series C Conversion Price shall initially be $2.3207 per share of Common
Stock for purposes of determining the number of shares of Common Stock set
forth in the immediately preceding sentence. Such initial Series C Conversion
Price shall be adjusted as hereinafter provided.
b. Automatic Conversion. Each share of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall
automatically be converted on the following terms and conditions:
(1) Each share of Series A Preferred Stock and Series
B Preferred Stock shall automatically be converted into shares of the
Corporation's Common Stock at the Series A Conversion Rate or Series B
Conversion Rate, as applicable, upon the earlier to occur of (i) the closing of
the sale of the Corporation's Common Stock in a firm commitment, underwritten
public offering registered under the Securities Act of 1933, as amended, (other
than a registration relating solely to a transaction under Rule 145 of such act
(or any successor thereto) or to an employee benefit plan of the Corporation),
at a public offering price, equal to or exceeding a price five times the then
applicable Series B Conversion Price and the aggregate gross proceeds to the
Corporation and/or any selling stockholders of which equal or exceed $7,500,000
(a "Qualified Public Offering"); and (ii) with respect to the Series A
Preferred Stock, the date specified by vote or written consent or agreement of
holders of a majority of the then outstanding shares of the Series A Preferred
Stock to exercise their conversion right and, with
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<PAGE> 10
respect to the Series B Preferred Stock, the date specified by vote or written
consent or agreement by holders of a majority of the then outstanding shares of
the Series B Preferred Stock.
(2) Each share of Series C Preferred Stock shall
automatically be converted into shares of the Corporation's Common Stock at the
Series C Conversion Rate upon the earlier to occur of (i) the closing of the
sale of the Corporation's Common Stock in a firm commitment, underwritten
public offering registered under the Securities Act of 1933, as amended, (other
than a registration relating solely to a transaction under Rule 145 of such act
(or any successor thereto) or to an employee benefit plan of the Corporation),
at a public offering price with aggregate gross proceeds to the Corporation
and/or any selling stockholders which equal or exceed $15,000,000; provided,
however, that the number of shares sold in such public offering shall not be
less than fifteen percent (15%) of the Corporation's Equity Securities
outstanding immediately after such public offering (a "Series C Preferred
Qualified Public Offering") and (ii) the date specified by vote or written
consent or agreement of holders of a majority of the then outstanding shares of
the Series C Preferred Stock to exercise their conversion right.
c. Fractional Shares. The Corporation shall not issue, in
connection with the conversion of shares of the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, certificates for
fractions, but in lieu thereof shall pay to any person who would otherwise be
entitled thereto an amount of cash equal to such fraction multiplied by the
fair value of the Common Stock, as determined by the Board of Directors, whose
determination shall be conclusive.
d. Effective Date of Conversion. The issuance by the
Corporation of shares of Common Stock upon a conversion of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock into shares of
Common Stock made at the option of the holder thereof pursuant to Subsection
4.a hereof shall be effective as of the date of the surrender of the
certificate or certificates for the Series A Preferred Stock, Series B
Preferred Stock, or Series C Preferred Stock to be converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto). The issuance by the Corporation of shares of Common
Stock upon a conversion of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock into Common Stock pursuant to Subsection 4.b hereof
shall not be deemed to be effective until immediately prior to the closing of
the Qualified Public Offering or the Series C Preferred Qualified Public
offering, as the case may be. On and after the effective date of conversion,
the person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock. If surrendered certificates for the Series A
Preferred Stock, the Series B Preferred Stock or Series C Preferred Stock are
converted only in part, the Corporation will issue and deliver to the holder,
or to his nominee or nominees, a new certificate or certificates representing
the aggregate of the unconverted shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock.
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e. Adjustments to Series A Conversion Rate. The Series A
Conversion Rate shall be subject to adjustment as follows:
(1) In case the Corporation shall (i) pay a dividend
or make a distribution on its Common Stock in shares of the Common Stock of the
Corporation, (ii) subdivide or split its outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, the
Series A Conversion Rate following the effective date of such event shall be
equal to the product of the Series A Conversion Rate in effect immediately
prior to such adjustment multiplied by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares outstanding immediately
prior to such event. In the case of any such dividend or distribution that is
made in shares of capital stock other than Common Stock, there shall be no
adjustment in the Series A Conversion Rate at which the Series A Preferred
Stock is convertible into Common Stock, but a separate conversion rate shall be
established to express the number of shares of such other capital stock
issuable upon conversion of a share of Series A Preferred Stock and such
separate conversion rate shall thereafter be subject to adjustment as provided
in this Subsection 4.e, mutatis mutandis.
(2) Whenever the Series A Conversion Rate is adjusted
as herein provided, the Corporation shall prepare a certificate setting forth
such adjustment and showing in detail the facts upon which such adjustment is
based, and such certificate shall then be delivered to the holders of record of
the Series A Preferred Stock.
(3) The adjustments herein provided for shall become
effective immediately following the record date for any event for which a
record date is designated and on the effective date for any other event.
f. Adjustments to Series B Conversion Price. The Series B
Conversion Price in effect from time to time shall be subject to adjustment so
long as any shares of Series B Preferred Stock are then issued and outstanding
as follows:
(1) Stock Dividends, Subdivisions and Combinations.
Upon the issuance after the Original Issue Date of Additional Shares of Common
Stock as a dividend or other distribution on outstanding Common Stock, the
subdivision of outstanding shares of Common Stock into a greater number of
shares of Common Stock, or the combination of outstanding shares of Common
Stock into a smaller number of shares of the Common Stock, the Series B
Conversion Price shall, simultaneously with the happening of such dividend,
subdivision or split be adjusted by multiplying the then effective Series B
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this Subsection
4.f(1) shall be given effect, upon payment of such a dividend or distribution,
as of the record date for the determination of stockholders entitled to receive
such dividend or distribution
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(on a retroactive basis) and in the case of a subdivision or combination shall
become effective immediately as of the effective date thereof.
(2) Sale of Common Stock.
(a) Special Definitions. For purposes of this
Subsection 4.f(2), the following definitions shall apply:
(i) "Option" shall mean contractual
rights, options or warrants to subscribe for, purchase or otherwise acquire
either Common Stock or Convertible Securities.
(ii) "Original Issue Date" shall mean the
date on which shares of Series B Preferred Stock were first issued by the
Corporation.
(iii) "Convertible Securities" shall mean
any evidences of indebtedness, shares (other than Common Stock, Series B
Preferred Stock and Series C Preferred Stock) or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
(iv) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Subsection
4.f(2)(c), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable:
(A) pursuant to Options (except
rights to stock granted pursuant to that certain letter agreement between the
Corporation and Thomas G. Washing dated as of 03/01/95) or Convertible
Securities (except that certain promissory note to CSC dated as of 12/13/92)
outstanding on the Original Issue Date;
(B) upon conversion of shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
authorized herein;
(C) to directors, officers or
employees of, or consultants to, the Corporation pursuant to a stock grant or
option plan or other employee stock incentive program (collectively, the
"Plans") approved by the Board of Directors, subject to adjustment for all
subdivisions and combinations, up to a maximum of three hundred forty-seven
thousand, eight hundred seventy-four (347,874) shares of Common Stock (net of
any repurchases of such shares or cancellations or expirations of options);
(D) as a dividend or distribution on
the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock, or upon any event for which adjustment is made pursuant to Subsection
4.f(1); or
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(E) by way of dividend or other
distribution on shares excluded from the definition of Additional Shares of
Common Stock by the foregoing clauses (A), (B), (C) or (D) or this clause (E)
or on shares of Common Stock so excluded; or
(F) pursuant to a merger or
acquisition approved by the Board of Directors.
(b) No Adjustment of Conversion Price. No
adjustment in the Series B Conversion Price shall be made in respect of the
issuance of Additional Shares of Common Stock unless the consideration per
share for an Additional Share of Common Stock issued or deemed to be issued by
the Corporation is less than the Series B Conversion Price in effect on the
date of, and immediately prior to, the issue of such Additional Shares.
(c) Issue of Securities Deemed Issue of
Additional Shares of Common Stock. In the event the Corporation at any time or
from time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(i) no further adjustment in the
Series B Conversion Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(ii) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation or in
the number of shares of Common Stock issuable upon the exercise, conversion or
exchange thereof, the applicable Series B Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(iii) upon the expiration of any such
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Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Series B Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange, and
(B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for the Additional
Shares of Common Stock actually deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration actually received by
the Corporation upon the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(iv) no readjustment pursuant to
clause (ii) above shall have the effect of increasing the Series B Conversion
Price to an amount which exceeds the lower of (x) such Conversion Price on the
original adjustment date, or (y) such Conversion Price that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.
(v) in the case of any Options which
expire by their terms not more than thirty (30) days after the date of issue
thereof, no adjustment of the Series B Conversion Price shall be made until the
expiration or exercise of all such Options; whereupon such adjustment shall be
made in the same manner provided in Subsection 4.f(2)(c)(iii).
(d) Adjustment of Conversion Price Upon Issuance
of Additional Shares of Common Stock. In the event this Corporation shall
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Subsection 4.f(2)(c) without
consideration or for a consideration per share less than the Series B
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Series B Conversion Price, as applicable, shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Series B Conversion Price then in effect by
a fraction, the numerator of which shall be the number of
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shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common Stock so
issued would purchase at such Series B Conversion Price, as applicable; and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued; and provided further that, for the purposes of this
Subsection 4.f(2)(d), all shares of Common Stock issuable upon exercise or
conversion of outstanding Options and Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall be deemed to be outstanding,
and immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Subsection 4.f(2)(c), such Additional Shares of Common Stock shall
be deemed to be outstanding.
(e) Determination of Consideration. For
purposes of this Section 4.f(2), the consideration received by the Corporation
for the issue of any Additional Shares of Common Stock shall be computed as
follows:
(i) Cash and Property. Such consideration
shall:
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, the proportion
of such consideration so received, computed as provided in clauses (A) and (B)
above, as determined in good faith by the Board of Directors.
(ii) Options and Convertible Securities.
The consideration per share received by the Corporation for Additional Shares
of Common Stock deemed to have been issued pursuant to Subsection 4.f(2)(c),
relating to Options and Convertible Securities, shall be determined by
dividing:
(A) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
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adjustment of such consideration) payable to the Corporation upon the exercise
of such Options or the conversion or exchange of such Convertible Securities,
or in the case of Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the conversion or exchange of such
Convertible Securities, by
(B) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
g. Adjustments to Series C Conversion Price. The Series C
Conversion Price in effect from time to time shall be subject to adjustment so
long as any shares of Series C Preferred Stock are then issued and outstanding
as follows:
(1) Stock Dividends, Subdivisions and Combinations.
Upon the issuance after the Original Issue Date of Additional Shares of Common
Stock as a dividend or other distribution on outstanding Common Stock, the
subdivision of outstanding shares of Common Stock into a greater number of
shares of Common Stock, or the combination of outstanding shares of Common
Stock into a smaller number of shares of the Common Stock, the Series C
Conversion Price shall, simultaneously with the happening of such dividend,
subdivision or split be adjusted by multiplying the then effective Series C
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this Subsection
4.g(1) shall be given effect, upon payment of such a dividend or distribution,
as of the record date for the determination of stockholders entitled to receive
such dividend or distribution (on a retroactive basis) and in the case of a
subdivision or combination shall become effective immediately as of the
effective date thereof.
(2) Sale of Common Stock.
(a) Special Definitions. For purposes of this
Subsection 4.g(2), the following definitions shall apply:
(i) "Option" shall mean contractual
rights, options or warrants to subscribe for, purchase or otherwise acquire
either Common Stock or Convertible Securities.
(ii) "Original Issue Date" shall mean the
date on which shares of Series C Preferred Stock were first issued by the
Corporation.
(iii) "Convertible Securities" shall mean
any evidences of indebtedness, shares (other than Common Stock and Series C
Preferred Stock) or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
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(iv) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Subsection
4.g(2)(c), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable:
(A) pursuant to Options or
Convertible Securities (except that certain promissory note to CSC dated as of
12/13/92) outstanding on the Original Issue Date;
(B) upon conversion of shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
authorized herein;
(C) to directors, officers or
employees of, or consultants to, the Corporation pursuant to a stock grant or
option plan or other employee stock incentive program (collectively, the
"Plans") approved by the Board of Directors, subject to adjustment for all
subdivisions and combinations, up to a maximum of five hundred eighty-seven
thousand, four hundred sixty-four (587,464) shares of Common Stock (net of any
repurchases of such shares or cancellations or expirations of options);
(D) as a dividend or distribution on
the Series A Preferred Stock or Series B Preferred Stock or Series C Preferred
Stock, or upon any event for which adjustment is made pursuant to Subsection
4.g(1); or
(E) by way of dividend or other
distribution on shares excluded from the definition of Additional Shares of
Common Stock by the foregoing clauses (A), (B), (C) or (D) or this clause (E)
or on shares of Common Stock so excluded; or
(F) pursuant to a merger or
acquisition approved by the Board of Directors.
(b) No Adjustment of Conversion Price. No
adjustment in the Series C Conversion Price shall be made in respect of the
issuance of Additional Shares of Common Stock unless the consideration per
share for an Additional Share of Common Stock issued or deemed to be issued by
the Corporation is less than the Series C Conversion Price in effect on the
date of, and immediately prior to, the issue of such Additional Shares.
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(c) Issue of Securities Deemed Issue of
Additional Shares of Common Stock. In the event the Corporation at any time or
from time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(i) no further adjustment in the
Series C Conversion Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(ii) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation or in
the number of shares of Common Stock issuable upon the exercise, conversion or
exchange thereof, the applicable Series C Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(iii) upon the expiration of any such
Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Series C Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange, and
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(B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for the Additional
Shares of Common Stock actually deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration actually received by
the Corporation upon the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(iv) no readjustment pursuant to
clause (ii) above shall have the effect of increasing the Series C Conversion
Price to an amount which exceeds the lower of (x) such Conversion Price on the
original adjustment date, or (y) such Conversion Price that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.
(v) in the case of any Options which
expire by their terms not more than thirty (30) days after the date of issue
thereof, no adjustment of the Series C Conversion Price shall be made until the
expiration or exercise of all such Options; whereupon such adjustment shall be
made in the same manner provided in Subsection 4.g(2)(c)(iii).
(d) Adjustment of Conversion Price Upon Issuance
of Additional Shares of Common Stock. In the event this Corporation shall
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Subsection 4.g(2)(c) without
consideration or for a consideration per share less than the Series C
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Series C Conversion Price, as applicable, shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Series C Conversion Price then in effect by
a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of shares of
Common Stock which the aggregate consideration received by the Corporation for
the total number of Additional Shares of Common Stock so issued would purchase
at such Series C Conversion Price, as applicable; and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued;
and provided further that, for the purposes of this Subsection 4.g(2)(d), all
shares of Common Stock issuable upon exercise or conversion of outstanding
Options and Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be deemed to be outstanding, and immediately after any
Additional Shares of Common Stock are deemed issued pursuant to Subsection
4.g(2)(c), such Additional Shares of Common Stock shall be deemed to be
outstanding.
(e) Determination of Consideration. For
purposes of this Section 4.g(2), the consideration received by the Corporation
for the issue of any Additional Shares of Common Stock shall be computed as
follows:
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(i) Cash and Property. Such consideration
shall:
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(A) and (B) above, as determined in good faith by the Board of Directors.
(ii) Options and Convertible Securities.
The consideration per share received by the Corporation for Additional Shares
of Common Stock deemed to have been issued pursuant to Subsection 4.g(2)(c),
relating to Options and Convertible Securities, shall be determined by
dividing:
(A) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration) payable to the Corporation upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by
(B) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
h. Reservation of Shares. So long as any shares of the
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
remain outstanding, and the holders thereof have the right to convert them into
shares of Common Stock, the Corporation shall reserve from the authorized and
unissued shares of its Common Stock a sufficient number of shares to provide
for such conversion.
i. Status of Converted Shares. Shares of the Series A
Preferred Stock and Series B Preferred Stock and Series C Preferred Stock that
have been converted as
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provided herein shall revert to the status of authorized but unissued shares of
the Series A Preferred Stock or Series B Preferred Stock or Series C Preferred
Stock, as applicable.
j. Other Adjustments. In the event the Corporation shall
make or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event lawful and adequate provision shall be made so that the holders
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock shall receive upon conversion thereof in addition to the number of
shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock , as applicable, been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the effective
conversion date of their Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, as applicable, retained such securities receivable by
them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 4 as applied to such
distributed securities.
If the Common Stock issuable upon the conversion of the
Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred
Stock, shall be changed into the same or different number of shares of any
class or classes of stock, whether by reclassification or otherwise (other than
a subdivision or combination of shares or stock dividend provided for above, or
a reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 4), then and in each such event the holder of each
share of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as applicable, shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
as applicable, might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment
as provided herein.
k. Mergers and Other Reorganizations. If at any time or
from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 4) or a merger or consolidation of the
Corporation with or into another corporation or the sale of all or
substantially all of the Corporation's properties and assets to any other
person, then, as a part of and as a condition to the effectiveness of such
reorganization, merger, consolidation or sale, lawful and adequate provision
shall be made so that the holders of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, as applicable, the number of shares of stock
or other securities or property of the Corporation or of the successor
corporation resulting from such merger or consolidation or sale, to which a
holder of Common Stock deliverable upon conversion would have been entitled on
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such capital reorganization, merger, consolidation, or sale. In any such case,
appropriate provisions shall be made with respect to the rights of the holders
of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 4 (including without limitation
provisions for adjustment of the Series A Conversion Rate, Series B Conversion
Rate and Series C Conversion Rate and the number of shares purchasable upon
conversion of the Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock) shall thereafter be applicable, as nearly as may be, with
respect to any shares of stock, securities or assets to be deliverable
thereafter upon the conversion of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock.
Each holder of Series A Preferred Stock and Series B
Preferred Stock and Series C Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Corporation or the sale of all
or substantially all its assets and properties, as such events are more fully
set forth in the first paragraph of this Subsection 4.k, shall have the option
of electing treatment of his shares of Series A Preferred Stock or Series B
Preferred Stock or Series C Preferred Stock, as applicable, under either this
Subsection 4.k or Section 2 of this Section C.
l. Notices. In each case of an adjustment or readjustment
of the Series A Conversion Rate, Series B Conversion Rate, or Series C
Conversion Rate, the Corporation will furnish each holder of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as applicable,
with a certificate, prepared by the chief financial officer of the Corporation,
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
m. Notices of Record Date. In the event (i) the
Corporation establishes a record date to determine the holders of any class of
securities who are entitled to receive any dividend or other distribution, or
(ii) there occurs any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to
each holder of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, at least twenty (20) days prior to the record date specified
therein, a notice specifying (a) the date of such record date for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (b) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (c) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
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n. Waiver of Adjustment. If the holders of a majority of
the Series B Preferred Stock shall consent to limit or waive in its entirety
any anti-dilution adjustment to which the Series B Preferred Stock would
otherwise be entitled under Subsection 4.f hereof, the Corporation shall not be
required to make any adjustment whatsoever with respect to any shares of the
Series B Preferred Stock, or to make any adjustment with respect to any shares
of the Series B Preferred Stock in excess of such limit, as the terms of such
consent may dictate.
D. QUORUM. At all meetings of shareholders, one-third of the votes
entitled to be cast on any matter by each voting group to vote on a matter,
represented in person or by proxy, shall constitute a quorum of that voting
group for action on that matter.
E. PREEMPTIVE RIGHTS. Except as provided by law, no shareholder of
the Corporation shall have any preemptive or, unless expressly agreed to in
writing by the Company, any other right to subscribe for any additional
unissued or treasury shares of stock or for other securities of any class, or
for rights, warrants or options to purchase stock, or for scrip, or for
securities of any kind convertible into stock or carrying stock purchase
warrants or privileges.
V.
A director of the corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation
Law, as so amended.
Any repeal or modification of this Article V shall be prospective
and shall not affect the rights under this Article V in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability
or indemnification.
VI.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
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<PAGE> 24
A. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors.
B. The Board of Directors may from time to time make, amend,
supplement or repeal the Bylaws; provided, however, that the stockholders may
change or repeal any Bylaw adopted by the Board of Directors by the affirmative
vote of the holders of a majority of the voting power of all of the then
outstanding shares of the Common, Series A Preferred, Series B Preferred and
Series C Preferred voting together as a single class; and, provided further,
that no amendment or supplement to the Bylaws adopted by the Board of Directors
shall vary or conflict with any amendment or supplement thus adopted by the
stockholders.
C. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
VII.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right."
FOURTH: This Amended and Restated Certificate of Incorporaiton was
duly adopted by the Board of Directors of this corporation.
FIFTH: This Amended and Restated Certificate of Incroporation was
duly adopted by written consent of the stockholders in accordance with Sections
228, 245 and 242 of the General Corporation Law of the State of Delaware, and
written notice of such action has been given as provided in Section 228.
IN WITNESS WHEREOF, said Coral Systems, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by its President,
Chief Executive Officer and Chairman of the Board, Eric A. Johnson, and its
Secretary, Howard Kaushansky, this 15th day of March, 1996.
CORAL SYSTEMS, INC.
By: /s/ ERIC A. JOHNSON
-----------------------------------
Eric A. Johnson
Attest:
/s/ HOWARD KAUSHANSKY
- ------------------------------
Howard Kaushansky
<PAGE> 1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CORAL SYSTEMS, INC.
CORAL SYSTEMS, INC., a corporation organized and existing under the
laws of the state of Delaware (the "Corporation") hereby certifies that:
FIRST: The name of the Corporation is Coral Systems, Inc.
SECOND: The date of filing of the Corporation's original Certificate
of Incorporation with the Secretary of State of the State of Delaware was April
6, 1995.
THIRD: The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance with
the provisions of Section 242 and Section 245 of the General Corporation Law of
the State of Delaware by the Board of Directors of the corporation.
FOURTH: Pursuant to Section 245 of the Delaware General Corporation
Law, approval of the stockholders of the corporation has been obtained.
FIFTH: The Amended and Restated Certificate of Incorporation so
adopted reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated by reference.
IN WITNESS WHEREOF, said Coral Systems, Inc. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by its President,
Chief Executive Officer and Chairman of the Board, Eric A. Johnson, and its
Secretary, Howard Kaushansky, this _____ day of _______________, 1996.
CORAL SYSTEMS, INC.
By
-------------------------------------
Eric A. Johnson
ATTEST:
- --------------------------
Howard Kaushansky
<PAGE> 2
EXHIBIT 3(i)2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CORAL SYSTEMS, INC.
I.
The name of this corporation is Coral Systems, Inc.
II.
The address of the registered office of the Corporation in the State
of Delaware is:
The Corporation Trust Company
1209 Orange Street
Wilmington, DE 19801
County of New Castle
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is thirty
million (30,000,000) shares, (i) twenty-five million (25,000,000) shares of
which shall be Common Stock (the "Common Stock"), five million (5,000,000)
shares of which shall be Preferred Stock (the "Preferred Stock"). The Common
Stock and the Preferred Stock shall have a par value of one-tenth of one cent
($.001).
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
(a "Preferred Stock Designation") pursuant to the Delaware General Corporation
Law, to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
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V.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall
be fixed exclusively by one or more resolutions adopted by the Board of
Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned
to each class in accordance with a resolution or resolutions adopted by the
Board of Directors. At the first annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term
of three years. At the second annual meeting of stockholders following the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a
full term of three years to succeed the directors of the class whose terms
expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Subject to the rights of the holders of any series of
Preferred Stock, no director shall be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of
the holders of a majority of the voting power of all the then-outstanding
shares of voting stock of the Corporation entitled to vote at an election of
directors (the "Voting Stock").
4. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless (i) the Board of Directors determines by resolution that any such
vacancies or newly created directorships shall be filled by the stockholders,
or (ii) as otherwise provided by
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law, be filled only by the affirmative vote of a majority of the directors then
in office, even though less than a quorum of the Board of Directors, and not by
the stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws,
the Bylaws may be altered or amended or new Bylaws adopted by the affirmative
vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power
of all of the then-outstanding shares of the Voting Stock. The Board of
Directors shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected
by written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws, and following the closing of the Initial Public
Offering, no action shall be taken by the stockholders by written consent.
4. Special meetings of the stockholders of the
Corporation may be called, for any purpose or purposes, by (i) the Chairman of
the Board of Directors, (ii) the Chief Executive Officer or (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption).
5. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
6. At all meetings of stockholders, one-third of the
votes entitled to be cast on any matter by each voting group to vote on a
matter, represented in person or by proxy, shall constitute a quorum of that
voting group for action on that matter.
7. Except as provided by law, no stockholder of the
Corporation shall have any preemptive or, unless expressly agreed to in writing
by the Corporation, any other right to subscribe for any additional unissued or
treasury shares of stock or for other securities of any class, or for rights,
warrants or options to purchase stock, or for scrip, or for securities of any
kind convertible into stock or carrying stock purchase warrants or privileges.
VI.
A. A director of the corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders,
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<PAGE> 5
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended after approval by the stockholders of this Article
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director shall be eliminated or
limited to the fullest extent permitted by the Delaware General corporation
Law, as so amended.
B. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, following the
Initial Public Offering the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal Articles V, VI, and VII (other than
any amendment of such Articles in connection with a restatement of the
Certificate of Incorporation).
4
<PAGE> 1
EXHIBIT 3(ii).1
BYLAWS
OF
CORAL SYSTEMS, INC.
(A DELAWARE CORPORATION)
1
<PAGE> 2
BYLAWS
OF
CORAL SYSTEMS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETING
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
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SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
later than the close of business on the sixtieth (60th) day nor earlier than
the close of business on the ninetieth (90th) day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to
such annual meeting or, in the event public announcement of the date of such
annual meeting is first made by the corporation fewer than seventy (70) days
prior to the date of such annual meeting, the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on
the corporation's books, of the stockholder proposing such business, (iii) the
class and number of shares of the corporation which are beneficially owned by
the stockholder, (iv) any material interest of the stockholder in such business
and (v) any other information that is required to be provided by the
stockholder pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act"), in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the 1934 Act. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted
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at any annual meeting except in accordance with the procedures set forth in
this paragraph (b). The chairman of the annual meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall
not be transacted.
(c) Except as otherwise set forth in the Certificate of
Incorporation, only persons who are nominated in accordance with the procedures
set forth in this paragraph (C) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to
vote in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (C). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 5. Such stockholder's
notice shall set forth (i) as to each person, if any, whom the stockholder
proposes to nominate for election or re election as a director: (A) the name,
age, business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the corporation which are beneficially owned by such person, (D) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided
pursuant to paragraph (b) of this Section 5. At the request of the Board of
Directors, any person nominated by a stockholder for election as a director
shall furnish to the Secretary of the corporation that information required to
be set forth in the stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in
this paragraph (C). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective nomination
shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation
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with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption) or (iv) by the holders of shares entitled to
cast not less than ten percent (10%) of the votes at the meeting, and shall be
held at such place, on such date, and at such time as the Board of Directors,
shall fix.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice.
The Board of Directors shall determine the time and place of such special
meeting, which shall be held not less than thirty-five (35) nor more than one
hundred twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person
or persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called
by action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any meeting
of stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any
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stockholder so waiving notice of such meeting shall be bound by the proceedings
of any such meeting in all respects as if due notice thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote
cast, excluding abstentions, at any meeting at which a quorum is present shall
be valid and binding upon the corporation; provided, however, that directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes
cast, including abstentions, by the holders of shares of such class or classes
or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the
shares casting votes, excluding abstentions. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting. If the adjournment
is for more than thirty (30) days or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the
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record date, as provided in Section 12 of these Bylaws, shall be entitled to
vote at any meeting of stockholders. Every person entitled to vote or execute
consents shall have the right to do so either in person or by an agent or
agents authorized by a proxy granted in accordance with Delaware law. An agent
so appointed need not be a stockholder. No proxy shall be voted after three
(3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety, or otherwise, or if two (2) or more persons
have the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the following
effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1)
votes, the act of the majority so voting binds all; (C) if more than one (1)
votes, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or may apply to the Delaware
Court of Chancery for relief as provided in the General Corporation Law of
Delaware, Section 217(b). If the instrument filed with the Secretary shows
that any such tenancy is held in unequal interests, a majority or even split
for the purpose of subsection (C) shall be a majority or even split in
interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to
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authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by
a majority in interest of the stockholders entitled to vote, present in person
or by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders
as it shall deem necessary, appropriate or convenient. Subject to such rules
and regulations of the Board of Directors, if any, the chairman of the meeting
shall have the right and authority to
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prescribe such rules, regulations and procedures and to do all such acts as, in
the judgment of such chairman, are necessary, appropriate or convenient for the
proper conduct of the meeting, including, without limitation, establishing an
agenda or order of business for the meeting, rules and procedures for
maintaining order at the meeting and the safety of those present, limitations
on participation in such meeting to stockholders of record of the corporation
and their duly authorized and constituted proxies and such other persons as the
chairman shall permit, restrictions on entry to the meeting after the time
fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and closing
of the polls for balloting on matters which are to be voted on by ballot.
Unless and to the extent determined by the Board of Directors or the chairman
of the meeting, meetings of stockholders shall not be required to be held in
accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER. The authorized number of directors of the
corporation shall be fixed in accordance with the Certificate of Incorporation.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected at
an annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the Certificate
of Incorporation.
SECTION 17. TERM OF OFFICE. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, directors shall be elected at each annual meeting of
stockholders for a term of one year. Each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES. Unless otherwise provided in the
Certificate of Incorporation, any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other causes and any
newly created directorships resulting from any increase in the number of
directors, shall unless the Board of Directors determines by resolution that
any such vacancies or newly created directorships shall be filled by
stockholders, be filled only by the affirmative vote of a majority of the
directors
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then in office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred and until such director's successor shall have been elected
and qualified. A vacancy in the Board of Directors shall be deemed to exist
under this Bylaw in the case of the death, removal or resignation of any
director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Chairman of the Board or President,
such resignation to specify whether it will be effective at a particular time,
upon receipt by the Chairman of the Board or President or at the pleasure of
the Board of Directors. If no such specification is made, it shall be deemed
effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective,
and each Director so chosen shall hold office for the unexpired portion of the
term of the Director whose place shall be vacated and until his successor shall
have been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock and any limitations imposed by law, the Board of
Directors or any individual director may be removed from office at any time
with or without cause by the affirmative vote of the holders of a majority of
the voting power of all the then-outstanding shares of voting stock of the
corporation, entitled to vote at an election of directors (the "Voting Stock").
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the
State of Delaware which has been designated by resolution of the Board of
Directors or the written consent of all directors.
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(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent
in writing to each director by first class mail, charges prepaid, at least
three (3) days before the date of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived by
any director by attendance thereat, except when the director attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either
before or after the meeting, each of the directors not present shall sign a
written waiver of notice. All such waivers shall be filed with the corporate
records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority
of the exact number of directors fixed from time to time by the Board of
Directors in accordance with the Certificate of Incorporation; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for
the next regular meeting of the Board of Directors, without notice other than
by announcement at the meeting.
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(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be
required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of Directors,
a fixed sum and expenses of attendance, if any, for attendance at each regular
or special meeting of the Board of Directors and at any meeting of a committee
of the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
provided in the resolution of the Board of Directors shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, including without
limitation the power or authority to issue stock options, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but
no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, fixing the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series, declaring a dividend,
authorizing the issuance of stock (except that a Committee may authorize the
issuance of stock options), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
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stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees,
but in no event shall such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee.
The membership of a committee member shall terminate on the date of his death
or voluntary resignation from the committee or from the Board of Directors.
The Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the
time and place of such special meeting given in the manner provided for the
giving of written notice to members of the Board of Directors of the time and
place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time before or after
the meeting and will be waived by any director by attendance thereat, except
when the director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to
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the transaction of any business because the meeting is not lawfully called or
convened. A majority of the authorized number of members of any such committee
shall constitute a quorum for the transaction of business, and the act of a
majority of those present at any meeting at which a quorum is present shall be
the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the
Treasurer, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by
the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors or the
President. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors in the case of the office of
the President, and by the President in the case of all other officers.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other
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duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors shall designate from time
to time. If there is no President, then the Chairman of the Board of Directors
shall also serve as the Chief Executive Officer of the corporation and shall
have the powers and duties prescribed in paragraph (C) of this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. Unless some other officer has been elected Chief Executive Officer of
the corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board
of Directors or the President. The Chief Financial Officer, subject to the
order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform
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other duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time. The President may direct the Treasurer or
any Assistant Treasurer, or the Controller or any Assistant Controller to
assume and perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Treasurer and Assistant
Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may
from time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the President or by the affirmative vote
of a majority of the directors in office at the time, or by the unanimous
written consent of the directors in office at the time, or by any committee or
superior officers upon whom such power of removal may have been conferred by
the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on behalf
of the corporation any corporate instrument or document, or to sign on behalf
of the corporation the corporate name without limitation, or to enter into
contracts on behalf of the corporation, except where otherwise provided by law
or these Bylaws, and such execution or signature shall be binding upon the
corporation.
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Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the corporation, shall be executed, signed or endorsed
by the Chairman of the Board of Directors, or the President, or by both the
Secretary or Treasurer and the President. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board
of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All
stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors, or, in the absence
of such authorization, by the Chairman of the Board of Directors, the Chief
Executive Officer, or the President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for
the shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant Treasurer
or the Secretary or Assistant Secretary, certifying the number of shares owned
by him in the corporation. Any or all of the signatures on the certificate may
be facsimiles. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue. Each certificate
shall state upon the face or back thereof, in full or in summary, all of the
powers, designations, preferences, and rights, and the limitations or
restrictions of the
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shares authorized to be issued or shall, except as otherwise required by law,
set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates
shall be issued in place of any certificate or certificates theretofore issued
by the corporation alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, or destroyed. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or to give the corporation a surety bond in such form and amount as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen, or
destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
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(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date
of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or
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exchange of stock, or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty (60) days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures
and other corporate securities of the corporation, other than stock
certificates (covered in Section 34), may be signed by the Chairman of the
Board of Directors, the President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary
or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such
bond, debenture or other corporate security may be the imprinted facsimile of
the signatures of such persons. Interest coupons appertaining to any such
bond, debenture or other corporate security, authenticated by a trustee as
aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the
corporation or such other person as may be authorized by the Board of
Directors, or bear imprinted thereon the facsimile signature of such person.
In case any officer who shall have signed or attested any bond, debenture or
other corporate security, or whose facsimile signature shall appear thereon or
on any such interest coupon, shall have ceased to be such officer before the
bond, debenture or other corporate security so signed or attested shall have
been delivered, such bond, debenture or other corporate security nevertheless
may be adopted by the corporation and issued and delivered as though the person
who signed the same or whose facsimile signature shall have been used thereon
had not ceased to be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to
law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the Board of Directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the Board of
Directors shall think conducive to the interests of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall
be fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this
Article XI, "executive officers shall have the meaning defined in Rule 3b-7
promulgated under the 1934 Act) to the fullest extent not prohibited by the
Delaware General Corporation Law; provided, however, that the corporation may
modify the extent of such indemnification by individual contracts with its
directors and executive officers; and, provided, further, that the corporation
shall not be required to indemnify any director or executive officer in
connection with any proceeding (or part thereof) initiated by such person
unless (i) such indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the Board of Directors of the corporation,
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the
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corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or executive officer, of the corporation, or is or was serving at the
request of the corporation as a director or executive officer of another
corporation, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefor,
all expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith
or in a manner that such person did not believe to be in or not opposed to the
best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting
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his claim. In connection with any claim for indemnification, the corporation
shall be entitled to raise as a defense to any such action that the claimant
has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer
of the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear
and convincing evidence that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of
the corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct. In
any suit brought by a director or executive officer to enforce a right to
indemnification or to an advancement of expenses hereunder, the burden of
proving that the director or executive officer is not entitled to be
indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts with
any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
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(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Bylaw with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
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(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references
to "serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last
known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given,
and the time and method of giving the same, shall in the absence of fraud, be
prima facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
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(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or
others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been
duly given. If any such person shall deliver to the corporation a written
notice setting forth his then current address, the requirement that notice be
given to such person shall be reinstated. In the event that the action taken
by the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to
be given pursuant to this paragraph.
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ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46.LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee
who is a Director of the corporation or its subsidiaries, whenever, in the
judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing in
these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty
or warranty of the corporation at common law or under any statute.
27
<PAGE> 1
EXHIBIT 3(ii).2
AMENDED AND RESTATED
BYLAWS
OF
CORAL SYSTEMS, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III. STOCKHOLDERS' MEETING . . . . . . . . . . . . . . . . . . . . 1
Section 4. Place of Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . 4
Section 7. Notice of Meetings . . . . . . . . . . . . . . . . . . . 4
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 9. Adjournment and Notice of Adjourned Meetings . . . . . . 5
Section 10. Voting Rights . . . . . . . . . . . . . . . . . . . . . . 5
Section 11. Joint Owners of Stock . . . . . . . . . . . . . . . . . . 6
Section 12. List of Stockholders . . . . . . . . . . . . . . . . . . 6
Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . 6
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV. DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 15. Number and Term of Office . . . . . . . . . . . . . . . . 7
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 17. Classes of Directors . . . . . . . . . . . . . . . . . . 7
Section 18. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 19. Resignation . . . . . . . . . . . . . . . . . . . . . . . 8
Section 20. Removal . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 21. Meetings . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Annual Meetings . . . . . . . . . . . . . . . . . . . . . 9
(b) Regular Meetings . . . . . . . . . . . . . . . . . . . . 9
(c) Special Meetings . . . . . . . . . . . . . . . . . . . . 9
(d) Telephone Meetings . . . . . . . . . . . . . . . . . . . 9
(e) Notice of Meetings . . . . . . . . . . . . . . . . . . . 9
(f) Waiver of Notice . . . . . . . . . . . . . . . . . . . . 9
Section 22. Quorum and Voting . . . . . . . . . . . . . . . . . . . . 10
Section 23. Action Without Meeting . . . . . . . . . . . . . . . . . 10
Section 24. Fees and Compensation . . . . . . . . . . . . . . . . . . 10
Section 25. Committees . . . . . . . . . . . . . . . . . . . . . . . 10
(a) Executive Committee . . . . . . . . . . . . . . . . . . . 10
(b) Other Committees . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C>
(c) Term . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(d) Meetings . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 26. Organization . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 27. Officers Designated . . . . . . . . . . . . . . . . . . . 12
Section 28. Tenure and Duties of Officers . . . . . . . . . . . . . . 13
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Duties of Chairman of the Board of Directors . . . . . . 13
(c) Duties of President . . . . . . . . . . . . . . . . . . . 13
(d) Duties of Vice Presidents . . . . . . . . . . . . . . . . 13
(e) Duties of Secretary . . . . . . . . . . . . . . . . . . . 13
(f) Duties of Chief Financial Officer . . . . . . . . . . . . 14
Section 29. Delegation of Authority . . . . . . . . . . . . . . . . . 14
Section 30. Resignations . . . . . . . . . . . . . . . . . . . . . . 14
Section 31. Removal . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF
SECURITIES OWNED BY THE CORPORATION . . . . . . . . . . . . . 15
Section 32. Execution of Corporate Instruments . . . . . . . . . . . 15
Section 33. Voting of Securities Owned by the Corporation . . . . . . 15
ARTICLE VII. SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . 16
Section 34. Form and Execution of Certificates . . . . . . . . . . . 16
Section 35. Lost Certificates . . . . . . . . . . . . . . . . . . . . 16
Section 36. Transfers . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 37. Fixing Record Dates . . . . . . . . . . . . . . . . . . . 17
Section 38. Registered Stockholders . . . . . . . . . . . . . . . . . 18
ARTICLE VIII. OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . 18
Section 39. Execution of Other Securities . . . . . . . . . . . . . . 18
ARTICLE IX. DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 40. Declaration of Dividends . . . . . . . . . . . . . . . . 19
Section 41. Dividend Reserve . . . . . . . . . . . . . . . . . . . . 19
ARTICLE X. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 42. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XI. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C>
Section 43. Indemnification of Directors, Executive
Officers, Other Officers, Employees and Other
Agents . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Directors and Executive Officers . . . . . . . . . . . . 19
(b) Other Officers, Employees and Other Agents . . . . . . . 20
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Enforcement . . . . . . . . . . . . . . . . . . . . . . . 20
(e) Non Exclusivity of Rights . . . . . . . . . . . . . . . . 21
(f) Survival of Rights . . . . . . . . . . . . . . . . . . . 22
(g) Insurance . . . . . . . . . . . . . . . . . . . . . . . . 22
(h) Amendments . . . . . . . . . . . . . . . . . . . . . . . 22
(i) Saving Clause . . . . . . . . . . . . . . . . . . . . . . 22
(j) Certain Definitions . . . . . . . . . . . . . . . . . . . 22
ARTICLE XII. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 44. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Notice to Stockholders . . . . . . . . . . . . . . . . . 23
(b) Notice to Directors . . . . . . . . . . . . . . . . . . . 23
(c) Affidavit of Mailing . . . . . . . . . . . . . . . . . . 23
(d) Time Notices Deemed Given . . . . . . . . . . . . . . . . 24
(e) Methods of Notice . . . . . . . . . . . . . . . . . . . . 24
(f) Failure to Receive Notice . . . . . . . . . . . . . . . . 24
(g) Notice to Person with Whom Communication Is
Unlawful . . . . . . . . . . . . . . . . . . . . . . . . 24
(h) Notice to Person with Undeliverable Address . . . . . . . 24
ARTICLE XIII. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . 25
Section 45. Amendments . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XIV. LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . 25
Section 46. Loans to Officers . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED
BYLAWS
OF
CORAL SYSTEMS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business at such place as may be fixed
by the Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of
a die bearing the name of the corporation and the inscription, "Corporate Seal
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETING
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of
the corporation shall be held at such place, either within or without the State
of Delaware, as may be designated from time to time by the Board of Directors,
or, if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
1
<PAGE> 6
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation
not later than the close of business on the sixtieth (60th) day nor earlier
than the close of business on the ninetieth (90th) day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to
such annual meeting or, in the event public announcement of the date of such
annual meeting is first made by the corporation fewer than seventy (70) days
prior to the date of such annual meeting, the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on
the corporation's books, of the stockholder proposing such business, (iii) the
class and number of shares of the corporation which are beneficially owned by
the stockholder, (iv) any material interest of the stockholder in such business
and (v) any other information that is required to be provided by the
stockholder pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act"), in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the 1934 Act. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted
2
<PAGE> 7
at any annual meeting except in accordance with the procedures set forth in
this paragraph (b). The chairman of the annual meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall
not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled to
vote in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 5. Such stockholder's
notice shall set forth (i) as to each person, if any, whom the stockholder
proposes to nominate for election or re-election as a director: (A) the name,
age, business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the corporation which are beneficially owned by such person, (D) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided
pursuant to paragraph (b) of this Section 5. At the request of the Board of
Directors, any person nominated by a stockholder for election as a director
shall furnish to the Secretary of the corporation that information required to
be set forth in the stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in
this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective nomination
shall be disregarded.
(d) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the corporation
3
<PAGE> 8
with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the
corporation may be called, for any purpose or purposes, by (i) the Chairman of
the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption).
(b) If a special meeting is called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may
be transacted at such special meeting otherwise than specified in such notice.
The Board of Directors shall determine the time and place of such special
meeting, which shall be held not less than thirty-five (35) nor more than one
hundred twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person
or persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called
by action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by
law or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any meeting
of stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any stockholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
4
<PAGE> 9
SECTION 8. QUORUM. At all meetings of stockholders, except
where otherwise provided by statute or by the Certificate of Incorporation, or
by these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote
cast, excluding abstentions, at any meeting at which a quorum is present shall
be valid and binding upon the corporation; provided, however, that directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes
cast, including abstentions, by the holders of shares of such class or classes
or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders, whether annual or special, may be adjourned from time
to time either by the chairman of the meeting or by the vote of a majority of
the shares casting votes, excluding abstentions. When a meeting is adjourned
to another time or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the corporation may transact
any business which might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section 12
of these Bylaws, shall be entitled to vote at any meeting of stockholders.
Every person entitled to vote shall have the right to do so either in person or
by an agent or agents authorized by a proxy granted in accordance with
5
<PAGE> 10
Delaware law. An agent so appointed need not be a stockholder. No proxy shall
be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety, or otherwise, or if two (2) or more persons
have the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the following
effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1)
votes, the act of the majority so voting binds all; (c) if more than one (1)
votes, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or may apply to the Delaware
Court of Chancery for relief as provided in the General Corporation Law of
Delaware, Section 217(b). If the instrument filed with the Secretary shows
that any such tenancy is held in unequal interests, a majority or even split
for the purpose of subsection (C) shall be a majority or even split in
interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Actions required by statute to be taken at any annual
or special meetng of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may not be taken without a
meeting, without prior notice and without a vote.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the
6
<PAGE> 11
President is absent, a chairman of the meeting chosen by a majority in interest
of the stockholders entitled to vote, present in person or by proxy, shall act
as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of
the meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the Certificate
of Incorporation.
SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the
holders of any series of Preferred Stock to elect additional directors under
specified circumstances, following the closing of the Initial Public Offering,
the directors shall be divided into three classes designated as Class I, Class
II and Class III, respectively. Directors shall be
7
<PAGE> 12
assigned to each class in accordance with a resolution or resolutions adopted
by the Board of Directors. At the first annual meeting of stockholders
following the closing of the Initial Public Offering, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a
full term of three years. At the second annual meeting of stockholders
following the Closing of the Initial Public Offering, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders
following the Closing of the Initial Public Offering, the term of office of the
Class III directors shall expire and Class III directors shall be elected for a
full term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the
Certificate of Incorporation, any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other causes and any
newly created directorships resulting from any increase in the number of
directors, shall, unless the Board of Directors determines by resolution that
any such vacancies or newly created directorships shall be filled by
stockholders, be filled only by the affirmative vote of a majority of the
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the director for which
the vacancy was created or occurred and until such director's successor shall
have been elected and qualified. A vacancy in the Board of Directors shall be
deemed to exist under this Bylaw in the case of the death, removal or
resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Chairman of the Board or President,
such resignation to specify whether it will be effective at a particular time,
upon receipt by the Chairman of the Board or President or at the pleasure of
the Board of Directors. If no such specification is made, it shall be deemed
effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective,
and each Director so chosen shall hold office for the unexpired portion of the
term of the Director whose place shall be vacated and until his successor shall
have been duly elected and qualified.
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SECTION 20. REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock, no Director shall be removed without cause. Subject
to any limitations imposed by law, the Board of Directors or any individual
director may be removed from office at any time with cause by the affirmative
vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of the corporation, entitled to vote at
an election of directors (the "Voting Stock").
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the
office of the corporation required to be maintained pursuant to Section 2
hereof. Unless otherwise restricted by the Certificate of Incorporation,
regular meetings of the Board of Directors may also be held at any place within
or without the State of Delaware which has been designated by resolution of the
Board of Directors or the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or a majority of the
directors then in office.
(d) TELEPHONE MEETINGS. Any member of the Board of
Directors, or of any committee thereof, may participate in a meeting by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of
all special meetings of the Board of Directors shall be given orally or in
writing, at least twenty-four (24) hours before the date and time of the
meeting. Notice of any meeting may be waived in writing at any time before or
after the meeting and will be waived by any director by attendance thereat,
except when the director attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at
any meeting of the Board of Directors, or any committee thereof, however called
or noticed, or wherever
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held, shall be as valid as though had at a meeting duly held after regular call
and notice, if a quorum be present and if, either before or after the meeting,
each of the directors not present shall sign a written waiver of notice. All
such waivers shall be filed with the corporate records or made a part of the
minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 43 hereof, for which a quorum shall be one third of the exact
number of directors fixed from time to time in accordance with the Certificate
of Incorporation, a quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time by the Board
of Directors in accordance with the Certificate of Incorporation; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for
the next regular meeting of the Board of Directors, without notice other than
by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different
vote be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled
to such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of Directors,
a fixed sum and expenses of attendance, if any, for attendance at each regular
or special meeting of the Board of Directors and at any meeting of a committee
of the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors appoint an
Executive Committee to
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consist of one (1) or more members of the Board of Directors. The Executive
Committee, to the extent permitted by law and provided in the resolution of the
Board of Directors shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, including without limitation the power or authority to declare a
dividend; but such committee shall not have the power or authority to amend the
Certificate of Incorporation, (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors, fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopt an agreement of merger
or consolidation, recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amend the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, from time to
time appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall such committee have the powers denied to the
Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of
Directors shall serve a term on the committee coexistent with such member's
term on the Board of Directors. The Board of Directors, subject to the
provisions of subsections (a) or (b) of this Bylaw may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date of
his death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
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(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the
time and place of such special meeting given in the manner provided for the
giving of written notice to members of the Board of Directors of the time and
place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time before or after
the meeting and will be waived by any director by attendance thereat, except
when the director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum
for the transaction of business, and the act of a majority of those present at
any meeting at which a quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer
and the Controller, all of whom shall be elected at the annual organizational
meeting of the Board of Directors. The Board of Directors may also appoint one
or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and
such other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by
the Board of Directors.
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SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors or the President. If the office of any officer becomes vacant for
any reason, the vacancy may be filled by the Board of Directors in the case of
the office of the President, and by the President in the case of all other
officers.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors, when present, shall preside at all meetings
of the stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. If there is no President, then
the Chairman of the Board of Directors shall also serve as the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
paragraph (c) of this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at
all meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. Unless some other officer has been elected Chief Executive Officer,
the President shall be the Chief Executive Officer of the corporation and
shall, subject to the control of the Board of Directors, have general
supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may
assume and perform the duties of the President in the absence or disability of
the President or whenever the office of President is vacant. The Vice
Presidents shall perform other duties commonly incident to their office and
shall also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to
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his office and shall also perform such other duties and have such other powers
as the Board of Directors shall designate from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief
Financial Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of the
financial affairs of the corporation in such form and as often as required by
the Board of Directors or the President. The Chief Financial Officer, subject
to the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume
and perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Treasurer and Assistant
Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may
from time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at
any time, either with or without cause, by the President or by the affirmative
vote of a majority of the directors in office at the time, or by the unanimous
written consent of the directors in office at the time, or by any committee or
superior officers upon whom such power of removal may have been conferred by
the Board of Directors.
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ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on behalf
of the corporation any corporate instrument or document, or to sign on behalf
of the corporation the corporate name without limitation, or to enter into
contracts on behalf of the corporation, except where otherwise provided by law
or these Bylaws, and such execution or signature shall be binding upon the
corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the corporation, shall be executed, signed or endorsed
by the Chairman of the Board of Directors, or the President or any
Vice-President, and by the Secretary or Treasurer or any Assistant Secretary or
Assistant Treasurer and the President. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board
of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All
stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors, or, in the absence
of such authorization, by the Chairman of the Board of Directors, the Chief
Executive Officer, or the President or any Vice President.
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ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for
the shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant Treasurer
or the Secretary or Assistant Secretary, certifying the number of shares owned
by him in the corporation. Any or all of the signatures on the certificate may
be facsimiles. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue. Each certificate
shall state upon the face or back thereof, in full or in summary, all of the
powers, designations, preferences, and rights, and the limitations or
restrictions of the shares authorized to be issued or shall, except as
otherwise required by law, set forth on the face or back a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates
shall be issued in place of any certificate or certificates theretofore issued
by the corporation alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, or destroyed. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or to give the corporation a surety bond in such form and amount as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen, or
destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
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(b) The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more
classes of stock of the corporation to restrict the transfer of shares of stock
of the corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that
the corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior
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action by the Board of Directors is required by law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is
fixed, the record date for determining stockholders for any such purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures
and other corporate securities of the corporation, other than stock
certificates (covered in Section 34), may be signed by the Chairman of the
Board of Directors, the President or any Vice-President, or such other person
as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested by
the signature of the Secretary or an Assistant Secretary, or the Chief
Financial Officer or Treasurer or an Assistant Treasurer; provided, however,
that where any such bond, debenture or other corporate security shall be
authenticated by the manual signature, or where permissible facsimile
signature, of a trustee under an indenture pursuant to which such bond,
debenture or other corporate security shall be issued, the signatures of the
persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons appertaining to any such bond, debenture or
other corporate security, authenticated by a trustee as aforesaid, shall be
signed by the Treasurer or an Assistant Treasurer of the corporation or such
other person as may be authorized by the Board of Directors, or bear imprinted
thereon the facsimile signature of such person. In
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case any officer who shall have signed or attested any bond, debenture or other
corporate security, or whose facsimile signature shall appear thereon or on any
such interest coupon, shall have ceased to be such officer before the bond,
debenture or other corporate security so signed or attested shall have been
delivered, such bond, debenture or other corporate security nevertheless may be
adopted by the corporation and issued and delivered as though the person who
signed the same or whose facsimile signature shall have been used thereon had
not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to
law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the Board of Directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the Board of
Directors shall think conducive to the interests of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS,
OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation
shall indemnify its directors and executive officers (for the purposes of this
Article XI, "executive officers" shall have the meaning defined in Rule 3b-7
promulgated under the 1934 Act) to
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the fullest extent not prohibited by the Delaware General Corporation Law;
provided, however, that the corporation may modify the extent of such
indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided
by the corporation, in its sole discretion, pursuant to the powers vested in
the corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a director or executive officer, of the corporation, or is or was serving
at the request of the corporation as a director or executive officer of another
corporation, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefor,
all expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith
or in a manner that such person did not believe to be in or not opposed to the
best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into
an express contract, all rights to indemnification and advances to directors
and executive officers
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<PAGE> 25
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation
and the director or executive officer. Any right to indemnification or
advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. The claimant in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also
the expense of prosecuting his claim. In connection with any claim for
indemnification, the corporation shall be entitled to raise as a defense to any
such action that the claimant has not met the standards of conduct that make it
permissible under the Delaware General Corporation Law for the corporation to
indemnify the claimant for the amount claimed. In connection with any claim by
an executive officer of the corporation (except in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such executive officer is or was a director of the
corporation) for advances, the corporation shall be entitled to raise a defense
as to any such action clear and convincing evidence that such person acted in
bad faith or in a manner that such person did not believe to be in or not
opposed to the best interests of the corporation, or with respect to any
criminal action or proceeding that such person acted without reasonable cause
to believe that his conduct was lawful. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct. In any suit brought by a
director or executive officer to enforce a right to indemnification or to an
advancement of expenses hereunder, the burden of proving that the director or
executive officer is not entitled to be indemnified, or to such advancement of
expenses, under this Article XI or otherwise shall be on the corporation.
(e) NON EXCLUSIVITY OF RIGHTS. The rights conferred on
any person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts with
any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.
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(f) SURVIVAL OF RIGHTS. The rights conferred on any
person by this Bylaw shall continue as to a person who has ceased to be a
director, officer, employee or other agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the
Delaware General Corporation Law, the corporation, upon approval by the Board
of Directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each director and executive
officer to the full extent not prohibited by any applicable portion of this
Bylaw that shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw,
the following definitions shall apply:
(1) The term "proceeding" shall be broadly
construed and shall include, without limitation, the investigation,
preparation, prosecution, defense, settlement, arbitration and appeal of, and
the giving of testimony in, any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly
construed and shall include, without limitation, court costs, attorneys' fees,
witness fees, fines, amounts paid in settlement or judgment and any other costs
and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under
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<PAGE> 27
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.
(4) References to a "director," "executive
officer," "officer," "employee," or "agent" of the corporation shall include,
without limitation, situations where such person is serving at the request of
the corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(5) References to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any
provisions of these Bylaws, notice is required to be given to any stockholder,
it shall be given in writing, timely and duly deposited in the United States
mail, postage prepaid, and addressed to his last known post office address as
shown by the stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given
to any director may be given by the method stated in subsection (a), or by
facsimile, overnight courier, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing,
executed by a duly authorized and competent employee of the corporation or its
transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and
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<PAGE> 28
addresses of the stockholder or stockholders, or director or directors, to whom
any such notice or notices was or were given, and the time and method of giving
the same, shall in the absence of fraud, be prima facie evidence of the facts
therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by
mail, as above provided, shall be deemed to have been given as at the time of
mailing, and all notices given by facsimile, telex or telegram shall be deemed
to have been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that
the same method of giving notice be employed in respect of all directors, but
one permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other or
others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation
of time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any director
may exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS.
Whenever notice is required to be given, under any provision of law or the
Certificate of Incorporation or Bylaws of the corporation, to any stockholder
to whom (i) notice of two consecutive annual meetings, and all notices of
meetings or of the taking of action by written consent without a meeting to
such person during the period between such two consecutive annual meetings, or
(ii) all, and at least two, payments (if sent by first class mail) of dividends
or interest on securities during a twelve-month period, have been mailed
addressed to such person at his address as shown on the records of the
corporation and have been returned
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<PAGE> 29
undeliverable, the giving of such notice to such person shall not be required.
Any action or meeting which shall be taken or held without notice to such
person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to
be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43
of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by
the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the Voting Stock.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money
to, or guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a Director of the corporation or its subsidiaries, whenever, in
the judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing in
these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty
or warranty of the corporation at common law or under any statute.
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EXHIBIT 10.1
FORM OF
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of __________,
1996 by and between CORAL SYSTEMS, INC., a Delaware corporation (the
"Corporation"), and ((Agent)) ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in the
capacity as ((Title)) of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as ((Title)) of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
((Title)) after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of
the Corporation or under separate contract, if any such contract exists, as
((Title)) of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation faithfully and to the best of Agent's ability so
long as Agent is duly elected and qualified in accordance with the provisions
of the Bylaws or other applicable charter documents of the Corporation or such
affiliate; provided, however, that Agent may at any time and for any reason
resign from such position (subject to any contractual obligation that Agent may
have assumed apart from this Agreement) and that the Corporation or any
affiliate shall have no obligation under this Agreement to continue Agent in
any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from time
to time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
<PAGE> 2
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of
the indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys'
fees), witness fees, damages, judgments, fines and amounts paid in settlement
and any other amounts that Agent becomes legally obligated to pay by reason of
any claim or claims made against or by Agent in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in
the right of the Corporation) to which Agent is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that Agent
is, was or at any time becomes a director, officer, employee or other agent of
Corporation, or is or was serving or at any time serves at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise; and
(b) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the Code and
Section 42 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(c) on account of Agent's conduct that was knowingly
fraudulent or deliberately dishonest or that constituted willful misconduct;
(d) on account of Agent's conduct that constituted a
breach of Agent's duty of loyalty to the Corporation or resulted in any
personal profit or advantage to which Agent was not legally entitled;
(e) for which payment actually is made to Agent under a
valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement;
(f) if indemnification is not lawful (and, in this
respect, both the Corporation and Agent have been advised that the Securities
and Exchange Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and therefore is
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(g) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such indemnification
expressly is required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the Corporation, (iii) such indemnification is
provided
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<PAGE> 3
by the Corporation, in its sole discretion, pursuant to the powers vested in
the Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of
the Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as
Agent shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving
in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and
amounts paid in settlement and any other amounts that Agent becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 3 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Agent for the portion
thereof to which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit
or proceeding, Agent will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Agent otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to
which Agent notifies the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate
therein at its own expense;
(b) except as otherwise provided below, the Corporation
may, at its option and jointly with any other indemnifying party similarly
notified and electing to assume such defense, assume the defense thereof, with
counsel reasonably satisfactory to Agent. After notice from the Corporation to
Agent of its election to assume the defense thereof, the Corporation will not
be liable to Agent under this Agreement for any legal or other expenses
subsequently incurred by Agent in connection with the defense thereof except
for reasonable costs of investigation or otherwise as provided below. Agent
shall have the right to employ separate counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at the
expense of Agent; provided, however, that the fees and expenses of Agent's
separate counsel shall be borne by the Corporation if (i) the employment of
counsel by Agent has been authorized by the Corporation, (ii) Agent reasonably
shall have concluded that there may be a conflict of interest between the
Corporation and Agent in the conduct of the defense of such action or (iii) the
Corporation in fact shall not have employed counsel to assume the defense of
such action. The Corporation shall not be entitled to assume the defense of
any action, suit or proceeding brought by or on behalf of the Corporation or as
to which Agent shall have made the conclusion provided for in clause (ii)
above; and
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<PAGE> 4
(c) the Corporation shall not be liable to indemnify
Agent under this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that
it shall not settle any action or claim in any manner which would impose any
penalty or limitation on Agent without Agent's written consent, which may be
given or withheld in Agent's sole discretion.
8. EXPENSES. Promptly following request therefor, the
Corporation shall advance, prior to the final disposition of any proceeding,
all expenses incurred by Agent in connection with such proceeding upon receipt
of an undertaking by or on behalf of Agent to repay such amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted
by this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within 90 days of request therefor. Agent, in such enforcement action,
if successful in whole or in part, also shall be entitled to be paid the
expense of prosecuting Agent's claim. It shall be a defense to any action for
which a claim for indemnification is made under Section 3 hereof (other than an
action brought to enforce a claim for expenses pursuant to Section 8 hereof,
provided that the required undertaking has been tendered to the Corporation)
that Agent is not entitled to indemnification because of the limitations set
forth in Section 4 hereof. Neither the failure of the Corporation (including
its Board of Directors or its stockholders) to have made a determination prior
to the commencement of such enforcement action that indemnification of Agent is
proper in the circumstances, nor an actual determination by the Corporation
(including its Board of Directors or its stockholders) that such
indemnification is improper shall be a defense to the action or create a
presumption that Agent is not entitled to indemnification under this Agreement
or otherwise.
10. SUBROGATION. In the event of payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by
this Agreement shall not be exclusive of any other right Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in Agent's official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation,
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<PAGE> 5
partnership, joint venture, trust, employee benefit plan or other enterprise
and shall inure to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity
contained herein or unenforceability shall not affect the validity or
enforceability of the other provisions hereof. Furthermore, if this Agreement
shall be invalidated in its entirety on any ground, then the Corporation
nevertheless shall indemnify Agent to the fullest extent provided by the
Bylaws, the Code or any other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless signed
in writing by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed for all purposes to be an
original but all of which together shall constitute this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date
on which such communication was mailed if mailed by certified or registered
mail with postage prepaid:
(a) If to Agent, at the address indicated on the
signature page hereof.
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<PAGE> 6
(b) If to the Corporation, to
Coral Systems, Inc.
1500 Kansas Avenue, Suite 2E
Longmont, CO 80501
or to such other address as may have been furnished to Agent by the Corporation.
[The rest of this page is intentionally left blank.]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
CORAL SYSTEMS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
AGENT
---------------------------------------
(Signature)
Agent Print Name and Address:
---------------------------------------
---------------------------------------
7
<PAGE> 8
<TABLE>
<CAPTION>
NAME OF AGENT TITLE OF AGENT
- ------------- --------------
<S> <C>
Eric A. Johnson Chairman, President and Chief Executive Officer
Kyle D. Hubbart Chief Financial Officer and Treasurer
Howard Kaushansky Vice President General Counsel and Secretary
James Burglin Vice President Customer Support
Thomas E. Fedro Vice President Sales and Consulting
Sunil Prakash Vice President Engineering
Thomas F. Prosia Vice President Marketing
Donald J. Winters, Jr. Vice President Business Development
David J. Cowan Director
Bruce Graham Director
Jeffrey Hultman Director
Robert Marino Director
William F. Nicklin Director
Thomas G. Washing Director
</TABLE>
<PAGE> 1
EXHIBIT 10.2
CORAL SYSTEMS, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
ADOPTED AUGUST 29, 1996
APPROVED BY STOCKHOLDERS _________, 1996
INTRODUCTION.
In October 1992, the Board of Directors adopted the Coral Systems Inc.
Stock Option Plan, which was amended and restated to read as set forth herein
on the date set forth above.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which
selected Employees and Directors and Consultants may be given an opportunity to
benefit from increases in value of the common stock of the Company ("Common
Stock") through the granting of Incentive Stock Options and Nonstatutory Stock
Options.
(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or Consultants to the
Company and its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated, be either Incentive Stock
Options or Nonstatutory Stock Options, and shall be separately designated as
such at the time of grant, and shall be in such form as issued pursuant to
Section 6, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
1.
<PAGE> 2
(e) "COMPANY" means Coral Systems Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged
by the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT"
means the employment or relationship as a Director or Consultant is not
interrupted or terminated. The Board, in its sole discretion, may determine
whether Continuous Status as an Employee, Director or Consultant shall be
considered interrupted in the case of: (i) any leave of absence approved by
the Board, including sick leave, military leave, or any other personal leave;
or (ii) transfers between locations of the Company or between the Company,
Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established
stock exchange, or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in Common Stock) on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(ii) In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(m) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not
a current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company or its
parent or subsidiary for services rendered as a consultant or in any capacity
other than as a Director (except for an amount as to which disclosure would not
be required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act of 1933 ("Regulation S-K"), does not possess an interest in any
other
2.
<PAGE> 3
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(r) "OPTIONEE" means a person to whom an Option is granted
pursuant to the Plan.
(s) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(t) "PLAN" means this Amended and Restated Coral Systems Inc.
Stock Option Plan.
(u) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(v) "STOCK OPTION AGREEMENT" means a written agreement between the
Company and a holder of an Option evidencing the terms and conditions of an
individual Option. Each Stock Option Agreement shall be subject to the terms
and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how each Option
shall be granted; whether an Option
3.
<PAGE> 4
will be an Incentive Stock Option or a Nonstatutory Stock Option; the
provisions of each Option granted (which need not be identical), including the
time or times when a person shall be permitted to receive stock pursuant to an
Option and the number of shares with respect to which an Option shall be
granted to each such person.
(ii) To construe and interpret the Plan and Options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Option Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section
12.
(iv) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.
(c) The Board may delegate administration of the Plan to a
committee or committees ("Committee") of one or more persons. In the
discretion of the Board, a Committee may consist solely of two or more Outside
Directors, in accordance with Code Section 162(m), or solely of two or more
Non-Employee Directors, in accordance with Rule 16(b)-3. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Options shall not exceed in the aggregate four million one hundred
seventy-eight thousand three hundred seventy-eight (4,178,378) shares of the
Common Stock. If any Option shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the
stock not acquired under such Option shall revert to and again become available
for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Options other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive
Stock Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code)
4.
<PAGE> 5
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any of its Affiliates unless the
exercise price of such Option is at least one hundred ten percent (110%) of the
Fair Market Value of such stock at the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant.
(c) Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, no person shall be eligible to be granted
Options covering more than one million (1,000,000) shares of the Common
Stock in any calendar year. This subsection 5(c) shall not apply until (i) the
earliest of: (A) the first material modification of the Plan (including any
increase to the number of shares reserved for issuance under the Plan in
accordance with Section 4); (B) the issuance of all of the shares of Common
Stock reserved for issuance under the Plan; (C) the expiration of the Plan; or
(D) the first meeting of stockholders at which directors are to be elected that
occurs after the close of the third calendar year following the calendar year
in which occurred the first registration of an equity security under Section 12
of the Exchange Act; or (ii) such other date required by Section 162(m) of the
Code and the rules and regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the Fair Market Value of
the stock subject to the Option on the date the Option is granted and the
exercise price of each Nonstatutory Stock Option shall be not less than
eighty-five percent (85%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of
Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company,
(B) according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other Common Stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
5.
<PAGE> 6
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions
of the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option may
be transferred to the extent provided in the Option Agreement; provided that if
the Option Agreement does not expressly permit the transfer of a Nonstatutory
Stock Option, the Nonstatutory Stock Option shall not be transferable except by
will, by the laws of descent and distribution or pursuant to a domestic
relations order satisfying the requirements of Rule 16b-3 and shall be
exercisable during the lifetime of the person to whom the Option is granted
only by such person or any transferee pursuant to a domestic relations order.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions
on the time or times when it may be exercised (which may be based on
performance or other criteria) as the Board may deem appropriate. The
provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it at the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionee does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise
of the Option following the termination of the Optionee's Continuous Status as
an Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the
6.
<PAGE> 7
expiration of the term of the Option set forth in the Option Agreement, or (ii)
the tenth (10th) day after the last date on which such exercise would result in
such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's
Option Agreement may also provide that if the exercise of the Option following
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (other than upon the Optionee's death or disability) would be
prohibited at any time solely because the issuance of shares would violate the
registration requirements under the Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in the first
paragraph of this subsection 6(f), or (ii) the expiration of a period of three
(3) months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant during which the exercise of the Option would
not be in violation of such registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
the term of the Option as set forth in the Option Agreement. If, at the date
of termination, the Optionee is not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise
the Option at the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date twelve (12) months following the date of death (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term
of such Option as set forth in the Option Agreement. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to a repurchase right in favor of
the Company or to any other restriction the Board determines to be appropriate.
7.
<PAGE> 8
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board or Committee to make or not to make grants of Options hereunder, the
Board or Committee shall have the authority (but not an obligation) to include
as part of any Option Agreement a provision entitling the Optionee to a further
Option (a "Re-Load Option") in the event the Optionee exercises the Option
evidenced by the Option agreement, in whole or in part, by surrendering other
shares of Common Stock in accordance with this Plan and the terms and
conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a
number of shares equal to the number of shares surrendered as part or all of
the exercise price of such Option; (ii) shall have an expiration date which is
the same as the expiration date of the Option the exercise of which gave rise
to such Re-Load Option; and (iii) shall have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock
Option and which is granted to a 10% stockholder (as described in subsection
5(c)), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the stock subject to the Re-Load Option on
the date of exercise of the original Option and shall have a term which is no
longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollars ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 10(d) of the Plan and in
Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load
Option. Any such Re-Load Option shall be subject to the availability of
sufficient shares under subsection 4(a) and shall be subject to such other
terms and conditions as the Board or Committee may determine which are not
inconsistent with the express provisions of the Plan regarding the terms of
Options.
7. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect,
at any time and from time to time, (i) the repricing of any outstanding Options
under the Plan and/or (ii) with the consent of any adversely affected holders
of Options, the cancellation of any outstanding Options under the Plan and the
grant in substitution therefor of new Options under the Plan covering the same
or different numbers of shares of stock, but having an exercise price per share
not less than eighty-five percent (85%) of the Fair Market Value for a
Nonstatutory Stock Option, one hundred percent (100%) of the Fair Market Value
for an Incentive Stock Option or, in the case of an Incentive Stock Option held
by a 10% stockholder (as described in subsection 5(c)), not less than one
hundred ten percent (110%) of the Fair Market Value per share of stock on the
new grant date. Notwithstanding the foregoing, the Board or the Committee may
grant an Option with an exercise price lower than that set forth above if such
Option is granted as part of a transaction to which Section 424(a) of the Code
applies.
(b) Shares subject to an Option canceled under this Section 7
shall continue to be counted against the maximum award of Options permitted to
be granted pursuant to subsection 5(c) of the Plan. The repricing of an Option
under this Section 7, resulting in a
8.
<PAGE> 9
reduction of the exercise price, shall be deemed to be a cancellation of the
original Option and the grant of a substitute Option; in the event of such
repricing, both the original and the substituted Options shall be counted
against the maximum awards of Options permitted to be granted pursuant to
subsection 5(c) of the Plan. The provisions of this subsection 7(b) shall be
applicable only to the extent required by Section 162(m) of the Code.
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares under Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Option or any
stock issued or issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Options unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which
an Option may first be exercised or the time during which an Option or any part
thereof will vest, notwithstanding the provisions in the Option stating the
time at which it may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director nor a Consultant nor any person
to whom an Option is transferred in accordance with the Plan shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Option unless and until such person has satisfied all
requirements for exercise of the Option pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Option
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Options any right to continue in the employ of the Company or any
Affiliate or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's By-laws.
9.
<PAGE> 10
(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
under all plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) The Company may require any person to whom an Option is
granted, or any person to whom an Option is transferred in accordance with the
Plan, as a condition of exercising or acquiring stock under any Option, (1) to
give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (2) to give
written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Option for such person's own account and not
with any present intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the exercise or
acquisition of stock under the Option has been registered under a then
currently effective registration statement under the Securities Act, or (ii) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to
the Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the
transfer of the stock.
(f) To the extent provided by the terms of a Stock Option
Agreement, the person to whom an Option is granted may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means or by a
combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Option; or (3) delivering to the Company owned and unencumbered
shares of the Common Stock of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Option, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the maximum number of shares subject to award to any person
during any calendar year pursuant to subsection 5(d), and the outstanding
Options will be appropriately adjusted in the class(es) and number of shares
and price per share
10.
<PAGE> 11
of stock subject to such outstanding Options. Such adjustments shall be made
by the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of a Change in Control, to the extent permitted
by applicable law: (i) any surviving corporation or a parent of such surviving
corporation shall assume any Options outstanding under the Plan or shall
substitute similar Options for those outstanding under the Plan or (ii) such
Options shall continue in full force and effect, unless (iii) the surviving
corporation or parent of the surviving corporation refuses to assume or
continue any Options outstanding under the Plan, or to substitute similar
options for those outstanding under the Plan.
If, following the consummation of a Change in Control, the surviving
corporation or parent of the surviving corporation refuses to assume or continue
any Options outstanding under the Plan, or to substitute similar options for
those outstanding under the Plan, then with respect to any person who was
providing services as an Employee, Director or Consultant immediately prior to
the consummation of the Change in Control, (i) any Company repurchase option
with respect to shares acquired by such person under an Option shall lapse and
(ii) the Options held by such persons shall be fully vested and exercisable, the
time during which such Options may be exercised shall be accelerated, the
Optionees shall be given reasonable opportunity (at least 10 days) to exercise
such Options prior to the consummation of the Change in Control, and such
Options shall be terminated if not exercised prior to the consummation of the
Change in Control.
If, following the consummation of a Change in Control, the surviving
corporation or its parent assumes, substitutes or continues Options outstanding
under the Plan, then: (i) if the Change in Control was not approved by the
Board, with respect to any Optionee who was an Employee, Director or Consultant
immediately prior to the consummation of the Change in Control, 100% of such
Optionee's previously unvested Options shall be fully vested and exercisable,
and any Company repurchase option with respect to shares acquired by such
person under an Option shall lapse immediately prior to the consummation of the
Change in Control; and (ii) with respect to an Optionee who was an Employee
immediately prior to the consummation of a Change in Control, if such
Optionee's employment is involuntarily terminated other than for Cause or is
voluntarily terminated for Good Reason within the twelve (12) months following
the Change in Control, then such Optionee's previously unvested Options shall
be fully vested and exercisable, and any Company repurchase option with respect
to shares acquired by such person under an Option shall lapse.
For purposes of this Plan:
"CHANGE IN CONTROL" means: (i) a sale of substantially all of the
assets of the Company; (ii) a merger or consolidation in which the Company is
not the surviving corporation (other than a merger or consolidation in which
shareholders immediately before the merger or consolidation have, immediately
after the merger or consolidation, greater stock voting power); (iii) a
reverse merger in which the Company is the surviving corporation but the shares
of the Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise (other than a reverse merger in which
stockholders immediately before the merger have, immediately after the merger,
greater stock voting power); or (iv) any transaction or series of related
transactions in which in excess of 50% of the Company's voting power is
transferred;
11.
<PAGE> 12
"CAUSE" means fraud, misappropriation or embezzlement on the part of
Optionee which resulted in material loss, damage or injury to the Company,
Optionee's conviction of a felony involving moral turpitude, or Optionee's
gross neglect of duties; and
"GOOD REASON" means a reduction in compensation or a relocation of
Optionee's principal worksite to a location more than 30 miles from Optionee's
pre-Change in Control worksite or, for an executive officer, a material
reduction in responsibilities or authority as in effect before the Change in
Control.
(c) In the event of the proposed dissolution or liquidation of the
Company, each outstanding Option shall terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 11 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or
any Nasdaq or securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the
terms of any one or more Options; provided, however, that the rights and
obligations under any Option shall not be impaired by any such amendment unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate ten (10) years from the date
the Plan is adopted by the Board
12.
<PAGE> 13
or approved by the stockholders of the Company, whichever is earlier. No
Options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) Rights and obligations under any Option granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Option was granted.
14. EFFECTIVE DATE OF PLAN.
This Amended and Restated Stock Option Plan shall become effective on
the date adopted by the Board, but no Options granted under the Plan after such
adoption may be exercised until the Plan has been approved by the stockholders
of the Company, which approval shall be within twelve (12) months before or
after the date the Plan is adopted by the Board. Following the date this Plan
is approved by the stockholders of the Company, the terms of this Plan shall
apply to outstanding Options granted under the Company's Stock Option Plan.
13.
<PAGE> 14
CORAL SYSTEMS, INC.
STOCK OPTION GRANT NOTICE
(AMENDED AND RESTATED STOCK OPTION PLAN)
CORAL SYSTEMS, INC. (the "Company"), pursuant to its Amended and Restated Stock
Option Plan (the "Plan") hereby grants to Optionee an option to purchase the
number of shares of the Company's common stock set forth below. This option is
subject to all of the terms and conditions as set forth herein and in
Attachments I, II and III, which are incorporated herein in their entirety.
Optionee: ____________________________
Date of Grant: ____________________________
Date of Hire: ____________________________
Shares Subject to Option: ____________________________
Exercise Price Per Share: ____________________________
Expiration Date: ____________________________
___Incentive Stock Option ___Nonstatutory Stock Option
VESTING: 25% on each anniversary of the Date of Grant, subject to repurchase
right if employment terminates within two years of Date of Hire. In addition,
this option shall be fully vested upon certain events specified in Section
11(b) of the Plan. This option may be exercised before it is fully vested in
accordance with the Stock Option Agreement and the Plan.
PAYMENT: Payment by cash or check or pursuant to a cashless exercise program
described in Section 2(a)(i) of the Stock Option Agreement.
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned optionee acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionee further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between optionee and the Company regarding the acquisition
of stock in the Company and supersedes all prior oral and written agreements on
that subject with the exception of (i) options previously granted and delivered
to optionee under the Plan, and (ii) the following agreements only:
OTHER AGREEMENTS:
_________________________________________________
_________________________________________________
_________________________________________________
COMPANY OPTIONEE:
By:
---------------------------------------- -------------------------------
Signature
Title:
-------------------------------------
Date: Date:
-------------------------------------- --------------------------
Attachment I: Stock Option Agreement
Attachment II: Amended and Restated Stock Option Plan
Attachment III: Notice of Exercise
<PAGE> 15
STOCK OPTION AGREEMENT
Pursuant to the Grant Notice and this Stock Option Agreement, the Company
has granted you an option to purchase the number of shares of the Company's
common stock ("Common Stock") indicated in the Grant Notice at the exercise
price indicated in the Grant Notice.
Your option is granted in connection with and in furtherance of the
Company's compensatory benefit plan for the Company's employees (including
officers), directors or consultants, and is intended to comply with the
provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"). Defined
terms not explicitly defined in this Stock Option Agreement but defined in the
Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in the Grant Notice, provided that vesting will cease
upon the termination of your Continuous Status as an Employee, Director or
Consultant.
2. METHOD OF PAYMENT.
(a) PAYMENT OPTIONS. Payment of the exercise price by cash
or check is due in full upon exercise of all or any part of your option,
provided that you may elect, to the extent permitted by applicable law and the
Grant Notice, to make payment of the exercise price under one of the following
alternatives:
(i) Payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;
(ii) Provided that the option exercise price for the
installment, or portion thereof, being purchased exceeds one thousand dollars
($1,000), payment pursuant to the deferred payment alternative described
herein; or
(iii) Payment by a combination of the above methods.
(b) DEFERRED PAYMENT. Under the deferred payment
alternative:
(i) At least ten percent of the exercise price shall be
due at the time of exercise, at least ten percent of the exercise price plus
accrued interest shall be due each anniversary of the date of exercise, with
final payment of the remainder of the exercise price, plus accrued interest,
due five years from the date of exercise or, at the Company's election,
1
<PAGE> 16
upon termination of your Continuous Status as an Employee, Director or
Consultant with the Company or an Affiliate of the Company;
(ii) Interest shall be payable at least annually and
shall be charged at the minimum rate of interest necessary to avoid the
treatment as interest, under any applicable provisions of the Internal Revenue
Code of 1986 (the "Code"), of any portion of any amounts other than amounts
stated to be interest under the deferred payment arrangement; and
(iii) To elect the deferred payment alternative, your
written notice of exercise must state that you are electing this payment
alternative and, if the Company so requests, you must tender to the Company a
promissory note and a security agreement covering the purchased shares, both in
form and substance satisfactory to the Company, or such other or additional
documentation as the Company may require.
3. EXERCISE PRIOR TO VESTING. If permitted in the Grant Notice, and
subject to the provisions of your option contained herein, you may elect, at
any time that is both (i) during your Continuous Status as an Employee,
Director or Consultant and (ii) during your option's term, to exercise all or
part of your option, including the nonvested portion of your option; provided,
however, that:
(i) a partial exercise of your option shall be deemed to
cover first vested shares and then the earliest vesting installment of unvested
shares;
(ii) any shares so purchased from installments which
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(iii) you shall enter into the Company's form of Early
Exercise Stock Purchase Agreement with a vesting schedule that will result in
the same vesting as if no early exercise had occurred; and
(iv) your option shall not be exercisable with respect
to any unvested installment to the extent such exercise would cause the
aggregate fair market value of any shares subject to incentive stock options
granted you by the Company (valued as of their grant date) which would become
exercisable for the first time during any calendar year to exceed $100,000.
4. WHOLE SHARES. Your option may only be exercised for whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, your option may not be exercised unless the shares
issuable upon exercise of your option are then registered under the Securities
Act or, if such shares are not then so registered, the Company has determined
that such exercise and issuance would be exempt from the registration
requirements of the Securities Act.
2
<PAGE> 17
6. TERM. The term of your option commences on the date of grant and
expires upon the earliest of:
(i) the Expiration Date indicated in the Grant Notice;
(ii) the tenth (10th) anniversary of the Date of Grant;
(iii) twelve (12) months after your death, if you die
during, or within thirty (30) days after the termination of your Continuous
Status as Employee, Director or Consultant; or
(iv) twelve (12) months after the termination of your
Continuous Status as Employee, Director or Consultant due to disability; or
(v) ninety (90) days after the termination of your
Continuous Status as an Employee, Director or Consultant for any other reason,
provided that if during any part of such ninety (90) day period the option is
not exercisable solely because of the condition set forth in paragraph 5
(Securities Law Compliance), in which event the option shall not expire until
the earlier of the Expiration Date or until it shall have been exercisable for
an aggregate period of ninety (90) days after the termination of Continuous
Status as an Employee, Director or Consultant.
To obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company, except
in the event of your death or permanent and total disability. The Company
cannot guarantee that your option will be treated as an "incentive stock
option" if you exercise your option more than three (3) months after the date
your employment with the Company terminates.
7. EXERCISE.
(a) You may exercise the vested portion of your option during its
term (and the unvested portion of your option if the Grant Notice so permits)
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that:
(i) as a condition to any exercise of your option, the
Company may require you to enter an arrangement providing for the payment by
you to the Company of any tax withholding obligation of the Company arising by
reason of (1) the exercise of your option;
3
<PAGE> 18
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise;
(ii) if your option is an incentive stock option, you
will notify the Company in writing within fifteen (15) days after the date of
any disposition of any of the shares of the Common Stock issued upon exercise
of your option that occurs within two (2) years after the date of your option
grant or within one (1) year after such shares of Common Stock are transferred
upon exercise of your option; and
(iii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of
the offering of any securities of the Company under the Act, require that you
not sell or otherwise transfer or dispose of any shares of Common Stock or
other securities of the Company during such period (not to exceed one hundred
eighty (180) days) following the effective date of the registration statement
of the Company filed under the Act as may be requested by the Company or the
representative of the underwriters. You further agree that the Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
8. TRANSFERABILITY. Your option is not transferable, except by will
or by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to
the Company, in a form satisfactory to the Company, you may designate a third
party who, in the event of your death, shall thereafter be entitled to exercise
your option.
9. RIGHT OF REPURCHASE. In the event you have not been employed by
the Company for two uninterrupted years from your Hire Date (as specified in
the Grant Notice), the Company shall have the right, for a period of 180 days
after you are no longer employed by the Company or its Affiliates, to purchase
from you at the Exercise Price Per Share (as adjusted pursuant to the Plan)
each share you purchased as the result of the exercise of any vested portion of
your option.
10. OPTION NOT A SERVICE CONTRACT. Your option is not an employment
contract and nothing in your option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company. In
addition, nothing in your option shall obligate the Company, its shareholders,
board of directors, officers or employees to continue any relationship which
you might have as a director or consultant for the Company.
11. NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt
or, in the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the
last address you provided to the Company.
4
<PAGE> 19
12. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, including without limitation the provisions of the Plan relating to
option provisions, and is further subject to all interpretations, amendments,
rules and regulations which may from time to time be promulgated and adopted
pursuant to the Plan. In the event of any conflict between the provisions of
your option and those of the Plan, the provisions of the Plan shall control.
5
<PAGE> 1
EXHIBIT 10.3
CORAL SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED AUGUST 22, 1996
APPROVED BY THE STOCKHOLDERS ON _____________, 19__
1. PURPOSE
(a) The purpose of the Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of Coral Systems, Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are
defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code
of 1986, as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of its employees, to secure and retain the services of new employees,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to
a Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of
the Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of
the Company shall be eligible to participate in the Plan.
1.
<PAGE> 2
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the intent that
the Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a
Committee composed of not fewer than two (2) members of the Board (the
"Committee"). If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest
in the Board the administration of the Plan.
3. SHARES SUBJECT TO THE PLAN
(a) Subject to the provisions of paragraph 12 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
rights granted under the Plan shall not exceed in the aggregate nine hundred
thousand (900,000) shares of the Company's common stock (the "Common Stock").
If any right granted under the Plan shall for any reason terminate without
having been exercised, the Common Stock not purchased under such right shall
again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING
(a) The Board or the Committee may from time to time grant or
provide for the grant of rights to purchase Common Stock of the Company under
the Plan to eligible employees (an "Offering") on a date or dates (the
"Offering Date(s)") selected by the Board or the Committee. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
or the Committee shall deem appropriate, which shall comply with the
requirements of Section 423(b)(5) of the Code that all employees granted rights
to purchase stock under the Plan shall have the same rights and privileges.
The terms and conditions of an Offering shall be incorporated by reference into
the Plan and treated as part of the Plan. The provisions of separate Offerings
need not be identical, but each Offering shall include (through incorporation
of the provisions of this Plan by reference in the document comprising the
Offering or otherwise) the period during which the Offering shall be effective,
which period shall not exceed twenty-seven
2.
<PAGE> 3
(27) months beginning with the Offering Date, and the substance of the
provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the
Plan, unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right
with a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY
(a) Rights may be granted only to employees of the Company or, as
the Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall
have the same characteristics as any rights originally granted under that
Offering, as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights
under the Plan if, immediately after any such rights are granted, such employee
owns stock possessing five percent
3.
<PAGE> 4
(5%) or more of the total combined voting power or value of all classes of
stock of the Company or of any Affiliate. For purposes of this subparagraph
5(c), the rules of Section 424(d) of the Code shall apply in determining the
stock ownership of any employee, and stock which such employee may purchase
under all outstanding rights and options shall be treated as stock owned by
such employee.
(d) An eligible employee may be granted rights under the Plan only
if such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock
of the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at
the time such rights are granted) for each calendar year in which such rights
are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that
the Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering
(the "Purchase Date(s)") on which rights granted under the Plan shall be
exercised and purchases of Common Stock carried out in accordance with such
Offering.
(b) In connection with each Offering made under the Plan, the
Board or the Committee may specify a maximum number of shares that may be
purchased by any employee as well as a maximum aggregate number of shares that
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each Offering that contains more than one Purchase
Date, the Board or the Committee may specify a maximum aggregate number of
shares which may be purchased by all eligible employees on any given Purchase
Date under the Offering. If the aggregate purchase of shares upon exercise of
rights granted under the Offering would exceed any such maximum aggregate
number, the Board or the Committee shall make a pro rata allocation of the
shares available in as nearly a uniform manner as shall be practicable and as
it shall deem to be equitable.
(c) The purchase price of stock acquired pursuant to rights
granted under the Plan shall be not less than the lesser of:
4.
<PAGE> 5
(i) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION
(a) An eligible employee may become a participant in the Plan
pursuant to an Offering by delivering a participation agreement to the Company
within the time specified in the Offering, in such form as the Company
provides. Each such agreement shall authorize payroll deductions of up to the
maximum percentage specified by the Board or the Committee of such employee's
Earnings (as defined by the Board for each Offering) during the Offering. The
payroll deductions made for each participant shall be credited to an account
for such participant under the Plan and shall be deposited with the general
funds of the Company. A participant may reduce (including to zero) or increase
such payroll deductions, and an eligible employee may begin such payroll
deductions, after the beginning of any Offering only as provided for in the
Offering. A participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the participant
has not had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate
his or her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering.
Upon such withdrawal from the Offering by a participant, the Company shall
distribute to such participant all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire stock
for the participant) under the Offering, without interest, and such
participant's interest in that Offering shall be automatically terminated. A
participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such
rights are granted.
5.
<PAGE> 6
8. EXERCISE
(a) On each Purchase Date specified therefor in the relevant
Offering, each participant's accumulated payroll deductions and other
additional payments specifically provided for in the Offering (without any
increase for interest) will be applied to the purchase of whole shares of stock
of the Company, up to the maximum number of shares permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase price specified
in the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of shares
which is less than the amount required to purchase one share of stock on the
final Purchase Date of an Offering shall be held in each such participant's
account for the purchase of shares under the next Offering under the Plan,
unless such participant withdraws from such next Offering, as provided in
subparagraph 7(b), or is no longer eligible to be granted rights under the
Plan, as provided in paragraph 5, in which case such amount shall be
distributed to the participant after such final Purchase Date, without
interest. The amount, if any, of accumulated payroll deductions remaining in
any participant's account after the purchase of shares which is equal to the
amount required to purchase whole shares of stock on the final Purchase Date of
an Offering shall be distributed in full to the participant after such Purchase
Date, without interest.
(b) No rights granted under the Plan may be exercised to any
extent unless the shares to be issued upon such exercise under the Plan
(including rights granted thereunder) are covered by an effective registration
statement pursuant to the Securities Act of 1933, as amended (the "Securities
Act") and the Plan is in material compliance with all applicable state, foreign
and other securities and other laws applicable to the Plan. If on a Purchase
Date in any Offering hereunder the Plan is not so registered or in such
compliance, no rights granted under the Plan or any Offering shall be exercised
on such Purchase Date, and the Purchase Date shall be delayed until the Plan is
subject to such an effective registration statement and such compliance, except
that the Purchase Date shall not be delayed more than twelve (12) months and
the Purchase Date shall in no event be more than twenty-seven (27) months from
the Offering Date. If on the Purchase Date of any Offering hereunder, as
delayed to the maximum extent permissible, the Plan is not registered and in
such compliance, no rights granted under the Plan or any Offering shall be
exercised and all payroll deductions accumulated during the Offering (reduced
to the extent, if any, such deductions have been used to acquire stock) shall
be distributed to the participants, without interest.
9. COVENANTS OF THE COMPANY
(a) During the terms of the rights granted under the Plan, the
Company shall keep available at all times the number of shares of stock
required to satisfy such rights.
(b) The Company shall seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to issue and sell shares of stock upon
exercise of the rights granted under the Plan. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission
6.
<PAGE> 7
or agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
rights unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights hereunder are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK
(a) If any change is made in the stock subject to the Plan, or
subject to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4)
the acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or any comparable successor provisions (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or any
Affiliate of the Company) of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then, as
determined by the Board in its sole discretion (i) any surviving or acquiring
corporation may assume outstanding rights or substitute similar rights for
those under the Plan, (ii) such rights may continue in full force and effect,
or (iii) participants' accumulated payroll deductions may be used to purchase
Common Stock immediately prior to the transaction described above and the
participants' rights under the ongoing Offering terminated.
7.
<PAGE> 8
13. AMENDMENT OF THE PLAN
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 12 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for rights
under the Plan;
(ii) Modify the provisions as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Rule
16b-3")); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to employee stock purchase
plans and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan, except with the consent of the person to whom such rights were granted,
or except as necessary to comply with any laws or governmental regulations, or
except as necessary to ensure that the Plan and/or rights granted under the
Plan comply with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to the end
of an Offering but prior to delivery to the participant of such shares and
cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its sole discretion, may
deliver such shares and/or cash to the
8.
<PAGE> 9
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN
(a) The Board in its discretion, may suspend or terminate the Plan
at any time. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except as expressly provided in the Plan or with the consent of the
person to whom such rights were granted, or except as necessary to comply with
any laws or governmental regulation, or except as necessary to ensure that the
Plan and/or rights granted under the Plan comply with the requirements of
Section 423 of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the same day that the Company's
initial public offering of shares of common stock becomes effective (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board or the Committee, which date may be prior to the Effective Date.
9.
<PAGE> 1
EXHIBIT 10.4
LEASE INFORMATION SUMMARY
<TABLE>
<S> <C> <C>
1. Landlord: The Lincoln National Life
Insurance Company, Inc.
2. Landlord's Address: P.O. Box 1110
Ft. Wayne, IN 46801
3. Landlord's Representative: Gibbons-White, Inc.
4. Tenant: Coral Systems, Inc., a Colorado corporation
5. Tenant's Address: 1727 Contestoga Street
Boulder, CO 80301
6. Tenant's Representative: Eric Johnson
7. Building and Other Building 2, Suite E, 1500
Improvements: Kansas, Longmont, CO
8. Leased Premises: 4,800 square feet (See Exhibit A attached)
9. Base Rent: (Annual) $22,740.00
(Monthly) $1,895.00
10. Base Rent Adjustments: See Article #8
11. Security Deposit: $2,400.00
12. Term (Estimated
Length): Three (3) years
13. Scheduled Term June 1, 1992
Commencement Date:
14. Term Expiration Date: May 31, 1995
15. Tenant's Plan
Delivery Date: N/A
16. Permitted Use: Research, development and general administration of
computer software
17. Tenant's Proportionate
Share: N/A
18. Addendum: General Addendum
</TABLE>
19. Exhibits:
Exhibit A - Site Plan
Exhibit B - Building & Initial Improvements of Leased
Premises
Exhibit C - Building Rules and Regulations
1
<PAGE> 2
LEASE AGREEMENT
1500 KANSAS
LONGMONT, COLORADO
1. PARTIES
This Lease, dated this 19th day of May, 1992, is entered into between
The Lincoln National Life Insurance Company, Inc., as Landlord ("Landlord"),
whose address is P.O. Box 1110, Ft. Wayne, Indiana 46801, and Coral Systems,
Inc., a Colorado corporation, as Tenant ("Tenant"), whose address is 1727
Contestoga, Boulder, Colorado 80301.
2. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord those
certain premises as shown on the floor plan attached hereto as Exhibit B (the
"Premises") consisting of approximately 4,800 square feet of space located at
1500 Kansas Avenue in Longmont, Colorado (the "Project") as described on Exhibit
A attached hereto and incorporated herein by this reference. Tenant shall also
have the right to nonexclusive revocable use of all common areas in the
Project designated by Landlord for use by tenants of the Project, in accordance
with and subject to the provisions of this Lease, and such use shall be further
subject at all times to such reasonable, uniform, and nondiscriminatory rules
and regulations as may from time to time be established by Landlord.
3. USE
(a) Permitted Use. Tenant shall use the Premises for light
industrial uses, including computer software research, development, sales and
offices for administration and shall not use or permit the Premises to be used
for any other purpose.
(b) Exterior Storage. Tenant shall not place any trash, litter or
other objects in any location outside of the Premises, including the Common
Areas, and trash and litter shall not be placed in any location other than in
designated trash receptacles.
(c) Auctions. Tenant shall not conduct any sale by auction from
the Premises whether voluntary, involuntary, pursuant to any assignment for the
benefit of creditors, or pursuant to any bankruptcy or other insolvency
proceedings.
(d) Uses Prohibited. Tenant shall not do anything which will
increase the existing rate of any insurance upon the Project, or cause a
cancellation of such insurance. Landlord's current insurance policy
contemplates the light industrial nature of the property. Tenant shall not do
anything which will interfere with other tenants at the Project. Tenant shall
not use the Premises for any improper, immoral, unlawful or objectionable
purpose. Tenant shall not permit any nuisance about the Premises or the
Project. Tenant shall not commit any waste upon the Premises or the Project.
(e) Compliance with Law. Tenant shall comply with all laws,
statutes, ordinances, and governmental rules, regulations or requirements now
in force, or which may hereafter be in force, and with the requirements of any
board of fire underwriters or other similar bodies now or hereafter constituted
related to the Premises. Further, the judgment of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any such law,
statute, ordinance, rule, regulation, or requirement, shall be conclusive of
the fact as between Landlord and Tenant.
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<PAGE> 3
4. ENVIRONMENTAL MATTERS.
(a) Environmental Compliance. Tenant and its agents and employees
shall use the Premises and conduct any operations thereon in compliance with
all applicable federal, state and local environmental statutes, regulations,
ordinances and any permits, approvals or judicial or administrative orders
issued thereunder.
(b) Environmental Hazards. Tenant covenants that:
(i) No hazardous substances shall be generated, treated,
stored or disposed of, or otherwise deposited in or located on the Premises or
the Project, including without limitation, the surface and subsurface waters of
the Premises, except such use as in compliance with applicable regulations and
laws;
(ii) No activity shall be undertaken on the Premises or
the Project which would cause:
a. the Project or the Premises to become a
hazardous waste treatment, storage or disposal facility within the meaning of,
or otherwise cause the Premises to be in violation of the Resource Conservation
and Recovery act of 1976 ("RCRA"), 42 U.S.C. Section 6901 et seq., or any
similar state law or local ordinance;
b. a release or threatened release from any
source on the Project or the Premises of Hazardous Substances from the Premises
within the meaning of, or otherwise cause the Premises to be in violation of,
the Comprehensive Environmental Response Compensation and Liability Act, as
amended ("CERCLA"), 42 U.S.C. Section 9601 et seq., or any similar law or local
ordinance or any other environmental law; or
c. the discharge of pollutants or effluents into
any water source or system, or the discharge into the air of any emissions,
which would require a permit under the Federal Water Pollution Control Act
("FWPCA"), 33 U.S.C. Section 1251 et seq., or the Clean Air Act ("CAA"), 42
U.S.C. Section 7401 et seq., or any similar state law or local ordinance;
(iii) There shall be no substances or conditions in or on
the Project or the Premises which may support a claim or cause of action under
RCRA, CERCLA, any other federal, state or local environmental statutes,
regulations, ordinances or other environmental regulatory requirements or under
any common law claim relating to environmental matters, or could result in
recovery by any governmental or private party or remedial or removal costs,
natural resources damages, property damages, damages in personal injuries or
other costs, expenses or damages, or could result in injunctive relief arising
from any alleged injury or threat of injury to health, safety or the
environment; and
(iv) there shall be no storage tanks or release or
threatened releases from such tanks located on the Premises.
For purposes of this Lease, "Hazardous Substances" shall mean any and
all hazardous or toxic substances, hazardous constituents, contaminants,
wastes, pollutants or petroleum (including without limitation crude oil or any
fraction thereof), including without limitation hazardous or toxic substances,
pollutants and/or contaminants as such terms are defined in CERCLA or RCRA;
asbestos or material containing asbestos; and PCBs, PCB articles, PCB
containers PCB N277.
5. CONSTRUCTION AND ACCEPTANCE OF PREMISES.
(a) Construction of the Premises. Tenant shall proceed to complete
the Premises in accordance with the work (and certain provisions relating to
the construction thereof) shown on Exhibit B
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<PAGE> 4
hereto ("Tenant's Work"). Tenant warrants that it shall utilize the services of
a licensed, insured, bondable general contractor and that its work shall abide
by the provisions of Article 10 of the Lease. The Premises shall be deemed to
be "Ready for Occupancy" when Tenant's contractor provides a temporary
certificate of occupancy, except for minor or insubstantial construction,
mechanical adjustment or decoration, the noncompletion of which will not
materially interfere with Tenant's normal use of the Premises. Landlord shall
have no obligation for the completion of the Premises. Upon completion of
Tenant's work and upon Tenant providing to Landlord all necessary lien waivers,
Landlord shall pay to Tenant an amount of $6,000.00 as reimbursement for
Tenant's permanent improvements to the Leased Premises.
(b) Acceptance of Premises. After Tenant occupies the Premises,
Tenant shall be deemed to have fully accepted the Premises, except as to
mutually agreed "punch list" items with respect to the Premises. Neither
Landlord nor Landlord's agents have made any representations, warranties or
promises with respect to the physical condition of the Project, the land upon
which it is erected, or the Premises, or any matter or thing affecting or
related to the Premises except as herein expressly set forth.
(c) Commencement Date. The "Commencement Date" of this Lease shall
be the later of Substantial Completion of the Premises or the Scheduled
Commencement Date, but in no event later than July 1, 1992. Promptly following
the Commencement Date, Landlord and Tenant shall execute an agreement
acknowledging that Tenant has accepted possession, and reciting the exact
Commencement Date and termination date of the Lease. Should the actual
Commencement Date be later than the Scheduled Commencement Date, the
Termination Date shall be extended by the same period as the Commencement Date
extended past the Scheduled Commencement Date. The failure by either party, or
both parties, to execute such an agreement shall not affect the rights or
obligations of either party hereunder. Such agreement, when so executed and
delivered, shall be deemed to be a part of this Lease. "Substantial Completion"
shall mean that date after which Tenant has completed Tenant's work at the
Premises and a temporary Certificate of Occupancy allowing Tenant to occupy the
Premises has been issued by the appropriate governmental authority. Substantial
Completion shall be deemed to have occurred notwithstanding a requirement to
complete "punch list" or similar corrective work and notwithstanding that Tenant
Work may not be completed or operable.
6. TERM.
This Lease shall have a term of three (3) years ("Primary Lease
Term"), commencing on the Commencement Date. The "Scheduled Commencement Date"
is June 1, 1992, and the Termination Date of this Lease is anticipated to be
May 31, 1995, although no guaranty is given by Landlord with respect thereto.
If the Commencement Date is not the first day of the month, Rent for the month
in which the Commencement Date occurs shall be prorated based on the number of
days during such month that the term is in effect. The first full monthly
installment of Base Rent shall be due on the first day of the next month and
after the expiration of the number of years of the Primary Lease Term, the term
shall be extended on the last day of the same month in which the Commencement
Date of the Primary Lease Term occurred, it being the intent of the parties that
the Primary Lease Term expire on the last day of a month. If, after the
expiration or earlier termination of this Lease as provided herein, Tenant shall
remain in possession of the Premises without an express written agreement with
Landlord as to such holding, then such holding over, at Landlords sole
discretion may be deemed and taken to be a renewal and extension of this Lease
for a month-to-month tenancy subject to and on the same terms and conditions as
provided in this Lease on the part of the Tenant to be observed and
3
<PAGE> 5
performed except that the Base Rent shall be equal to one and one half times
the annual Base Rent for the year prior to the time the Lease expired or
otherwise terminated. Throughout such period of holding over, Tenant shall also
pay Additional Rent as provided in the Lease.
7. SECURITY DEPOSIT.
Tenant has deposited with Landlord the sum of $2,400.00. Said sum
shall be held by Landlord as security for the faithful performance by Tenant of
all the terms of this Lease. If Tenant defaults with respect to any provisions
of this Lease, including, but not limited to, the provisions relating to the
payment of Rent, Landlord may apply any part of this security deposit to the
payment of any sum in default, accrued interest, late payment fees, or for the
payment of, or to compensate Landlord for, any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of the
security deposit is so applied, Tenant shall immediately deposit cash with
Landlord to restore the security deposit to its original amount. Landlord shall
not be required to keep this security deposit separate from its general funds,
and Tenant shall not be entitled to interest on the security deposit. If Tenant
shall fully and faithfully perform every provision of this Lease to be
performed by it, the security deposit or any balance thereof shall be returned
to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest
hereunder) within sixty (60) days following expiration of the Lease term and
surrender of the Premises by Tenant. In the event the Project is sold, Landlord
may transfer the security deposit to the purchaser and Landlord shall be
relieved of any further liability to Tenant regarding the security deposit.
8. RENT.
Tenant shall pay to Landlord, without offset, deduction, notice, or
demand, rent, which term shall include Base Rent ("Rent") for the Premises as
follows:
(a) Base Rent. Tenant shall pay to Landlord as base rent during
the Primary Lease Term ("Base Rent") the following monthly payments payable in
monthly installments as follows, in advance, on or before the first day of each
and every calendar month during the term hereof, except the first month's Base
Rent shall be paid upon the execution of this Lease by Tenant. Rent shall be
paid to Landlord in lawful money of the United States of America at the address
of Landlord set forth in Section 1 hereof, or such place as Landlord may from
time to time designate in writing.
Months 1-12: One Thousand Eight Hundred Ninety-five and no/100
Dollars ($1,895.00) per month
Months 13-24: Two Thousand Four Hundred and no/100 Dollars
($2,400.00) per month
Months 25-36: Two Thousand Six Hundred and no/100 Dollars
($2,600.00) per month
(b) Late Charge. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Base Rent, Additional Rent, or other sums due hereunder
will cause Landlord to incur costs of which will be difficult to ascertain.
Such costs include, but are not limited to, processing and accounting charges,
and late charges which may be imposed upon Landlord by terms of any mortgage or
trust deed encumbering the Project. Accordingly, if any installment of Base
Rent, Additional Rent, or any other sum due from Tenant shall not be received
by Landlord within seven (7) days of the date such amount is due, Tenant shall
pay to Landlord on demand a late charge of five percent (5%) of such overdue
amount, plus any attorneys' fees incurred by Landlord by reason of Tenant's
failure to pay such amount. Any Rent or sums due from Tenant which
4
<PAGE> 6
are more than one (1) month delinquent shall bear interest at the rate of
eighteen percent (18%) per annum ("Interest Rate") from the due date. Tenant
shall pay on demand Twenty-five Dollars ($25.00) for any check returned for
insufficient funds. All such charges shall be deemed Additional Rent hereunder.
9. SERVICES.
(a) Separately Metered Services. The Premises shall be separately
metered for gas and electric utility services. Tenant shall be responsible for
contracting directly in its own name with the appropriate utility supplier for
all gas and electric service to the Premises. Tenant shall be responsible for
payment of all fees and costs for such gas and electric service to the
Premises, directly to the applicable utility supplier, prior to delinquency.
(b) Service Interruption. Landlord shall not be liable for failure
or interruption of utility services systems or services so long as Landlord
uses reasonable diligence to provide or restore such services. Landlord may
discontinue services due to accident, repairs, strikes, acts of God, or any
other event beyond the reasonable control of Landlord. In such event, Landlord
shall not be liable for such failure or discontinuance, nor shall such failure
or discontinuance be construed as a constructive eviction of Tenant or cause an
abatement of Rent. Landlord's obligation to furnish systems for the delivery of
electricity and gas is further conditioned upon the availability of adequate
sources from the utility company servicing the Project. Landlord may take
reasonable measures to reduce or modify heating, cooling or lighting in the
Project, without liability, to comply with any public energy-saving program.
(c) Payment by Tenant. Tenant shall pay, prior to delinquency and
directly to the applicable supplier, for all services and utilities supplied to
the Premises and separately metered, together with any taxes thereon. If any
services are not separately metered to Tenant, Tenant shall pay Tenant's Pro
Rata Share of all charges jointly metered with other space in the Project.
Tenant shall arrange and pay for its own telephone service.
10. TENANT REPAIRS AND ALTERATIONS.
(a) Repairs. Tenant shall, at Tenant's sole cost and expense, keep
the Premises and every part thereof, excluding all structural elements, roofing
and HVAC, including but not limited to interior surfaces of ceilings, walls and
floors; doors, windows, plate glass; and all plumbing pipes and apparatus,
electrical fixtures, furnishings and equipment, in good condition and repair,
with exception to plumbing, pipes and electrical systems damaged not as a
result of Tenant's misuse or lack of maintenance, Tenant shall, upon the
expiration or earlier termination of this Lease, surrender the Premises to
Landlord in good condition, broom clean, ordinary wear and tear excepted.
Tenant shall not be obligated to make repairs necessitated by fire or other
casualty unless caused in whole or in part by the act, omission or negligence
of Tenant, its agents, employees and invitees. Notwithstanding the foregoing all
damage or injury to the Premises or to any other part of the Project caused by
carelessness, omission, neglect, or improper conduct of Tenant, its employees,
agents, subtenants, assignees or invitees shall be repaired promptly by Tenant
at its sole cost and expense, to the satisfaction of Landlord reasonably
exercised. Tenant shall remove all of Tenant's signage from the Premises at the
termination of the Lease.
(b) Alterations. Tenant shall not make any alterations, additions
or improvements to the Premises, or change any plumbing or wiring, without the
prior written consent of Landlord. Plans and specifications for such work shall
be submitted to and approved in writing by Landlord prior to commencement of
any such work. No
5
<PAGE> 7
fixtures that are permanently attached shall be removed from the Premises.
Landlord shall have the right to approve Tenant's contractors as well as the
general manner and method in which such work is to be performed. Prior to
commencement of any work, Tenant shall provide Landlord with insurance
certificates evidencing that all contractors and subcontractors have workmen's
compensation insurance, and builder's risk insurance in amounts and with
coverages satisfactory to Landlord. Any such improvements, including wall
covering, paneling and built-in cabinet work, but excepting movable furniture
and trade fixtures, shall at once become a part of the realty and belong to
Landlord and shall be surrendered with the Premises. Upon the expiration of the
term hereof, Tenant shall, upon written demand by Landlord, at Tenant's sole
cost and expense, remove any alterations, additions or improvements made by
Tenant, not approved by Landlord, designated by Landlord to be removed; and
Tenant shall, at its sole cost and expense, repair any damage to the Premises
caused by such removal. At least twenty (20) days prior to the commencement of
any work on the Premises, Tenant shall notify Landlord of the names and
addresses of the persons supplying labor and materials so that Landlord may
give notice that it shall not be subject for any lien for Tenant's work, in
accordance with Colorado's mechanics' lien statutes. Landlord shall have the
right to keep posted on the Premises notice to such persons in accordance with
such statute.
(c) Mechanics' Liens. Tenant shall pay or cause to be paid all
costs for work done by or on behalf of Tenant or caused to be done by or on
behalf of Tenant on the Premises of a character which will or may result in
liens against Landlord's interest in the Premises or the Project, or any part
thereof and Tenant will keep the same free and clear of all mechanics' liens and
other liens on account of work done for or on behalf of Tenant or persons
claiming under Tenant. Tenant hereby agrees to indemnify, defend and save
Landlord harmless of and from all liability, loss, damages, costs or expenses,
including attorneys' fees, incurred in connection with any claims of any nature
whatsoever for work performed for, or materials or supplies furnished to
Tenant, including lien claims of laborers, materialmen or others. Should any
such liens be filed or recorded against the Premises or the Project with
respect to work done for or materials supplied to or on behalf of Tenant or
should any action affecting the title thereto be commenced, Tenant shall cause
such liens to be released of record within thirty (30) days after notice
thereof. If Tenant desires to contest any such claim of lien, Tenant shall
nonetheless cause such lien to be released of record by the posting of adequate
security with a court of competent jurisdiction as may be provided by
Colorado's mechanics' lien statutes. If Tenant shall be delinquent in paying any
charge for which such a mechanics' lien or suit to foreclose such a lien has
been recorded or filed and shall not have caused the lien to be released as
aforesaid, Landlord may (but without being required to do so) pay such lien or
claim and costs associated therewith, and the amount so paid, together with
interest thereon at the Interest Rate and reasonable attorneys' fees incurred
in connection therewith, shall be immediately due from Tenant to Landlord as
Additional Rent.
11. INDEMNITY.
Tenant shall indemnify and hold harmless Landlord against and from any
and all claims arising from Tenant's use of the Premises, the content of its
business or any claim arising from any breach or default on Tenant's part
under the terms of this Lease, or from any act, omission, or negligence of
Tenant, or any officer, agent, employee, guest or invitee of Tenant, and from
all costs, attorneys' fees, and liabilities incurred in or about the defense of
any such claim or any action or proceeding brought thereon, except from any
act, omission or negligence by Landlord or its agents. Tenant assumes all risk
of damage to property or injury to persons in, upon or about the Premises, from
any cause other than Landlord's negligence. Tenant waives all claims with
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<PAGE> 8
respect thereof against Landlord. Tenant shall give prompt notice to Landlord
in case of casualty or accidents in the Premises.
12. INSURANCE.
Tenant shall procure and maintain at its own cost at all times during
the term of this Lease and any extensions hereof, fire, hazard and extended
coverage insurance on Tenant's property and the contents of the Premises in an
amount not less than full replacement value, plate glass insurance,
comprehensive general liability insurance, including coverage for bodily
injury, property damage, personal injury (employee and contractual liability,
exclusions deleted), products and completed operations, contractual liability,
owner's protective liability, and broad form property damage with the following
limits of liability: One Million Dollars ($1,000,000.00) each occurrence
combined single limit for bodily injury, property damage and personal injury;
One Million Dollars ($1,000,000.00) aggregate for bodily injury and property
damage for products and completed operations. All such insurance shall be
procured from a responsible insurance company authorized to do business in
Colorado and rated no lower by Best than AA, and shall be otherwise
satisfactory to Landlord. All such policies shall name Landlord and Landlord's
managing agent as an additional insured, and shall provide that the same may
not be canceled or altered except upon thirty (30) days prior written notice to
Landlord. All insurance maintained by Tenant shall be primary to any insurance
provided by Landlord. If Tenant obtains any general liability insurance policy
on a claims-made basis, Tenant shall provide continuous liability coverage for
claims arising during the entire term of this Lease, regardless of when such
claims are made, either by obtaining an endorsement providing for an unlimited
extended reporting period in the event such policy is canceled or not renewed
for any reason whatsoever or by obtaining new coverage with a retroactive date
the same as or earlier than the expiration date of the canceled or expired
policy. Tenant shall provide certificate(s) of such insurance to Landlord upon
commencement of the Lease term and at least thirty (30) days prior to any
annual renewal date thereof and upon request from time to time and such
certificate(s) shall disclose that such insurance names Landlord and Landlord's
managing agent as an additional insured, in addition to the other requirements
set forth herein. The limits of such insurance shall not, under any
circumstances, limit the liability of Tenant hereunder.
13. SUBROGATION.
As long as their respective insurers so permit, Landlord and Tenant
hereby mutually waive their respective rights of recovery against each other
for any loss or damage to property insured by fire, extended coverage, or any
other property insurance policies existing for the benefit of the respective
parties. The foregoing waiver shall be in force only if both parties' insurance
policies contain a clause providing that such a waiver shall not invalidate the
insurance and such a policy can be obtained without additional premiums.
14. LANDLORD REPAIRS.
Landlord shall maintain all portions of the Project not the obligation
of Tenant or any other tenant in good order, condition and repair. There shall
be no abatement of Rent and no liability of Landlord by reason of any injury
to, or interference with, Tenant's business arising from the making of any
repairs, alterations or improvements so long as Landlord makes every reasonable
effort not to interfere with Tenant's business. Tenant waives the right to make
repairs at Landlord's expense under any law, statute or ordinance in effect.
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<PAGE> 9
15. COMMON AREAS AND PARKING.
All Common Areas shall be at all times under Landlord's exclusive
control. Landlord reserves the right to change the entrances, exits, traffic
lanes and the boundaries and locations of parking areas, as long as Tenant's
business is not materially disrupted. Landlord shall keep parking and common
areas in clean and orderly condition. Tenant shall furnish to Landlord, upon
request, a complete list of license numbers of all automobiles operated by
Tenant and its employees. The term "Common Areas" means all the areas of the
Project and other areas described in Exhibit "A" which are not intended for
renting and, instead, designed for the common use and benefit of the Landlord
and all of the tenants, their employees, agents, customers, and invitees. The
Common Areas include, but, are not limited to, parking lots, landscaped and
vacant areas, driveways, walks, and curbs, and facilities appurtenant to each,
as such areas may exist from time to time. Landlord expressly reserves the
right to add additional Common Areas to the Project from time to time.
16. LIMITED LIABILITY.
Landlord shall not be liable for any loss or damage resulting from:
(a) fire, explosion, falling plaster, steam, gas, electricity, water or rain;
(b) the pipes, appliances or plumbing systems in the Project; (c) the roof,
street, subsurface; (d) any variation or interruption of utility services; (e)
theft or other criminal acts of third parties; or (f) any other cause
whatsoever, unless due to the negligence of Landlord.
17. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign this Lease or sublet all or any part
of the Premises without the prior written consent of Landlord, which consent
shall not be unreasonably withheld. Landlord's consent to any requested
assignment or subletting shall be subject to the following conditions:
(i) Such consent and resulting subletting or assignment
shall not relieve Tenant of its primary obligations hereunder, including the
obligation for payment of all Rent due hereunder;
(ii) Landlord, at its option and from time to time, may
collect the rent from the subtenant or assignee, and apply the net amount
collected to the rent herein reserved, but no such collection shall be deemed
an acceptance by Landlord of the subtenant or assignee as the tenant hereof, or
a release of Tenant from further performance of covenants on the part of Tenant
herein contained;
(iii) Any such subtenant or assignee shall be a company or
other entity of good repute, engaged in a business or profession compatible
with and in keeping with the standards of the Project and financially capable
of performing its obligations with respect to the Premises;
(b) In the event of any assignment of this Lease or subletting of
all or any part of the Premises by Tenant, Landlord in addition to any rights
contained herein, shall have the following options at its discretion:
(i) To collect and receive the excess of rent due to
Tenant from such sublessee or assignee over the Rent charged to and due from
Tenant hereunder;
(ii) To re-enter and take possession of the Premises or
the part thereof subject to such Transfer, and to enforce all
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<PAGE> 10
rights of Tenant, and receive and collect all rents and other payments due to
Tenant, in accordance with such sublet or assignment of the Premises, or any
part thereof, as if Landlord was the sublettor or assignor, and to do whatever
Tenant is permitted to do pursuant to the terms of such sublease or assignment.
(c) All subleases or assignments shall be in writing and a copy
thereof provided to Landlord within ten (10) days prior to its effective date.
All subleases shall further contain an express provision that in the event of
any default by Tenant under this lease and upon notice thereof to the subtenant
from Landlord, all rentals payable by the subtenant shall be paid directly to
Landlord, for the Tenant's account, until subsequent notice from Landlord that
such default has been cured. Notwithstanding the foregoing, receipt by Landlord
of rent directly from the subtenant shall not be considered a waiver of the
default on the part of Tenant, nor an acceptance of such subtenant.
(d) If Tenant is a corporation, then any type of transfer or
assignment, whether by merger, consolidation, liquidation, or otherwise, or any
change in the ownership or power to vote a majority of Tenant's outstanding
voting stock, shall constitute an assignment. If Tenant is a partnership, then
any change in the identity of the partners having an aggregate interest in the
partnership exceeding fifty percent (50%) shall constitute an assignment. Any
attempted assignment or subletting without Landlord's prior written consent
shall be wholly void and shall constitute a breach of this Lease. Acceptance of
Rent by Landlord from anyone other than Tenant shall not be construed as a
release of Tenant from any obligation or liability under this Lease. The
consent of Landlord to an assignment or underletting shall not be construed to
relieve Tenant from obtaining the written consent of Landlord to any further
assignment or underletting.
18. DAMAGE BY CASUALTY.
(a) Subject to Sections 18(b), (c), (d) and (e), in the event the
Premises are damaged by fire or other casualty, Landlord shall repair such
damage. This Lease shall remain in full force and effect, except that Tenant
shall be entitled to a proportionate abatement of Base Rent based upon the
extent to which the Premises are not usable. If the damage is due to the fault
or neglect of Tenant or its employees, agents, invitees, assignees or
subtenants, there shall be no abatement of Rent.
(b) If the Premises are totally damaged, or if the Project is so
damaged that Landlord shall decide, with reasonable discretion, to demolish it,
then Landlord may elect to terminate the Lease by written notice to Tenant
given within sixty (60) days following such fire or other casualty.
(c) In case of any damage mentioned in this Section 18, Tenant may
cancel this Lease by written notice to Landlord if Landlord has not
substantially completed the making of the required repairs within six (6)
months from the date of damage, which period shall be extended by the number of
days lost in the event of labor strikes, acts of God, or any other similar
causes beyond the control of Landlord; provided, however, that such notice be
given to Landlord within thirty (30) days prior to the expiration of said eight
(8) month period and prior to substantial completion of the required repairs.
(d) Landlord shall not be required to make any repairs or
replacements of any leasehold improvements or fixtures, installed by or the
personal property of Tenant. Landlord's obligation to make any repairs or
replacement to or of the Project or the Premises shall be limited by the
insurance proceeds received and Landlord shall not be required to make such
repairs or replacement
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<PAGE> 11
the total cost of which exceeds the actual insurance proceeds received,
provided Landlord has in place insurance sufficient to rebuild the Premises in
a manner substantially similar to that which currently exists.
19. EMINENT DOMAIN AND CONDEMNATION.
(a) Total Condemnation. If the whole or substantially all of the
Premises shall be taken by condemnation or eminent domain, then the term hereof
shall cease as of the day of the vesting of title or as of the day possession
shall be so taken, whichever is earlier.
(b) Partial Condemnation. If only a portion of the Premises or the
Project is taken by condemnation or eminent domain, Landlord shall be entitled
to terminate this Lease, effective on the day of vesting of title or the day
possession is taken, whichever is earlier, upon giving written notice to Tenant
within ninety (90) days from the taking. If Landlord does not elect to so
terminate this Lease, Landlord shall restore the Premises to the extent
practicable, and Rent shall be abated to the extent there is any diminution in
the usable area of the Premises.
(c) Damages. In the event of any taking, Landlord shall be
entitled to any and all awards and/or settlements which may be given, and
Tenant shall have no claim for the value of any unexpired term of this Lease.
Tenant shall have the right to claim from the condemning authority a separate
award for damage to Tenant's business.
20. ENTRY BY LANDLORD.
Landlord reserves the right, upon reasonable notice except in the
event of an emergency, to enter the Premises to inspect the same, to submit and
show the Premises to prospective purchasers, lenders or tenants, to post
notices of non-responsibility, to post notices of Tenant's failure to comply
with this Lease, or to repair the Premises, without abatement of Rent, and may
for that purpose erect scaffolding and other necessary structures where
reasonably required; provided that the entrance to the Premises shall not be
unreasonably blocked and the business of Tenant shall not be interfered with
unreasonably. Tenant hereby waives any claim for damages to Tenant's business,
any loss of occupancy or quiet enjoyment of the Premises, and any other loss
occasioned thereby. Landlord shall have the right to use any and all means
which Landlord may deem proper to open said doors in an emergency, without any
liability to Tenant except for failure to exercise due care for Tenant's
property. Any entry to the Premises by Landlord permitted under this Lease
shall not be construed to be a forcible or unlawful entry into the Premises, or
an eviction of Tenant from the Premises.
21. DEFAULT BY TENANT.
(a) Event of Default Defined. The following events (herein
referred to as an "Event of Default") shall constitute a default by Tenant
hereunder:
(i) Tenant shall default in the due and punctual payment
of the Base Rent, or any Additional Rent payable hereunder, and such default
shall continue for five (5) days after receipt of written notice from Landlord;
or
(ii) Tenant shall neglect or fail to perform or observe
any of the covenants herein contained on Tenant's part to be performed or
observed and Tenant shall fail to remedy the same within ten (10) days after
the Landlord shall have given to Tenant
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<PAGE> 12
written notice specifying such neglect or failure (or within such additional
period, if any, as may be reasonably required to cure such default if it is of
such nature that it cannot be cured within said ten (10) day period, provided
Tenant has commenced activities to remedy the default and such activities
continue uninterrupted); or
(iii) This Lease or the Premises or any part thereof shall
be taken upon execution or by other process of law directed against Tenant, or
shall be taken upon or subject to any attachment at the instance of any
creditor of or claimant against Tenant, and said attachment shall not be
discharged or disposed of within fifteen (15) days after the levy thereof; or
(iv) Tenant vacates or abandons the Premises or permits
the same to remain vacant or unoccupied for a period of ten (10) continuous
business days, then, in any such event, after written notice has been received
by Tenant from Landlord, Tenant will have ten (10) days to remedy such default,
otherwise Landlord shall have the right at its election, or at any time
thereafter, and while such event of default shall continue, to pursue its
remedies as set forth in Section 21(b)(i, ii, & iii).
(b) Remedies. In the event of any such default or breach by
Tenant, Landlord may at any time thereafter, in its sole discretion, with or
without notice or demand and without limiting Landlord in the exercise of a
right or remedy which Landlord may have by reason of such default or breach,
elect to pursue one or more of the following remedies:
(i) In the event of any such default or breach by Tenant,
Landlord may at any time thereafter, in its sole discretion, re-enter and take
possession of the Premises or any part thereof and repossess the same as
Landlords' former estate without prejudice to any remedies for arrears of rent
or preceding breach of covenants or conditions. Should Landlord elect to
reenter the Premises as provided in this subparagraph (i) or should Landlord
take possession pursuant to legal proceedings or pursuant to any notice
provided for by law, Landlord may, from time to time, without terminating this
Lease, re-let the Premises or any part hereof in Landlord's or Tenant's name,
but for the account of Tenant, for such term or terms (which may be greater or
less than the period which would otherwise have constituted the balance of the
term of this Lease) and on such conditions and upon such other terms (which may
include concessions of free rent and alteration and repair of the Premises) as
Landlord, in its reasonable discretion, may determine, and Landlord may collect
and receive the rents therefor. No such re-entry or taking possession of the
Premises by Landlord shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention be given to
Tenant. No notice from Landlord hereunder or under a forcible entry and
detainer statute or similar law shall constitute an election by Landlord to
terminate this Lease unless such notice specifically so states. Landlord
reserves the right following any such re-entry and/or reletting, to exercise
its right to terminate this Lease by giving Tenant such written notice, in
which event, this Lease will terminate as specified in said notice.
(ii) In the event that Landlord does not elect to
terminate this Lease as permitted in subparagraph (1) hereof, but on the
contrary, elects to take possession as provided in subparagraph (1), Tenant
shall pay to Landlord: (1) the Rent (including Base Rent) and other sums as
herein provided, which would be payable hereunder if such repossession had not
occurred, less (b) the net proceeds, if any, of any reletting of the Premises
after deducting all Landlord's expenses in connection with such reletting,
including without limitation all repossession costs, brokerage commission,s
legal expenses, attorneys' fees, expenses of employees, alteration and repair
costs and expenses of preparation for such reletting.
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<PAGE> 13
(iii) In the event this Lease is terminated, Landlord shall
be entitled to recover forthwith against Tenant as damages for loss of the
bargain and not as a penalty, an aggregate sum which, at the time of such
termination of this Lease, represents the excess, if any, of the aggregate of
the rent and all other sums payable by Tenant hereunder that would have accrued
for the balance of the term over the aggregate rental value of the Premises
(such rental value to be computed on the basis a lessee paying not only a rent
to Landlord for the use and occupation of the Premises, but also such other
charges as are required to be paid by Tenant under the terms of this Lease) for
the balance of such term, both discounted to present worth at the rate of eight
percent (8%) per annum. Alternatively, at Landlord's option, Tenant shall
remain liable to Landlord for damages in an amount equal to the Rent (including
Base Rent) and other sums arising under the Lease from the balance of the term
had the Lease not been terminated, less the net proceeds, if any, from any
subsequent reletting, after deducting all expenses associated therewith and as
enumerated above. Landlord shall be entitled to receipt of such amounts from
Tenant monthly on the days on which such sums would have otherwise been
payable.
22. LANDLORDS LIEN
Tenant hereby grants to Landlord a security interest in the personal
property of Tenant now or hereafter located on the Premises as security for the
performance of Tenant's obligations under this Lease. Tenant covenants and
agrees, upon request by Landlord from time to time to execute and deliver such
financing statements as may be necessary to perfect the security interest
hereby granted. In the event of a default by Tenant, Landlord may foreclose the
security interest hereby granted in any manner permitted by law. Such security
interest shall be subordinate to any lenders or fixed asset leasing companies.
23. SUBORDINATION AND ATTORNMENT.
This Lease is subordinate to any mortgage or deed of trust now or
hereafter placed in the Project and to any renewal, modification,
consolidation, replacement or extension of such mortgage or deed of trust and
the addition of any other mortgage or deed of trust granted after the date of
execution of this Lease. This clause shall be self-operative, and no further
instrument of subordination shall be required. Within five (5) days after
written request by Landlord, Tenant shall execute any documents which may be
desirable to conform the subordination of this Lease. Landlord is hereby
irrevocably appointed agent and attorney-in-fact of Tenant to execute all such
subordination instruments in the event Tenant fails to execute said instruments
within fifteen (15) days after notice from Landlord demanding the execution
thereof. At the request of Tenant, Landlord shall request a non-disturbance
agreement from the lender, although Landlord makes no representation or
guaranty that such non-disturbance agreement can be obtained. Tenant agrees
that in the event of a sale, transfer, or assignment of the Landlord's interest
in the Project or any part thereof, including the Premises, to attorn to and to
recognize such sale, transfer or assignment and such purchaser, transferee,
assignee or mortgagee as Landlord under the Lease. Upon such an attornment by
Tenant, the successor in interest of the Landlord under this Lease shall be
subject to Tenant's rights under this Lease and Tenant's rights hereunder shall
continue undisturbed while Tenant is not in default hereunder. Each party
agrees to execute a separate agreement confirming the provisions of this
paragraph upon written request but the failure to do so shall not affect the
provisions of this paragraph. In the event of any sale or transfer of the
Project by Landlord, Landlord shall be relieved of all liability hereunder
provided Landlord is not then in default hereunder.
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<PAGE> 14
24. SIGNS AND ADVERTISING.
Signs. Tenant shall not install or display any sign, picture,
advertisements, notice, lettering or direction on any part of the Project
outside of the Premises or otherwise visible to the public (whether inside or
outside of the Premises) without the written consent of Landlord. Landlord
shall prescribe a uniform identification sign for Tenant to be placed outside
of the Premises by Landlord.
25. BROKERS.
Tenant represents and warrants that it has dealt only with
Gibbons-White, Inc. and The Prudential LTM, Realtors (collectively, the
"Broker") in the negotiation of this Lease. Landlord shall make payment of the
commission according to the terms of a separate agreement with the Broker.
Tenant hereby agrees to indemnify and hold the Landlord harmless of and from
any and all loss, costs, damages or expenses (including, without limitation,
all attorney's fees and disbursements) by reason of any claim of or liability
to any other broker or person claiming through Tenant and arising out of or in
connection with the negotiation, execution and delivery of this Lease.
Additionally, Tenant acknowledges and agrees that Landlord shall have no
obligation for payment of any brokerage fee or similar compensation to any
person with whom Tenant has dealt or may in the future deal with respect to
leasing of any additional or expansion space in the Project or renewals or
extensions of this Lease unless provided by Landlord's separate written
agreement. In the event any claim shall be made against Landlord by any other
broker who shall claim to have negotiated this Lease on behalf of Tenant or to
have introduced Tenant to the Project or to Landlord, Tenant hereby indemnifies
Landlord, and Tenant shall be liable for the payment of all reasonable
attorneys' fees, costs and expenses incurred by Landlord in defending against
the same, and in the event such broker shall be successful in any such action,
Tenant shall, upon demand, make payment to such broker.
26. NOTICE.
All notices shall be in writing, delivered personally or mailed,
postage prepaid, certified or registered mail, return receipt requested,
addressed as set forth below, or to such other place as either party may
designate by notice:
<TABLE>
<S> <C>
To Landlord at: The Lincoln National Life Insurance Company, Inc.,
P.O. Box 1110
Ft. Wayne, IN 46001
ATTN: Director of Asset Management Retail and Industrial
With Copies to: Gibbons-White, Inc.
4730 Walnut Street, Suite 206
Boulder, CO 80301
(or other such management agent as may be appointed and notification of such having been given
to Tenant)
to Tenant at: 1500 Kansas Avenue
Longmont, CO 80501
and to:
</TABLE>
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<PAGE> 15
27. ESTOPPEL STATEMENT.
Tenant shall within five (5) days of request, execute, acknowledge and
deliver to Landlord a statement in writing: (a) certifying that this lease is
unmodified and in full force and effect (or if modified, stating the nature of
such modification and certifying that this lease as so modified is in full
force and effect); and (b) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of the Landlord hereunder, or
specifying such defaults, if any are claimed; (c) setting forth the date of
commencement and expiration of the term hereof; and (d) such other matters
requested by Landlord. Any such statement may be relied upon by Landlord and
any prospective purchaser or encumbrancer of the Project. In the event that
such statement is not so delivered by Tenant as required herein, Landlord shall
have the right to deliver such statement on behalf of Tenant, and Tenant
designates the Landlord as its Attorney-In-Fact in providing such statement.
28. RULES AND REGULATIONS.
Tenant shall comply with such reasonable rules and regulations
concerning the Project and for the general benefit of both Landlord and the
tenants in the Project that Landlord may establish from time to time.
29. GENERAL PROVISIONS.
(a) The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any subsequent breach.
The acceptance of Rent shall not be deemed to be a waiver of any default by
Tenant.
(b) The headings to the sections of this Lease shall have no
effect upon the construction or interpretation of any part hereof.
(c) Time is of the essence.
(d) The covenants and conditions herein contained bind the heirs,
successors, executors, administrators, and assigns of the parties hereto.
(e) Neither Landlord nor Tenant shall record this Lease, but
Tenant shall execute, at the request of Landlord, a short form memorandum
hereof which may be recorded at the election of Landlord.
(f) Upon Tenant paying the Rent reserved hereunder and observing
and performing all of the covenants, conditions and provisions on Tenant's part
to be observed and performed hereunder, Tenant shall have quiet possession of
the Premises for the entire term hereof, subject to all the provisions of this
Lease.
(g) If Tenant is a corporation, each individual executing this
Lease on behalf of said corporation represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said corporation, in
accordance with the bylaws and resolutions of said corporation, and that this
Lease is binding upon said corporation. If Tenant is a partnership, each
individual executing this Lease on behalf of such partnership represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of the partnership, and that this Lease is binding on the partnership.
(h) No remedy or election hereunder shall be deemed exclusive but
shall, whenever possible, be cumulative with all other remedies at law or in
equity.
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(i) This Lease shall be governed by the laws of the State of
Colorado.
(j) In the event of any action or proceeding brought by either
party against the other under this Lease, the prevailing party shall be
entitled to recover court costs and attorneys' fees. In addition, should it be
necessary for Landlord to employ legal counsel to enforce any of the provisions
herein contained, Tenant agrees to pay all attorneys' fees and court costs
reasonably incurred by Landlord.
(k) This Lease contains all of the agreements of the parties
hereto with respect to any matter covered or mentioned in this Lease, and no
prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this Lease may be amended or added
to except by an agreement in writing signed by the parties hereto or their
respective successors in interest.
(l) This Lease and the obligations of the Tenant hereunder shall
not be affected or impaired because the Landlord is unable to fulfill any of
its obligations hereunder or is delayed in doing so, if such inability or delay
is caused by reason of strike, labor troubles, acts of God, or any other cause
beyond the reasonable control of the Landlord.
(m) Any provision of this Lease which shall prove to be invalid,
void, or illegal shall in no way effect, impair, or invalidate any other
provision hereof and such other provision shall remain in full force and
effect.
(n) Tenant shall provide its most recent financial statement to
Landlord within fifteen (15) days of request.
(o) The submission or delivery of this document for examination
and review does not constitute an option, an offer to lease space in the
Project or an agreement to lease. This document shall have no binding effect on
the parties unless and until executed by both Landlord and Tenant.
(p) Landlord reserves the absolute right to effect such other
tenancies in the Project as Landlord, in the exercise of its reasonable
business judgment, determines to best promote the interest of the Project,
provided all Tenants in the Project maintain a professional presence. Tenant
does not rely on the fact, nor does Landlord represent, that any specific
tenant or number of tenants shall, during the term of this Lease, occupy any
space in the Project. This Lease is and shall be considered to be the only
agreement between the parties hereto and their representatives and agents. All
negotiations and oral agreements acceptable to both parties have been merged
into and are included herein. There are no other representations or warranties
between the parties and all reliance with respect to representations is solely
upon the representations and agreements contained in this document.
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<PAGE> 17
30. SUBSTITUTION RIGHT.
Notwithstanding anything to the contrary contained in this lease,
Landlord shall have the right to elect to provide to Tenant substitute premises
within the Project or to terminate this lease, upon providing to Tenant not
less than sixty (60) days prior written notice, if Landlord elects to undertake
a major renovation of the building in which the Leased Premises are a part or
to consummate a lease with a full building user.
In the event Landlord were to provide substitute premises
(substantially the same size and nature and under the same rates, terms and
conditions), the Landlord shall pay all reasonable costs incurred by Tenant's
relocation.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.
Landlord:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: Lincoln National Investment Management
Company, Attorney-in-Fact
/s/ JOSEPH T. PUSATERI
------------------------------------
By: Joseph T. Pusateri
Its: Vice President
TENANT:
CORAL SYSTEMS, INC., A COLORADO
CORPORATION
/s/ ERIC ALAN JOHNSON
-------------------------------------
By: Eric Alan Johnson
Its President
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STATE OF INDIANA )
) ss.
COUNTY OF WHITLEY )
The foregoing instrument was acknowledged before me this 19 day of
May, 1992, by Joseph Pusateri, as Vice President of The Lincoln National
Investment Management Company, Inc.
Witness my hand and official seal.
My commission expires:
------------------------------
/s/ CAROL A. SCHULTZ
------------------------------
[SEAL] Notary Public
CAROL A. SCHULTZ, Notary Public
Resident of Whitley County, Indiana
My Commission Expires September 27, 1992
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this 18th day of
May, 1992, by Eric Alan Johnson, as President of Coral Systems, Inc., a
Colorado corporation.
Witness my hand and official seal.
My commission expires: 3/19/94
------------------------------
/s/ JANELLE CHAPMAN
------------------------------
[SEAL] Notary Public
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GENERAL ADDENDUM
The provisions of this General Addendum are incorporated in and made a
part of the Lease between The Lincoln National Life Insurance Company, Inc., as
Landlord, and Coral Systems, Inc., as Tenant, dated the 19th day of May, 1992.
ADDENDUM ITEM NO. 1: RENTAL ABATEMENT
Provided Tenant faithfully performs all terms and conditions of this
Lease during the term hereof, Tenant's obligation to pay base rent under this
Lease shall be abated for months two and three of the Lease term.
The base rent payable by Tenant shall be as follows for the months of
the Lease term indicated:
$1,895.00 per month for the first 12 months of the Lease term (months
1 through 12), provided, however, that this amount shall be abated
during these months, subject to the terms of this Addendum Article;
then $2,400.00 per month for the next 12 months (months 13 through
24); then $2,600.00 per month for the next 12 months (months 25
through 36).
If Tenant at any time breaches any term or covenant required to be
performed by Tenant under this Lease, creating an event of default by Tenant as
defined within the Lease, Landlord may, in addition to all other rights or
remedies it may have, rescind the abatement and receive all the base rent which
Landlord would have otherwise received from Tenant had there been no period of
abatement.
ADDENDUM ITEM NO. 2: OPTION TO EXTEND TERM
So long as Tenant is not in default under any of the conditions of
this Lease, it shall have the option to extend this Lease for one (1)
additional term of three (3) years under the terms and conditions set forth
hereunder, except that the base rental due hereunder shall be at a fair market
rate, but in no event shall be increased by more than 10% over the then current
rate.
ADDENDUM ITEM NO. 3: RIGHT OF FIRST REFUSAL - EXPANSION
So long as Tenant is not in default under any of the terms of this
Lease, it shall have a right of first refusal during the term to lease any
vacant/available space contiguous to Tenant's Leased Premises under the
following terms and conditions.
A. Upon Landlord's obtaining any bona fide and acceptable offer to lease
such available space, Landlord shall submit to Tenant notice of such
offer.
B. Tenant shall have the right to lease such space upon the same terms
and conditions as those contained in the offer by giving written
notice to that effect within three business days of the delivery of
the notice by Landlord. Tenant's notice shall be effective when
accompanied by the consideration to be tendered by the other party
offering to lease such space at the time of such commitment.
C. In the event that Tenant shall not exercise its right in the manner
indicated above within said three business days, Landlord shall have
the right to enter into a lease agreement on said space and the right
of refusal on such space shall no longer be in effect.
<PAGE> 20
ADDENDUM ITEM NO. 4: TENANT'S RIGHT TO TERMINATE
Notwithstanding anything to the contrary contained in this Lease,
Tenant shall have the right to terminate this Lease after the 20th month of the
term hereof upon the prior notice, hereinafter specified, if Landlord cannot
provide adequate expansion space within the Park equivalent to no less than a
50% increase in the size of the Leased Premises under the following terms and
conditions:
a) The Tenant is not in default under this Lease,
b) The Tenant provides Landlord written notice of its need for
expanded premises (such notice to contain the specific details for such
expansion),
c) The aforementioned notice to be no less than six months prior
to the date the Tenant desires to expand the premises,
d) Tenant pays the unamortized costs of tenant improvements and
fees associated with the primary Lease,
e) The Landlord shall have six months to provide such expansion
space,
f) The remaining term of the Lease for the expanded premises
(collectively the Leased Premises) shall be no less than 3 years from the date
the expansion space is ready for occupancy.
ADDENDUM ITEM NO. 5: MORTGAGEE PROTECTION
Tenant agrees to give any mortgagees and/or trust deed holders, by
registered mail, a copy of any notice of default served upon Landlord, provided
that prior to such notice Tenant has been notified, in writing, (by way of
Notice of Assignment of Rents and Leases, or otherwise) of the address of such
mortgagees and/or trust deed holders. Tenant further agrees that if Landlord
shall have failed to cure such default within the term provided for in this
Lease, then the mortgagees and/or trust deed holders shall have an additional
thirty (30) days within which to cure such default or, if such default cannot
be cured within that time, then such additional time as may be necessary, if
within such thirty (30) days any mortgagee and/or trust deed holder has
commenced and is diligently pursuing the remedies necessary to cure such
default, (including, but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure), in which event this Lease shall
not be terminated while such remedies are being so diligently pursued.
ADDENDUM ITEM NO. 6: EXCULPATORY LANGUAGE
If Landlord fails to perform its obligations in accordance with any of
the provisions of this Lease, Landlord agrees that it shall, to the extent and
under the conditions provided for in this Lease, be liable to Tenant on account
of any damages caused thereby, but Tenant agrees that any money judgment
resulting from such failure shall be satisfied only out of Landlord's interest
in the building of which the Premises are a part, and no other real, personal,
or other property of Landlord or of the partners comprising Landlord, or of the
officers, shareholders, directors, partners, or principals of such partners
comprising Landlord, shall be subject to levy, attachment, or execution, or
otherwise sued to satisfy any such judgment.
<PAGE> 21
ADDENDUM ITEM NO. 7: CONFLICT BETWEEN LEASE AND ADDENDUM
In the event of a conflict between the Lease and this Addendum, this
Addendum shall control.
"Landlord" "Tenant"
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: Lincoln National Investment Management CORAL SYSTEMS, INC.
Company. Attorney-in-Fact
By: JOSEPH T. PUSATERI By: ERIC ALAN JOHNSON
------------------------------------- --------------------------
Its: VICE PRESIDENT Eric Alan Johnson
Its President
<PAGE> 22
EXHIBIT A
SITE PLAN
<PAGE> 23
EXHIBIT B
Plan of Premises
<PAGE> 24
EXHIBIT C
RULES AND REGULATIONS
1. Sidewalks, halls and Common Areas shall not be obstructed, utilized
for storage or used for any purpose other than ingress to and egress from the
respective Premises.
2. Plumbing, utility fixtures and outlets shall be used only for their
designated purposes and shall not be abused or overloaded. Damage to any such
fixtures resulting from misuse by Tenant or any employee or invitee of Tenant
shall be repaired at the expense of Tenant.
3. Landlord shall provide trash disposal receptacles and Tenant shall
utilize them for their intended purpose, taking care to assure that no trash,
debris or litter are allowed to accumulate in the Common Areas or outside of
the trash receptacles. No refuse or debris shall be thrown into the corridors,
halls, Common Areas or adjacent sidewalks.
4. Tenant shall be responsible for all contractors, technicians and
repair persons rendering any installation or repair service to Tenant and such
contractors, technicians and repair persons shall be required to take
reasonable precautions not to obstruct Building Common Areas, corridors,
passageways or adjacent sidewalks. To the extent possible, installation and
repair work shall be scheduled to avoid the hours of maximum occupation and use
of the Building and to minimize inconvenience to or obstruction of other
occupants.
5. Movement in or out of the Building of bulky equipment or material
which requires the use of corridors or equipment or material which requires
significant obstruction thereof shall be restricted to hours established by
Landlord. Tenant shall assume all risk of damage and pay the cost of preparing
or providing compensation for damage to the Building as a result of such
installation activity.
6. Tenant shall cooperate with Landlord in maintaining the Leased
Premises and Common Areas adjacent thereto. Any cleaning, maintenance and
janitorial personnel employed by Tenant, other than Tenant's own employees,
shall be subject to Landlord's prior written approval.
7. No birds, fish or animals of any kind shall be brought into, kept
in or about the Leased Premises.
8. Tenant shall not use or keep in the Leased Premises any kerosene,
gasoline, inflammable or combustible fluid or material, other than such limited
quantities as may be necessary for maintenance of equipment.
9. Tenant shall comply with such reasonable security requirements as
Landlord may impose with respect to the Building.
10. Landlord will furnish Tenant with a reasonable number of keys for
entrance doors into the Leased Premises upon acceptance of possession by Tenant
and may charge tenant for additional keys provided thereafter. All such keys
shall remain the property of Landlord. No additional locks shall be installed
in the Leased Premises without Landlord's prior written consent and Tenant
shall not make duplicate keys, except those provided by Landlord. Upon
termination of the Lease, Tenant shall surrender to Landlord all keys to the
Leased Premises.
11. Landlord reserves the right to change the name of the Project.
<PAGE> 25
12. Canvassing, peddling, soliciting and distribution of handbills in
the Building are prohibited, and Tenant shall cooperate with Landlord in such
lawful means as may be necessary to eliminate such activities.
13. The foregoing Rules and Regulations may be changed by Landlord
upon reasonable notice, and Tenant shall comply with such future Rules and
Regulations as may be required for the safety, protection and maintenance of
the Building, the operation and preservation of good order thereof and the
protection and comfort of the tenants and their employees and visitors, so long
as the same are reasonable and do not interfere with enjoyment by Tenant of its
rights pursuant to this Lease.
<PAGE> 26
FIRST AMENDMENT TO THE LEASE
This First Amendment is made this 22nd day of November, 1993, and is
an Amendment to that certain Lease dated May 19, 1992, by and between The
Lincoln National Life Insurance Company, Inc. ("Landlord") and Coral Systems,
Inc. ("Tenant"), ("The Lease").
The Lease is hereby amended to include additional space on the terms
and for the rental provided herein. Tenant leases from Landlord and Landlord
leases to Tenant that certain additional 7,200 square feet, comprised of units
B, C and D, hereinafter referred to as "Expansion Space #1," within Building 2
at 1500 Kansas Avenue, Longmont, Colorado, as shown on Exhibit A-1, attached
hereto and made a part of this Lease under the following terms and conditions:
AMENDMENT ITEM NO. 1: DEFINITIONS
The definition and meaning of the terms of this Amendment shall be
the same as set forth in the Lease.
AMENDMENT ITEM NO. 2: LEASED PREMISES
Commencing on the Expansion Commencement Date and continuing for sixty
months thereafter, the Leased Premises, as provided in paragraph 2 of the
lease, shall be expanded by the 7,200 square feet identified in Exhibit A-1,
adjusting the total Premises to 12,000 square feet.
AMENDMENT ITEM NO. 3: BASE RENT
Commencing on the Expansion Commencement Date, the Base Rent, paid by
Tenant to Landlord, as provided in paragraph 8(a) of the Lease, shall be
payable in equal monthly installments, as set forth in the Schedule set forth
below:
<TABLE>
<S> <C>
Year 1 $6.00 per square foot per year
Year 2 $6.00 per square foot per year
Year 3 $6.50 per square foot per year
Year 4 $6.75 per square foot per year
Year 5 $7.00 per square foot per year
</TABLE>
Prior to the Expansion Commencement Date, Base Rent shall be paid as provided
under the original Lease.
AMENDMENT ITEM NO. 4: TERM AND EXPANSION COMMENCEMENT DATE
The Primary Lease Term, as provided in paragraph 6 of the Lease, shall
hereby be extended sixth months after the Expansion Commencement Date. All
other terms and conditions shall remain the same.
The Expansion Commencement Date shall be the date Landlord obtains a
Certificate of Occupancy allowing Tenant to occupy Expansion Space #1. Upon
receipt of such Certificate, the Landlord and Tenant shall execute a letter
agreement providing for the Expansion Commencement Date, the precise date of
Base Rent increase and the Lease termination date.
<PAGE> 27
AMENDMENT ITEM NO. 5: TENANT FINISH FOR EXPANSION SPACE #1
Landlord shall construct Tenant Finish pursuant to the Plans and
Specifications attached hereto as Exhibit A-2. In no event shall the
Landlord's cost for Tenant Finish, Architectural Plans and Construction
Administration ("Tenant Finish") exceed $36,000.00 ("Tenant Improvement
Allowance"). All Tenant Finish costs in excess Tenant Improvement Allowance,
shall be paid by Tenant one-half prior to commencement of construction and
one-half upon substantial completion of the Tenant Improvements, or on the
Expansion Commencement Date, whichever comes first.
AMENDMENT ITEM NO. 6: RIGHT OF FIRST REFUSAL - EXPANSION.
So long as Tenant is not in default under any of the terms of this
Lease, it shall have a right of first refusal during the term to lease any
vacant/available space contiguous to Tenant's Leased Premises under the
following terms and conditions:
A. Upon Landlord's obtaining any bona fide and acceptable offer to lease
such available space, Landlord shall submit to Tenant notice of such
offer.
B. Tenant shall have the right to lease such space upon the same terms
and conditions as those contained in the offer by giving written notice
to that effect within three business days of the delivery of the
notice by Landlord. Tenant's notice shall be effective when
accompanied by the consideration to be tendered by the other party
offering to lease such space at the time of such commitment.
C. In the event that Tenant shall not exercise its right in the manner
indicated above within said three business days, Landlord shall have
the right to enter into a lease agreement on said space and the right
of refusal on such space shall no longer be in effect.
AMENDMENT ITEM NO. 7: OPTION TO RENEW LEASE
Upon providing four months prior written notice to Landlord, Tenant
may renew this Lease for two consecutive terms of two years each at the then
current market rate. Upon receipt of a written notice, Landlord will provide a
written proposal within thirty days as to the renewal terms and conditions.
Tenant will then have thirty days to respond. If the Landlord and Tenant are
unable to agree within the said time, a mutually agreeable third party will be
selected to determine the market rate. The parties shall share the costs and
expenses associated with such third party.
AMENDMENT NO. 8: TERMINATION OF LEASE BY TENANT BASED ON EXPANSION
REQUIREMENTS
Provided that Tenant shall not have defaulted in its obligations under
the Lease, and in the event that the Landlord is unable to provide a maximum of
an additional contiguous space in either the building immediately across from
or adjacent to the Leased Premises in an amount equal to 100% of the subject
expansion space (representing an approximate 7,200 sq. ft.) on or after the
thirty-sixth month anniversary, then the Tenant may terminate the Lease on or
after the thirty-sixth month anniversary, under the following terms and
conditions:
1. Tenant must provide nine months prior written notice to
Landlord of its request for additional space. Then Landlord shall have six
months, after receiving such notice, to provide the Tenant with a proposal to
lease the additional space at the then current market rate. In the event that
Landlord is
<PAGE> 28
unable to provide the requested additional space with the said six-month
period, then Tenant may terminate the Lease.
2. Accompanied with such notice, Tenant shall be required to pay,
as a termination fee to Landlord, all unamortized lease expenses (Tenant
Improvements, Lease Commissions, Legal Fees, etc.) associated with this
transaction and any renewal or expansion hereof.
3. An itemized lease expense amortization schedule of such
Termination Fee will be provided to Tenant at Expansion Commencement Date. All
Lease expenses shall be amortized equally over the term of the Lease.
4. Notwithstanding the above, it is expressly agreed to that if
the Tenant provides a written request for 2,400 square feet, then the Landlord
will provide the said 2,400 square feet, at the then current market rate,
located in Suite 2A adjacent to the Leased Premises.
AMENDMENT ITEM NO. 9: TERMINATION OF LEASE BY TENANT
It is additionally provided that, if the Tenant is not in default
under the Lease, the Tenant shall have the right to terminate the Lease on the
thirty-sixth month anniversary of the Commencement Date until the thirty-ninth
month anniversary under the following terms and conditions:
1. Tenant must provide four months prior written notice to
Landlord of its intent to terminate the Lease.
2. Accompanied with such notice Tenant shall be required to pay,
as a termination fee to Landlord, all unamortized lease expenses (Tenant
Improvements, Lease Commissions, Legal Fees, etc.) associated with this
transaction and any renewal or expansion hereof.
3. An itemized lease expense amortization schedule of such
Termination Fee will be provided to Tenant at Expansion Commencement Date. All
Lease expenses shall be amortized equally over the term of the Lease.
AMENDMENT ITEM NO. 10: SECURITY DEPOSIT
The security deposit shall be increased from $2,400 to $6,500.00.
AMENDMENT ITEM N0. 11: CONFLICT BETWEEN LEASE AND AMENDMENT
In the event of a conflict between the Lease and this Amendment, this
Amendment shall control.
IN WITNESS WHEREOF, the undersigned have executed this document as of
the date above written.
LANDLORD: TENANT:
THE LINCOLN NATIONAL LIFE CORAL SYSTEMS, INC.
INSURANCE COMPANY, INC. BY:
LINCOLN NATIONAL INVESTMENT MANAGEMENT
COMPANY, ITS: ATTORNEY IN FACT
BY: /s/ JOSEPH T. PUSATERI BY:/s/ ERIC JOHNSON
---------------------------------- --------------------------------
JOSEPH T. PUSATERI ERIC JOHNSON
ITS: VICE-PRESIDENT AND DIRECTOR OF REAL ITS: PRESIDENT
ESTATE ASSET MANAGEMENT
<PAGE> 29
EXHIBIT A - 1
SITE PLAN
<PAGE> 30
EXHIBIT A-2
This First Lease Amendment is contingent upon the parties reaching agreement on
the Exhibit A-2.
<PAGE> 31
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO OFFICE LEASE ("Amendment") is made this 20th day
of September, 1995, by and between 1500 Kansas Limited Partnership, a Colorado
limited partnership, as Landlord, whose principal address is 1512 Larimer
Street, Suite 325, Denver, Colorado, 80202, and Coral Systems, Inc. ("Coral"),
a Delaware corporation, as Tenant, whose principal address is 1500 Kansas
Avenue, Suite 2E, Longmont, Colorado, 80501.
WHEREAS, Coral and Lincoln National Life Insurance Company entered into a
Lease Agreement dated May 19, 1992, (the "Lease" to which reference should be
made for all terms not otherwise herein defined) pertaining to the premises
commonly known as 1500 Kansas Avenue, Suites 2E and 2F, Longmont, Colorado,
80501 containing approximately 4,800 square feet; and,
WHEREAS, Coral and Lincoln National Life Insurance Company subsequently
entered into a First Amendment to the Lease dated November 22, 1993 which
provided for an expansion of space into Suites 2B, 2C and 2D containing
approximately 7,200 square feet (the "First Amendment"). The total premises
before this Second Amendment to Lease contains approximately 12,000 square
feet. Both the Lease and the First Amendment to Lease were subsequently
assigned to Landlord; and,
WHEREAS, Landlord desires to lease to Tenant Suite 2A which is the space
immediately adjacent to the Prernises and which contains approximately 2,400
square feet.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree to amend the
Lease and otherwise agree as follows:
1. EXPANSION. Tenant desires to expand its current Premises to include
Suite 2A (hereinafter referred to as the "Expansion Premises"). The Expansion
Premises contains approximately 2,400 rentable square feet as crosshatched on
Exhibit A attached hereto.
2. EXPANSION COMMENCEMENT DATE. The Lease Term for this Second Amendment
to Lease shall commence on the "Second Expansion Cornmencement Date" and shall
expire co-terminusly with the Lease on February 7, 1999. The Second Expansion
Commencement Date shall commence upon the receipt by Tenant of a Certificate of
Occupancy (the "Certificate") for the Expansion Premises incorporating the
Improvements (defined below). Upon receipt of such Certificate, Landlord and
Tenant shall execute a letter agreement providing for the Second Expansion
Commencement Date. Effective with the Second Expansion Commencement Date,
Tenant's Premises shall be amended to include the Expansion Premises for a
total of 14,400 square feet leased.
3. BASIC RENT. The rent for the Expansion Premises shall be under the same
terms and conditions as provided for in the Lease and shall commence on the
Second Expansion Commencement Date. The terms shall be $6.00 per square foot
("s.f.") for the period commencing on the Expansion
1
<PAGE> 32
Commencement Date through January 31, 1996; $6.50 per s.f. commencing February
1, 1996 through January 31, 1997; $6.75 per s.f. for the period commencing
February 1, 1997 through January 31, 1998; and $7.00 per s.f. for the period
commencing February 1, 1998 through February 7, 1999. All rent paid under the
Lease shall be gross rent, net of utilities as otherwise provided for in the
Lease, with the exception of Additional Rent, as outlined below in Paragraph 6.
4. TENANT IMPROVEMENTS. Landlord shall construct the Improvements for the
Expansion Premises which shall be designated by Tenant and in accordance with
the plans and specifications to be prepared by JSM Architects (the
"Improvements") and to be later incorporated in to this Second Amendment to
Lease as Exhibit B, subject, however, to changes thereto by Tenant which are
approved by Landlord. The construction of the Improvements shall occur in
accordance with the terms of the contractor's bid approved by tenant and shall
commence upon (I) the execution of this Second Amendment, (ii) the finalization
of the Improvement plans and the selection of a contractor by tenant, and (iii)
upon the current Tenant of Suite 2A, Caldwell Systems, vacating the Expansion
Premises and shall be completed in a timely manner by Landlord subject,
however, to delays beyond Landlord's reasonable control. Landlord shall charge
Tenant a construction management fee not to exceed six percent (6%) of the
total cost of Improvements for management of the construction of the
Improvements.
5. TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide a Tenant
Improvement Allowance of $12,000 (the "Allowance"). Tenant shall utilize the
Allowance for Improvements to the Expansion Premises. In the event the cost of
Improvements exceeds $12,000, Tenant shall reimburse the amount of such overage
within 30 days of Landlord's invoice to Tenant. The cost of Improvements
includes industry standard contractor, architectural and engineering fees,
permits and fees, and a 6% construction management fee due to The David Johnson
Group as outlined in Paragraph 4 above.
6. ADDITIONAL RENT. In addition to the Allowance, Landlord agrees to
advance $10,000 to be credited to the cost of Improvements (the "$10,000
Advance"). The $10,000 Advance will be repaid to Landlord by Tenant by
amortizing $10,000 for thirty-nine (39) months at a rate of ten percent (10%)
per annum. Additional Rent for the Expansion Premises shall be equal to
$301.39 per month and shall be under the same terms and conditions as provided
for in the Lease and shall commence on the Second Expansion Commencement Date.
In the event that Tenant exercises its right to terminate the Lease as provided
for in Amendment Item No. 9 of the First Amendment, then, in addition to the
termination fee outlined in Amendment Item No. 9, Tenant shall be required to
pay to Landlord the unamortized portion of the $10,000 Advance per the attached
Amortization Schedule.
7. SECURITY DEPOSIT. Upon receipt of the Certificate, Tenant shall provide
to Landlord $1,300 as an additional Security Deposit for the Premises.
8. FIRST AMENDMENT PROVISIONS. Landlord and Tenant acknowledge that the
Expansion Premises shall not be included in or credited against Landlord's
obligation under Amendment Item No. 8 to the First Amendment which obligation
shall remain at 7,200 square feet.
9. MISCELLANEOUS. This Second Amendment to Lease shall be binding upon
and enure to the benefit of the parties hereto and their respective successors
and assigns. As herein modified, the
2
<PAGE> 33
Lease shall remain in full force and effect according to the terms and
conditions thereof. In the event of a conflict between the Lease and/or the
First Amendment and this Second Amendment, this Second Amendment shall control.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second
Amendment to Lease as of the day and year first above written.
TENANT: LANDLORD:
Coral Systems, Inc. 1500 Kansas Limited Partnership,
a Delaware corporation a Colorado limited partnership
By: /s/ ERIC A. JOHNSON By: 1500 Kansas Investments, Ltd.,
---------------------------- a Colorado limited partnership
its general partner
Name: Eric A. Johnson
------------------------ By: 1500 Kansas Holdings, Inc.,
Title: President & CEO a Colorado corporation
----------------------- its general partner
By: /s/ BRUCE H. ETKIN
--------------------------
Bruce H. Etkin,
its President
3
<PAGE> 34
EXHIBIT A
BUILDING CENTER LAYOUT
<PAGE> 35
AMORTIZATION SCHEDULE - CORAL SYSTEMS (HVAC)
AMT $10,000.00
INT RATE 10.00%
LIFE (MONTHS) 39 (Assumes 11/1/95 - 1/31/99)
PYMT/MONTH $301.39
<TABLE>
<CAPTION>
MONTH BEG END TOT PD INTEREST PRINC
<S> <C> <C> <C> <C> <C>
1 $10,000.00 9,781.95 301.39 83.33 218.05
2 9,781.95 9,562.07 301.39 81.52 219.87
3 9,562.07 9,340.37 301.39 79.68 221.70
4 9,340.37 9,116.82 301.39 77.84 223.55
5 9,116.82 8,891.41 301.39 75.97 225.41
6 8,891.41 8,664.11 301.39 74.10 227.29
7 8,664.11 8,434.93 301.39 72.20 229.19
8 8,434.93 8,203.83 301.39 70.29 231.10
9 8,203.83 7,970.81 301.39 68.37 233.02
10 7,970.81 7,735.84 301.39 66.42 234.96
11 7,735.84 7,498.92 301.39 64.47 236.92
12 7,498.92 7,260.03 301.39 62.49 238.90
13 7,260.03 7,019.14 301.39 60.50 240.89
14 7,019.14 6,776.24 301.39 58.49 242.89
15 6,776.24 6,531.32 301.39 56.47 244.92
16 6,531.32 6,284.36 301.39 54.43 246.96
17 6,284.36 6,035.35 301.39 52.37 249.02
18 6,035.35 5,784.25 301.39 50.29 251.09
19 5,784.25 5,531.07 301.39 48.20 253.19
20 5,531.07 5,275.77 301.39 46.09 255.30
21 5,275.77 5,018.35 301.39 43.96 257.42
22 5,018.35 4,758.78 301.39 41.82 259.57
23 4,758.78 4,497.05 301.39 39.66 261.73
24 4,497.05 4,233.14 301.39 37.48 263.91
25 4,233.14 3,967.03 301.39 35.28 266.11
26 3,967.03 3,698.70 301.39 33.06 268.33
27 3,698.70 3,428.13 301.39 30.82 270.57
28 3,428.13 3,155.31 301.39 28.57 272.82
29 3,155.31 2,880.22 301.39 26.29 275.09
30 2,880.22 2,602.84 301.39 24.00 277.39
31 2,602.84 2,323.14 301.39 21.69 279.70
32 2,323.14 2,041.11 301.39 19.36 282.03
33 2,041.11 1,756.73 301.39 17.01 284.38
34 1,756.73 1,469.98 301.39 14.64 286.75
35 1,469.98 1,180.85 301.39 12.25 289.14
36 1,180.85 889.30 301.39 9.84 291.55
37 889.30 595.32 301.39 7.41 293.98
38 595.32 298.90 301.39 4.96 296.43
39 298.90 0.00 301.39 2.49 298.90
</TABLE>
<PAGE> 1
EXHIBIT 10.5
MASTER LEASE AGREEMENT
Agreement No. 10450 Dated as of August 9, 1995
between
DOMINION VENTURES, INC.
44 Montgomery Street, Suite 4200
San Francisco, California 94104
as Lessor
and
CORAL SYSTEMS, INC.
a Delaware corporation
1500 Kansas Avenue, Suite 2E
Longmont, Colorado 80501
as Lessee
Master Lease Line: $750,000
Rent Factor: 3.3 % Initial Lease Term: 36 months
-------- --
Advance Rental: $ 24,750 Security Deposit: $ 0
-------- ---------
(PLUS APPLICABLE
TAXES)
Minimum Funding Amount: $ 25,000 Maximum Funding Frequency: monthly
-------- ---------
Funding Expiration Date: December 15, 1996
Eligible Equipment: New and/or used computer, furniture, software, and office
equipment.
ORIGINAL COUNTERPART NO. 2
---
The terms and information set forth on this cover page are a part of
the MASTER LEASE AGREEMENT, dated as of the date first written above (this
"Lease"), entered into by and between DOMINION VENTURES, INC. ("Lessor") and
the Lessee set forth above, the terms and conditions of which are as follows:
<PAGE> 2
LESSOR'S OBLIGATIONS UNDER THIS LEASE AND EACH SCHEDULE ARE SUBJECT TO
THE PRIOR SATISFACTION OF THE CONDITIONS SET FORTH ON ADDENDUM I HERETO.
1. DEFINITIONS: Unless otherwise defined in this Lease (which
term shall include the cover page, any Addendum, any Exhibit and any Schedule
hereto), capitalized terms shall have the following meanings:
(a) "Acceptance Certificate" means the Certificate of Inspection
and Acceptance in the form attached hereto as Exhibit D.
(b) "Acceptance Date" means, with respect to each Schedule, the
date of the Acceptance Certificate executed in connection with
such Schedule.
(c) "Advance Rental" has the meaning set forth in Paragraph 5(a)
and is in the amount as set forth on the cover page.
(d) "Assignee" has the meaning set forth in Paragraph 11(b).
(e) "Bill of Sale" means a bill of sale in the form attached
hereto as Exhibit C.
(f) "Cost" means the cost to Lessor of purchasing one or more
Units of Equipment including any sales taxes and other charges
paid by Lessor and net of any discounts and rebates.
(g) "Discount Rate" means, as of any date of determination, the
lesser of (i) the then current per annum interest rate for
one-year United States treasury bills as set forth in the
Wall Street Journal on such date and (ii) six percent (6%).
(h) "Eligible Equipment" means Equipment of the types listed
following such term on the cover page of this Lease to the
extent acceptable to Lessor, provided, however, that the
aggregate value of all software funded pursuant to this Master
Lease Agreement shall be no more than fifteen percent (15%)
of the Master Lease Line.
(i) "Environmental Law" means the Resource Conservation and
Recovery Act of 1987, the Comprehensive Environmental
Response, Compensation and Liability Act, and any other
Federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree (in each case having the force of
law) regulating or imposing liability or standards of conduct
concerning any Hazardous Materials or other hazardous, toxic
or dangerous waste, constituent, or other substance, whether
solid, liquid or gas, as now or at any time hereafter in
effect.
(j) "Equipment" means all Units listed in any Schedule together
with all replacement parts, additions, accessions and
accessories to such Units.
(k) "Event of Default" shall have the meaning set forth in
Paragraph 24 hereof.
(l) "Financial Statements" has the meaning set forth in Paragraph
19(a).
(m) "Funding Expiration Date" means the date set forth opposite
such term on the cover page of this Lease or such earlier date
on which Lessor terminates its commitment to fund Schedules
pursuant to the terms of this Lease.
(n) "Hazardous Material" means any hazardous or toxic substance,
material, pollutant or waste, whether solid, liquid or
gaseous, which is regulated by any Federal, state or local
governmental authority.
(o) "Holdover Period" has the meaning set forth in Paragraph 18.
(p) "Initial Lease Term" means, with respect to each Schedule,
the period beginning on the first day of the month following
the Acceptance Date for such Schedule and continuing for the
number of months set forth following such term on the cover
page of this Lease.
(q) "Interim Rent" shall have the meaning set forth in
Paragraph 5(b) of this Lease.
(r) "Lease Term" means, with respect to each Schedule the
Noncancellable Term and any Holdover Period.
(s) "Lessor Affiliate" has the meaning set forth in Paragraph
11(c) hereof.
(t) "Master Lease Line" means the amount set forth following such
term on the cover page of this Lease.
(u) "Maximum Funding Frequency" means the time interval specified
opposite such term on the cover page hereof.
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(v) "Minimum Funding Amount" means the amount set forth following
such term on the cover page of this lease.
(w) "Noncancellable Term" means, with respect to each Schedule,
the period from the Acceptance Date for such Schedule through
the end of the Initial Lease Term for such Schedule.
(x) "Purchase Order Assignment" means a purchase order assignment
in the form of Exhibit B hereto.
(y) "Rent Factor" means the Rent Factor applicable to each
Schedule which is set forth on the cover page of this Lease.
(z) "Rental Payment" means, for any Schedule, the monthly rent
payment for the Units identified in such Schedule.
(aa) "Residual Value" has the meaning set forth in Paragraph 22(b)
of this Lease.
(ab) "Schedule" means a schedule in the form of Exhibit F to this
Lease identifying this Lease and incorporating this Lease by
reference, which is executed by both parties hereto.
(ac) "UCC" means the Uniform Commercial Code as in effect in the
State of California from time to time.
(ad) "Unit" means an item of Equipment.
2. LEASE. Lessor leases to Lessee, and Lessee hires and takes
from Lessor, subject to the terms and conditions set forth in this Lease, the
Units described in the Schedules executed hereunder. Each Schedule shall
constitute a separate and independent lease and contractual obligation of
Lessee incorporating the terms of this Lease. Lessor's commitment to fund
Schedules under this Lease continues through the Funding Expiration Date and is
limited to the amount of the Master Lease Line; provided, however, that Lessor,
acting in its sole discretion, may terminate or modify its funding commitment
at any time if: (a) there is any material adverse change to the general
affairs, management, results of operations, condition (financial or otherwise)
or prospects of Lessee, whether or not arising from transactions in the
ordinary course of business, (b) there is any material adverse deviation by
Lessee from the business plan (as it may have been supplemented in writing) of
Lessee presented to Lessor, since the date first written on the cover page of
this Lease, (c) any Event of Default or event which with the passage of time or
notice or both would constitute an Event of Default exists, or (d) if any term
or condition in any Schedule is not satisfied prior to the Acceptance Date with
respect to such Schedule. Each Schedule shall be funded in an amount not less
than the Minimum Funding Amount and not more frequently than the Maximum
Funding Frequency. Except to the extent otherwise permitted by Lessor from
time to time, no Unit of Equipment shall have a unit cost of less than $1,000
or be subject to a single invoice of less than $5,000.
3. EQUIPMENT SUBJECT TO LEASE. Lessee shall select the type and
quantity of Equipment (which Equipment shall in each case be Eligible Equipment
acceptable to Lessor) to be subject to each Schedule. Subject to the terms and
conditions of this Lease: (i) if such Equipment is not previously owned by
Lessee and is not subject to a purchase order issued by Lessee, Lessor shall at
Lessee's direction order each Unit from the respective suppliers, and upon
delivery and acceptance by Lessee each such Unit shall be leased to Lessee
hereunder; (ii) if Lessee has previously issued its purchase order to a
supplier, Lessee shall execute a Purchase Order Assignment assigning such
purchase order to Lessor and the Units subject to such purchase order, upon
delivery and acceptance by Lessee, shall be leased to Lessee hereunder; or
(iii) if Lessee owns the Equipment which it intends to make subject to this
Lease (which Equipment shall have been new and placed in service by Lessee not
more than one hundred eighty (180) days prior to the date of this Lease),
Lessee shall execute a Bill of Sale transferring title to such Equipment to
Lessor at the purchase price agreed to between Lessor and Lessee. All
sale/leaseback Equipment will be purchased at fair market value based upon an
appraisal. All appraisal costs will be borne by Lessee. Subject to the
restrictions set forth in the definition of Eligible Equipment, Equipment
consisting of software may be funded under a Schedule without obtaining
assignment or sublicensing documentation from the vendor so long as the
aggregate Cost of software supplied by such vendor does not exceed $30,000. In
cases in which the aggregate Cost of software supplied by a vendor exceeds
$30,000, Lessor may require that such assignment or sublicensing documentation
in form and substance satisfactory to Lessor be executed prior to the inclusion
of the software as Equipment on any Schedule. Lessee acknowledges that Lessor
may have the ability to obtain discounts or rebates not available to Lessee
from suppliers from which Lessor buys in volume. Any
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<PAGE> 4
discounts or rebates remitted to Lessee shall be turned over to Lessor and Cost
of the Equipment set forth on any Schedule shall be deemed to be the Cost net
of such discount or rebate. Any request by Lessee to Lessor to purchase
Equipment directly or by assignment of a purchase order shall be irrevocable.
4. TERM. This Lease is effective upon execution hereof by Lessor
and shall continue until full performance of every provision of this Lease;
provided that Lessor's obligations to fund any Schedule are subject to the
prior satisfaction by Lessee of the conditions set forth in Part 1 of Addendum
I to this Lease. All obligations under each Schedule shall commence upon
Lessee's execution of an Acceptance Certificate and Schedule for the Units to
be subject to such Schedule and Lessor's countersignature on such Schedule;
provided that Lessor's obligation to fund such Schedule is subject to the prior
satisfaction by Lessee of the conditions set forth in Part 2 of Addendum I to
this Lease. The Initial Lease Term with respect to each Schedule shall begin
on the first day of the month following the Acceptance Date.
5. RENTAL PAYMENTS.
(a) Advance Rental. Upon execution of this Lease, Lessee shall
pay to Lessor an advance payment in an amount equal to the Rent Factor
multiplied by the Master Lease Line (plus applicable taxes) (the "Advance
Rental") less any commitment fee previously paid. A pro-rata portion of the
Advance Rental shall be deemed to prepay as of the date of this Lease the last
Rental Payment for each Schedule. If the Master Lease Line has not been fully
expended by the Funding Expiration Date, Lessor shall retain the unutilized
portion of the Advance Rental as compensation for expenses unless the Master
Lease Line has not been fully expended due to Lessor's financial inability to
fund Schedules as requested.
(b) Interim Rent. If the Acceptance Date with respect to any
Schedule shall be other than the first day of the month, Lessee shall make
interim rental payments ("Interim Rent") for each day from and including the
Acceptance Date, through and including the last day of the month prior to the
beginning of the Initial Lease Term in an amount equal to one-thirtieth of the
monthly Rental Payment set forth on the Schedule. Such Interim Rent shall be
due and payable on the first day of the calendar month following the month for
which such payment is assessed.
(c) Rental Payments. Lessee shall pay to Lessor, as rental for
Equipment during each month of the Initial Lease Term of any Schedule and
during any Holdover Period, an amount equal to the Rent Factor set forth on the
cover page of this Lease multiplied by the total Cost of the Equipment to
Lessor, which amount shall be due and payable in advance on the first day of
each calendar month during the Initial Lease Term and during any Holdover
Period. In addition to any other remedies that Lessor may have under this
Lease, if Lessee fails to pay any Rental Payment or Interim Rent or other
amount herein provided within five (5) business days after the same is due,
Lessee shall pay to Lessor a late charge of three percent (3%) of such amount
plus interest from the due date until the date of payment, calculated at the
rate of one and five tenths percent (1.5%) per month, or at the highest rate
permitted by applicable law, whichever is less, to compensate Lessor for
additional bookkeeping and collection expense. All Rental Payments, Advance
Rental, Interim Rent, late charges and other amounts for which Lessee is liable
shall be paid to Lessor at its address as set forth above or as otherwise
directed by Lessor.
6. CHARACTERIZATION OF LEASE; WARRANTIES; WAIVERS; LIABILITY.
(a) Characterization of Lease. It is the intent of Lessor and
Lessee that this Lease be a true lease and not a lease intended as security or
a conditional sales agreement. Lessor and Lessee agree to treat this Lease as
a true lease for income tax purposes. Lessor and Lessee agree that this Lease
is a "finance lease" as that term is defined by Section 10103(a)(7) of the UCC.
With respect to the Equipment subject to each Schedule, Lessee acknowledges and
warrants as of the date of such Schedule that (i) Lessee has received a copy of
the contract(s) pursuant to which Lessor acquired the Equipment (the "Supply
Contract"), or (ii) Lessee has reviewed and approved the Supply Contract, or
(iii) Lessor has informed Lessee in writing that Lessee may have rights under
the Supply Contract and that Lessee should contact the supplier for a
description of any such rights. LESSOR AND LESSEE
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<PAGE> 5
AGREE THAT THIS LEASE IS A "NET" LEASE, AND LESSEE'S OBLIGATION TO MAKE RENTAL
PAYMENTS AND PAY OTHER SUMS WHEN DUE AND OTHERWISE PERFORM ITS OBLIGATIONS
UNDER THIS LEASE SHALL BE ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT
TO OR AFFECTED BY OR REDUCED BY ANY ABATEMENT, REDUCTION, SET-OFF, DEFENSE,
COUNTERCLAIM, INTERRUPTION, DEFERMENT, RECOUPMENT OR OTHER RIGHT WHICH LESSEE
MAY HAVE AGAINST LESSOR, THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT OR ANY
OTHER PERSON. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NO DEFECT OR
UNFITNESS OF ANY ITEM OF EQUIPMENT NOR OTHER CLAIM REGARDING CONDITION OR USE
OF THE EQUIPMENT SHALL RELIEVE LESSEE OF THE OBLIGATION TO MAKE RENTAL
PAYMENTS, PAY ANY OTHER SUM WHEN DUE OR OTHERWISE PERFORM ANY OTHER OBLIGATION
DUE TO LESSOR AND ITS SUCCESSORS AND ASSIGNS UNDER THIS LEASE.
(b) Warranties. Lessor warrants that, so long as no Event of
Default has occurred and is continuing, neither Lessor nor its successors or
Assignees or anyone acting or claiming through Lessor will interfere with
Lessee's quiet enjoyment and use of the Equipment. EXCEPT FOR LESSOR'S
WARRANTY OF QUIET ENJOYMENT, LESSEE HAS NOT RELIED UPON LESSOR IN SELECTING THE
EQUIPMENT AND ACKNOWLEDGES THAT LESSOR HAS MADE NO REPRESENTATION OR WARRANTY
OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT, INCLUDING
WITHOUT LIMITATION ITS CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE. Until the Lease is terminated, Lessor hereby assigns to Lessee and
Lessee shall have the benefit of, any and all manufacturer's warranties,
service agreements and intellectual property indemnities, if any, with respect
to each Unit. Lessee's remedy for the breach of any such warranty,
indemnification or service agreement shall be against the manufacturer or
supplier of such Equipment and not against Lessor, nor shall any such breach
have any effect whatsoever on the rights and obligations of Lessor or Lessee
hereunder.
(c) Waivers. With respect to any Schedule, after the Acceptance
Date for such Schedule, Lessee hereby specifically waives any and all rights
and remedies conferred upon Lessee by UCC Sections 10508 through 10522 as
against Lessor, including (without limitation) Lessee's rights to (i) cancel or
repudiate this Lease, (ii) reject or revoke acceptance of any Unit, (iii)
recover damages from Lessor for breach of warranty or for any other reason,
(iv) claim a security interest in any rejected property in Lessee's possession
or control, (v) deduct from Rental Payments all or any part of any claimed
damages resulting from Lessor's default under this Lease, (vi) accept partial
delivery of the Equipment, (vii) "cover" by making any purchase or lease of
other property in substitution for property due from Lessor, (viii) recover
from the Lessor any general, special, incidental or consequential damages, for
any reason whatsoever, and (ix) seek specific performance, replevin or the like
for any of the Units. Notwithstanding the foregoing, nothing in this Lease
shall be construed as a waiver of Lessee's right to seek a separate recovery of
any Rental Payment that is not due and payable under this Lease, and Lessee
retains the right to seek damages or other remedies on account of Lessor's
failure to perform its obligations under this Lease.
(d) Liability. LESSEE ACKNOWLEDGES THAT LESSOR IS NOT THE
MANUFACTURER, SUPPLIER OR DISTRIBUTOR OF THE EQUIPMENT, THAT SAID ENTITIES ARE
NOT AGENTS OF LESSOR, THAT LESSEE RENTS THE EQUIPMENT "AS IS", AND THAT LESSOR
HAS ACCEPTED NO RESPONSIBILITY FOR THE TRANSPORTATION, INSTALLATION OR REQUIRED
LICENSING NECESSARY FOR THE TRANSFER, INSTALLATION OR USE OF THE EQUIPMENT.
LESSEE HEREBY WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE
LIABILITY IN TORT) WHICH IT MIGHT HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE
(INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED DIRECTLY OR
INDIRECTLY BY THE EQUIPMENT, ITS USE OR MAINTENANCE, OR ANY DELAY OR FAILURE TO
PROVIDE ANY UNIT OF EQUIPMENT, OR ANY INTERRUPTION OF SERVICE OR LOSS OF USE OF
THE EQUIPMENT EXCEPT (AT THE END OF THE LEASE TERM, WHETHER AT STATED MATURITY
OR BY EARLY TERMINATION, IF ANY EQUIPMENT IS BEING RETURNED TO LESSOR) THOSE
CAUSED BY LESSOR'S GROSS NEGLIGENCE AND WILLFUL MISCONDUCT. If any Unit is
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<PAGE> 6
unsatisfactory for any reason, Lessee shall make any claim against the
manufacturer or supplier of the Unit and not against Lessor. Lessor shall not
be liable for specific performance of this Lease or for damages if for any
reason a supplier declines, delays or fails to fill any order.
7. ADJUSTMENTS FOR ACTUAL COST. Upon Lessee's request, Lessor
may, but shall have no obligation to, fund a Schedule which would cause the
aggregate Cost of Equipment on all Schedules funded under this Lease to exceed
the Master Lease Line. If at any time the actual aggregate Cost of all
Equipment exceeds the Master Lease Line, the Advance Rental shall be increased
proportionately. Lessee shall pay any additional sums for Advance Rental due
under this Lease within five (5) business days after receiving notice from
Lessor. Lessee may not request funding for a Schedule which would cause the
aggregate Cost of Equipment under all Schedules funded under this Lease to
exceed the Lease Line by more than ten percent (10%).
8. TITLE. All Equipment shall remain personal property, and the
title thereto shall remain exclusively in Lessor, notwithstanding the manner in
which any Unit may be attached to realty. Lessee agrees, upon the request of
Lessor at any time during the Lease Term, to affix or permit Lessor to affix,
in a permanent and inconspicuous place on any Unit, labels supplied by Lessor
identifying the Equipment as property of Lessor, and shall not alter or remove
any such label from any Unit. Lessee shall keep the Equipment free from any
and all liens and encumbrances except those created by Lessor. Lessee shall
give Lessor immediate notice of any judicial process or encumbrance affecting
the Equipment and shall indemnify and save Lessor harmless from any loss or
damage caused thereby, including without limitation court costs, reasonable
attorney fees and expenses.
9. FILING. Lessee shall execute or use its best efforts to cause
to be executed, at Lessee's sole expense, such supplemental instruments,
financing statements and landlord's waivers as Lessor deems necessary or
advisable and shall cooperate to defend the title of Lessor in the Equipment by
filing or otherwise; provided, however, that Lessee shall not bear such
expenses resulting from the sale or assignment of this Lease by Lessor. Lessee
authorizes Lessor to record in any state, this Lease and any financing
statements, security agreements and landlord's waivers with respect to the
Equipment or any collateral provided by Lessee to Lessor. Lessee agrees to
give Lessor thirty (30) days written notice of any change in Lessee's name or
place of business. Lessee agrees to give written notice to Lessor as soon as
Lessee has knowledge of any change of ownership of the real property upon which
or within which the Equipment is located.
10. TAXES. Lessee shall pay in a timely fashion, and shall
indemnify and hold Lessor harmless against all federal, state and local taxes,
assessments, license and registration fees, and other governmental charges of
any kind, including, without limitation,those levied on motor vehicles or
trailers, and any interest or penalties thereon, which may be levied, directly
or indirectly, against the Equipment or with respect to its ordering,
purchasing, delivery, ownership, possession, use, leasing, documentation, and
return or other disposition thereof, regardless of whether such taxes and fees
are levied against Lessor or Lessee; provided, however, that Lessee shall have
the right to contest any such taxes assessments, license and registration fees
or charges with the applicable authorities. Such taxes and fees to be paid by
Lessee shall include, without limitation, property, sales, rent, franchise,
gross receipts, lease, and use taxes, and any other tax measured by gross
Rental Payments, but shall not include income or franchise taxes based on
Lessor's net income and payable by Lessor on its receipt of Rental Payments
hereunder. Personal property taxes shall be reasonably estimated by Lessor and
billed to Lessee as of the date of assessment each year. Upon receipt by
Lessor of the final personal property tax assessment and invoice, Lessor shall
invoice or credit Lessee, as applicable, for any differences of such final
assessment and Lessor's original estimate. Lessor shall have the right, but
not the obligation, to pay any such taxes or fees regardless of whether levied
against Lessor or Lessee. Any and all sales or use taxes levied against
Lessor's purchase of Equipment shall be added to the total Cost of such
Equipment as specified on the Schedule under which such Equipment is added to
this Lease. With the exception of taxes and fees which are added to the total
Cost of Equipment hereunder, Lessee shall reimburse Lessor within five (5)
business days after receipt of invoice from Lessor specifying the amount of,
and reason for, any payment by Lessor of amounts for which Lessee is liable
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under this Paragraph 10. Lessee shall timely prepare and file all reports and
returns which are required to be made with respect to such taxes and/or fees,
and all such reports shall show Lessor as owner of the Equipment.
11. ASSIGNMENTS AND SUBLEASES.
(a) EXCEPT AS PERMITTED BY PARAGRAPH 14, WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR, LESSEE SHALL NOT ASSIGN, PLEDGE, GRANT A SECURITY INTEREST
IN, OTHERWISE ENCUMBER, SUBLEASE OR TRANSFER, OR IN ANY WAY DISPOSE OF OR
OTHERWISE RELINQUISH POSSESSION OR CONTROL OVER (COLLECTIVELY, A "TRANSFER")
ITS RIGHTS WITH RESPECT TO ANY UNIT OF EQUIPMENT OR ALL OR ANY PART OF ITS
RIGHTS AND OBLIGATIONS UNDER THIS LEASE. If notwithstanding the foregoing, a
Transfer by Lessee takes place, the rights of the sublessee or other transferee
will be subject and subordinate to all of the terms of this Lease, including
Lessor's right of repossession on the occurrence of an Event of Default.
Lessee will remain primarily liable for the performance of all of the terms of
this Lease to the same extent as if the sublease or transfer of possession had
not occurred. Lessor and Lessee agree that any purchase of all or
substantially all of Lessee's assets, any merger or consolidation into or with
Lessee regardless of whether Lessee is the surviving entity or any entity
acquiring more than thirty percent (30%) of Lessee's voting securities shall be
deemed to be a Transfer under this Lease; provided, however, that no such
consent shall be required if Lessee presents to Lessor evidence reasonably
satisfactory to Lessor that the surviving entity shall have a financial
condition which is at least as good as that of Lessee and can reasonably be
expected to be capable of performing Lessee's obligations under this Lease.
(b) Lessor shall have the right, in its sole discretion, to
assign, sell, pledge, grant a security interest in or otherwise encumber its
rights under this Lease or one or more Schedules and/or with respect to the
Equipment subject to this Lease or such Schedule(s) to one or more persons or
entities (each, an "Assignee"). Lessee acknowledges that an assignment, sale
or other encumbrance by Lessor would not materially change Lessee's duties
under the Lease or materially increase its burdens or risks. Without prejudice
to any rights that Lessee may have against Lessor, Lessee agrees that it will
not assert against an Assignee any claim or defense that it may have against
Lessor.
(c) Lessee acknowledges that it is Lessor's intention to assign
this Lease and/or one or more Schedules and the related Equipment to one or
more limited partnerships with which Lessor is affiliated (each, a "Lessor
Affiliate") and agrees that upon any such assignment the sole liability for
performance of Lessor's obligations hereunder shall fall upon such Lessor
Affiliate which shall assume such obligations and Lessor shall be fully
released from such liabilities and that the limited partners of such Lessor
Affiliate shall have no personal liability for the performance or observance of
this Lease. A Lessor Affiliate which succeeds to the rights and interests of
Lessor under this Paragraph 11(c) shall be bound by the terms of this Lease
without alteration and any claim or defense which Lessee may have had against
Lessor prior to such assignment may only be asserted against the assignee
Lessor Affiliate.
(d) Subject to the foregoing, this Lease inures to the benefit of,
and is binding upon, the heirs, legatees, representatives, successors and
assigns of Lessee and Lessor.
12. REPRESENTATIONS AND WARRANTIES.
(a) Lessee warrants and represents the following as of the date
hereof: (i) Lessee is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and is duly
qualified and authorized to do business in the state(s) where the Equipment
will be located; (ii) Lessee has the full corporate power, authority and legal
right and has obtained all approvals and consents and has given all notices
necessary to execute and deliver this Lease and perform the terms hereof and of
each Schedule; (iii) there is no action, proceeding or claim pending or,
insofar as Lessee knows, threatened against Lessee or any of its subsidiaries
before any court or administrative agency which might have a material adverse
effect on the business, condition or
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operations of Lessee or any subsidiary; and (iv) this Lease has been and each
Schedule will be duly executed and delivered by Lessee and constitute or will
constitute the valid, binding and enforceable obligations of Lessee except as
such enforcement may be limited by laws relating to bankruptcy, insolvency or
the enforcement of creditors rights generally or by rules of law concerning
equitable remedies.
(b) Lessee agrees that by its signature on each Schedule it shall
be deemed to have warranted and represented the following as of the Acceptance
Date of such Schedule: (i) all of the Units subject to such Schedule are
accurately described in Annex A attached to such Schedule, have been fully
assembled and conform to all applicable performance criteria; (ii) the
requirements of this Lease and of Lessor with respect to the identification of
the Units have been met; and (iii) each of the representations and warranties
set forth in clause (a) of this Paragraph 12 remains true and correct.
13. USE AND INDEMNITY. Lessee shall use the Equipment only in
Lessee's business. Except as set forth in Paragraph 14, Lessee agrees not to
allow the Equipment to be used by other than its employees, consultants and
agents. Lessee acknowledges that the Equipment is leased for commercial
purposes and not for personal, family or household use. Lessee agrees to
indemnify and hold Lessor, and Lessor's officers, directors, shareholders,
partners, affiliates, agents, servants, successors and Assignees, harmless
against any and all liabilities, losses, damages, actions, claims and expenses
of any kind and nature, including, without limitation, court costs and
reasonable attorneys' fees and expenses (each, a "Claim"), directly or
indirectly related to or arising in connection with the breach of any
representation or warranty of Lessee under this Lease or the manufacture,
purchase, licensing, lease or sublease, delivery, installation, operation, use,
ownership, maintenance, storage, relocation, return or condition of any Unit of
the Equipment (regardless of whether such Unit is at the time in the possession
or control of Lessee) arising from acts during the Term of each Schedule and
prior to any redelivery of the Equipment to Lessor, except to the extent any
such claims, actions, liabilities and expenses result from the gross negligence
or willful misconduct of Lessor. The foregoing indemnity shall cover, without
limitation, (i) any Claim in connection with a design or other defect (latent
or patent) in any Unit, (ii) any Claim for infringement of any patent,
copyright, trademark or other intellectual property right, (iii) any Claim
resulting from the presence on or under or the escape, seepage, leakage,
spillage, discharge, emission or release from any Unit of any Hazardous
Materials, including, without limitation, any Claims asserted or arising under
any Environmental Law, or (iv) any Claim for negligence or strict or absolute
liability in tort. Upon Lessor's written demand, Lessee shall assume and
diligently conduct, at its sole cost and expense, the entire defense of Lessor
and its agents, employees, successors and assigns against any indemnified Claim
described in this Paragraph 13. Lessee shall not settle or compromise any
Claim against or involving Lessor without first obtaining Lessor's written
consent thereto, which consent shall not be unreasonably withheld. The
foregoing indemnity shall continue in full force and effect notwithstanding the
termination or cancellation of this Lease, whether by expiration of time,
operation of law or otherwise.
14. LOCATION. Lessee shall keep the Equipment at its place of
business as specified above or on the Schedules. Lessee shall not permit any
Equipment to be moved to a new location without the prior written consent of
Lessor; provided, however, that Equipment may be used from time to time by
Lessee's customers for demonstration purposes at Lessee's customer locations so
long as the aggregate original Cost of such Equipment at any time located at a
customer location does not exceed $40,000.
15. RIGHT OF INSPECTION. Lessor and its agents shall have the
right, at any time during normal business hours upon 24 hours notice to Lessee,
to inspect and photograph the Equipment, to review all maintenance records
related to the Equipment and, during the last ninety (90) days of the
Noncancellable Term of each respective Schedule, to demonstrate the Equipment
specified thereon to prospective purchasers (provided that Lessee has not given
notice of its intention to purchase the Equipment); provided, however, Lessor
shall give five (5) days' notice to Lessee of any such demonstration.
16. MAINTENANCE. Lessee shall exercise due and proper care in the
use, repair and servicing of the Equipment. Lessee shall, at its own expense,
make all repairs and replacements required to maintain the
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Equipment in good working condition in accordance with manufacturers'
specifications and Lessor's requirements, and shall pay all other operating
expenses relating to the Equipment. Lessee shall have the right, with written
notice to Lessor thereof, to make any alterations, additions or improvements to
any Unit which do not render the Unit in such a condition that it cannot, prior
to the expiration, cancellation or other termination of this Lease, be restored
to its original condition, reasonable wear and tear alone excepted; provided
that no such alteration, addition or improvement shall be made by Lessee if as
a result thereof any warranties made by the supplier of the Unit would be
canceled or terminated. If Lessee does not exercise its option to purchase the
Equipment, as specified in Paragraph 17, or if this Lease shall be earlier
terminated or cancelled for any reason, Lessee shall restore each Unit to its
original condition, reasonable wear and tear alone excepted, prior to the
expiration, cancellation or other termination of each respective Schedule. All
replacement parts and additions incorporated into a Unit shall become the
property of Lessor immediately upon incorporation; provided, however, that
Lessor shall transfer to Lessee title to any alterations, additions and
improvements which were made by Lessee at its own expense to each item of
Equipment purchased by Lessee pursuant to the provisions of Paragraph 17.
Lessee agrees to maintain and provide upon request of Lessor all internal
maintenance reports relating to the Equipment.
17. PURCHASE OPTION. Upon written notice to Lessor not less than
ninety (90) days nor more than one hundred eighty (180) days prior to the last
day of the Noncancellable Term of any Schedule executed pursuant to this Lease,
if Lessee has fulfilled all of its obligations hereunder, Lessee shall have the
right to purchase all, but not less than all, of the Equipment under such
Schedule, for the aggregate Fair Market Value of such Equipment (plus
applicable taxes); provided, however, that Lessee shall be obligated, at the
end of the Noncancellable Term for each Schedule, to purchase all software
funded pursuant to such Schedules under Facility A of this Lease pursuant to
the provisions of this Paragraph 17. Lessor and Lessee hereby agree that for
the purposes of Lessee's purchase option as set forth in this Paragraph 17, the
Fair Market Value of software funded pursuant to this Lease shall be, on the
last day of the Noncancellable Term of the Schedule covering the software,
fifteen percent (15%) of such software's original cost, as reasonably
determined by the parties. With the exception of software funded under any
Schedules of this Lease, should Lessor and Lessee fail to agree upon the Fair
Market Value of the Equipment, said price shall be determined by an independent
appraiser, and the cost of the appraisal shall be borne equally by both Lessor
and Lessee. Notwithstanding the date on which Lessee exercises this option,
Lessee shall acquire no rights of title to any Equipment, nor shall title to
any Unit be transferred to Lessee after the exercise of this purchase option
until the expiration of the Noncancellable Term for the Schedule on which such
Unit is specified. Lessee shall remain liable for all Rental Payments and
other obligations due under each Schedule until the expiration of the
Noncancellable Term of such Schedule. Any Equipment sold by Lessor shall be
sold "AS IS", "WHERE IS", and with no warranties, express or implied, including
without limitation implied warranties of merchantability and fitness for any
particular purpose. Except as set forth above with respect to software, "Fair
Market Value" is defined, with respect to all Equipment funded under this
Lease, as the estimated amount at which the property might be expected to
exchange in an arm's length transaction between a willing buyer (other than a
used equipment dealer) and a willing seller, neither being under compulsion,
each having reasonable knowledge of all relevant facts, and with equity to
both, with the assumptions that the Units (i) are being sold "in place and in
use," (ii) are free and clear of all liens and encumbrances, and (iii) are in
the condition required by Paragraph 16 of this Lease.
18. RETURN OF EQUIPMENT. Upon ninety (90) days' written notice to
Lessor, in the event Lessee has not exercised its purchase option as specified
in Paragraph 17, after such notification and upon the expiration, cancellation
or other termination of the Noncancellable Term of each Schedule, Lessee shall,
at Lessee's sole expense, properly pack and return the Equipment, insured,
unencumbered and in the same condition as when received by Lessee, reasonable
wear and tear alone excepted, by such carriers as Lessor shall reasonably
approve and to such place as designated by Lessor. Should Lessee fail to give
notice of its intent to return or fail to return the Equipment as directed
above, all obligations of Lessee under this Lease, including Rental Payments,
shall remain in full force and effect for the period from the end of the
Initial Lease Term until ninety (90) days after notice is given to Lessor of
Lessee's intent to return or purchase the Equipment (the "Holdover Period").
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<PAGE> 10
19. FINANCIAL STATEMENTS; OTHER INFORMATION.
(a) Lessee shall provide to Lessor the financial statements
specified in this Paragraph 19 (a), prepared in accordance with generally
accepted accounting principles, consistently applied (the "Financial
Statements"); provided, however, that after the effective date of the initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" shall be deemed to refer only to those statements
required to be filed by the Securities and Exchange Commission, to be provided
no less frequently than quarterly.
(i) As soon as practicable (and in any event within
thirty (30) days after the end of each month), a reasonably detailed balance
sheet as of the end of such month and the related statements of income or loss,
cash flow and capital structure of the Lessee during such month (including
notification of the commencement of any material litigation by or against
Lessee), certified by Lessee's Chief Executive Officer or Chief Financial
Officer to fairly present the data reflected therein.
(ii) As soon as practicable (and in any event within one
hundred twenty (120) days after the end of each fiscal year), audited balance
sheets as of the end of such year (consolidated if applicable), and related
statements of income or loss, retained earnings or deficit, cash flows and
capital structure of Lessee for such year, setting forth in comparative form
the corresponding figures for the preceding fiscal year, and accompanied by an
audit report and opinion of the independent certified public accountants of
recognized national standing selected by Lessee.
(b) Lessee shall promptly furnish to Lessor any additional
information (including but not limited to tax returns, income statements,
balance sheets, and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing financial obligations (the
"Additional Information").
(c) Lessor agrees to preserve the confidentiality of all
information provided to it hereunder by Lessee regarding the Lessee and its
business which Lessee designates as confidential and which is otherwise not
generally known (except to the extent any disclosure of such information is
required by a court of competent jurisdiction or governmental authority).
20. TAX INDEMNIFICATION. Lessee acknowledges that this Lease has
been entered into on the basis that Lessor or Lessor's Assignee intends to
claim such depreciation, interest deductions and other tax benefits (the "Tax
Benefits") as are provided to an owner of Equipment under the Internal Revenue
Code of 1986, as amended (the "Code") and corresponding provisions of state
law. If Lessor or Lessor's Assignee shall not have the right to claim or there
shall be disallowed, deferred, recaptured or otherwise made unavailable with
respect to Lessor or Lessor's Assignee all or any portion of the Tax Benefits
as a result of an act or failure to act by Lessee in contravention of any of
the terms and conditions of the Lease, Lessee shall promptly pay to Lessor or
Lessor's Assignee, an amount which, on an after-tax basis, will compensate
Lessor or Lessor's Assignee for the value of the lost Tax Benefits. The Tax
Benefits shall be deemed to have been disallowed or recaptured upon the
earliest of (i) the adjustment by a taxing authority of the tax return of
Lessor to reflect such loss (but only if such adjustment will actually result
in a tax payment); or (ii) the payment by Lessor to the Internal Revenue
Service or state taxing authority of the tax increase resulting from such lost
Tax Benefits. Lessee shall have the right to contest any disallowance or
recapture of tax benefits. Lessor or Lessor's Assignee shall be deemed not to
have the right to claim the Tax Benefits if, in the opinion of Lessor's
independent tax counsel, reasonably acceptable to Lessee, there is no
reasonable basis for claiming the Tax Benefits.
21. ADDITIONAL LESSOR RIGHTS. A representative of Lessor shall
have the right to meet with Lessee's Chief Executive Officer and Chief
Financial Officer once each quarter throughout the lease term to review and
discuss the operating performance and financial condition of the Company.
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<PAGE> 11
22. RISK OF LOSS. Lessee assumes the entire risk of loss, theft
and damage of the Equipment from any cause whatsoever during the term of each
Schedule and prior to any redelivery of Equipment to Lessor, and no such event
shall relieve Lessee of any obligation under this Lease. Lessee shall notify
Lessor in writing within ten (10) days after any such event. Lessee agrees
that Lessor shall have the following remedies upon each occurrence of the
following events:
(a) In the case of damage of any kind whatsoever to any Unit
(unless such Unit is damaged beyond repair), Lessee shall, at Lessee's sole
expense and with Lessor's reasonable consent, (i) restore such Equipment to its
original condition, reasonable wear and tear alone excepted, or (ii) replace it
with like equipment of the same or later model in good condition. Upon
Lessee's replacement of any Equipment as specified in clause (ii) of this
Paragraph 22(a), Lessee shall transfer title to such replaced Equipment to
Lessor.
(b) If any Unit is determined by Lessor to be damaged beyond
repair, or if Lessor has reasonable cause to believe that any Unit is stolen or
lost and such Unit is not returned to its proper location within thirty (30)
days after notice thereof to Lessee, Lessee shall, at Lessee's option,
immediately: (i) replace such Unit with like equipment of the same or later
model in good condition, in which case such Unit shall be substituted for the
damaged Unit on the relevant Schedule, and Rental Payments shall continue
throughout the Lease Term of the Schedule to which the Unit becomes subject
without any interruption, or (ii) pay to Lessor the sum of (A) the aggregate
unpaid rent due for the balance of the Noncancellable Term for the Unit
involved, discounted to present value at the Discount Rate; plus (B) the then
estimated Fair Market Value of the Unit involved, calculated as of the
expiration of the Noncancellable Term (the "Residual Value"), discounted to
present value at the Discount Rate; plus (C) any tax payments or
indemnification for which Lessee is liable under Paragraphs 10 and 20; plus any
other amounts with respect to such Unit for which Lessee is liable under this
Lease; provided, however, the option specified in clause (i) of this Paragraph
22(b) shall not be available if an Event of Default has occurred and is
continuing. Upon payment under clause (ii) of Paragraph 22(b), this Lease
shall terminate with respect to the Unit(s) paid for, and Lessee shall become
entitled to such Unit(s) "AS IS" AND "WHERE IS" WITHOUT ANY WARRANTY, EXPRESS
OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
(c) Any proceeds paid to Lessor from the personal property
insurance specified in Paragraph 23(a)(i) shall be applied to Lessee's
obligations under this Paragraph 22.
23. INSURANCE.
(a) Lessee shall, at its own expense, maintain the following types
of insurance, with companies with an A-5 Best rating or better, acceptable to
Lessor, until such time as Lessee has returned the Equipment as specified in
Paragraph 18 or taken title to the Equipment pursuant to Paragraph 17:
(i) Personal property insurance on all property owned by
Lessee (including without limitation all of the Equipment) in an agreed amount
based upon the following:
(A) Standard "all risk" property insurance,
including boiler and machinery insurance, earthquake insurance, if
applicable, and flood insurance if any Equipment is located in an
identified "flood hazard area," in which flood insurance has been made
available pursuant to the National Flood Insurance Act of 1968;
(B) The amount of such insurance shall be not
less than the greater of the fair market value or the full
undepreciated replacement value of the Equipment. The amount of such
insurance allocable to loss or damage or personal property shall not
have a deductible in excess of one thousand dollars ($1,000.00) per
occurrence.
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<PAGE> 12
(C) Such insurance shall contain an endorsement
issued by the insurer (as opposed to a certificate issued by an agent
of the insurer) in which Lessor is named as loss payee with respect to
the Equipment, and shall set aside the amount stated in Paragraph
23(a)(i)(B) for the sole benefit of, and payable directly to, Lessor.
(ii) Employee dishonesty insurance payable to Lessor with
respect to the theft of the Equipment, such employee dishonesty insurance to
have a policy limit of $250,000.00.
(iii) Business interruption insurance in an amount at all
times equal to the total Rental Payments to become due during the six months
following the date of calculation. In the event of any interruption of
Lessee's business, the amount payable to Lessor shall be equal to the actual
loss of Rental Payments suffered by Lessor as the result of such interruption,
and shall be payable to Lessor within thirty (30) days from the date of loss,
and on a month-to-month basis thereafter, until Lessee's business is returned
to a fully operational state, plus ninety (90) days.
(iv) Commercial general liability insurance covering
bodily injury (including death) and property damage, naming Lessor, its
directors, officers, agents and employees as an Additional Insureds on all
policies (evidenced by an endorsement issued by the insurer (as opposed to a
certificate issued by an agent of the insurer)), and providing total limits in
amounts as are at the time carried by entities engaged in the same or similar
business and which are similarly situated, but in no event less than two
million dollars ($2,000,000.00) for combined single limit occurrence. All such
policies shall cover any injury or damage occasioned by, or occurring upon,
Lessee's premises, products, operations and, at Lessor's option, explosion,
collapse and underground hazards. All such policies shall contain contractual
liability coverage including all liability assumed under this agreement, and a
cross liability clause providing that such insurance shall, except with respect
to the limits of liability, apply separately to each insured.
(v) Workers compensation insurance.
(b) All insurance specified in this Paragraph 23 shall be primary
over, and in no event shall, any insurance carried by Lessor be called upon to
contribute to any loss relating to or arising out of this Lease. All insurance
shall be in effect, and shall be evidenced by policies and/or endorsements
delivered to Lessor no later than twenty (20) days after the date upon which
Lessee executes this Lease. Notwithstanding anything to the contrary contained
in this Lease, Lessor shall have no obligation to purchase any Equipment until
all policies are in place. All such policies shall provide for at least thirty
(30) days' prior written notice to Lessor in the event of any cancellation,
non-renewal or material change in coverage, and Lessor shall receive a copy of
any and all endorsements or other documentation relating to such policies.
(c) Should Lessee, at any time during the Lease Term, be without
sufficient insurance, as determined by Lessor in accordance with the provisions
of this Paragraph 23, Lessee appoints Lessor as its agent to obtain such
coverage, and promises to pay to Lessor the entire cost of such coverage.
24. DEFAULT. Each of the following events shall constitute an
"Event of Default" under this Lease:
(a) Nonpayment, by the due date specified herein, of any Rental
Payment or other payment required of Lessee under the terms of this Lease, and
such nonpayment shall continue for a period of five (5) business days;
(b) Noncompliance with any or all of the provisions of Paragraph
23, and such noncompliance shall continue for a period of five (5) days after
notice thereof is given to Lessee;
(c) Lessee shall have made a misstatement or false statement of,
or omitted to state, a material fact in connection with the execution,
performance or nonperformance of this Lease or any Schedule, or if any
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<PAGE> 13
representation or warranty of Lessee in this Lease, any Schedule or any
Acceptance Certificate is inaccurate or false;
(d) Except to the extent permitted by Paragraph 14, if Lessee,
without Lessor's prior written consent, shall have removed, parted possession
with, sold transferred, encumbered, assigned or sublet the Equipment or
Lessee's interest under this Lease or attempted to do any of the foregoing; or
if Lessee shall have converted any interest of Lessor arising under this Lease
or any purchase order, or resulting from the purchase of Equipment or attempted
to convert any of the foregoing;
(e) If Lessee, without Lessor's prior written consent, shall
encumber or grant a security interest in (other than for valid business
purposes in the ordinary course of business with respect to license agreements
or similar agreements), sell, transfer or assign to any holder of equity
securities of Lessee Lessee's rights, title and interest in all patents, patent
applications, invention disclosures, copyrights, copyright applications,
trademarks (including service marks), trademark registrations, trade names,
computer software and hardware, microcode and source code, trade secrets,
know-how and processes owned by Lessee or other intellectual property rights;
(f) If any of Lessee's credit or financial information submitted
to Lessor at any time (including but not limited to due diligence materials,
Financial Statements and Additional Information) contains any misstatement or
false statement of a material fact, or fails to state therein any material fact
necessary to make the statements made, in light of the circumstances under
which they were made, not misleading;
(g) If Lessee shall become "insolvent" as defined in Section
101(32) of the United States Bankruptcy Code;
(h) If any single final judgment for payment of money damages in
excess of fifty thousand dollars ($50,000.00), or aggregate final judgments for
payment of money damages in excess of one hundred thousand dollars
($100,000.00), shall be rendered against Lessee and shall remain undischarged
for a period of sixty (60) days (unless during such period execution shall not
be effectively stayed in which case there shall be no grace period under this
Paragraph 24(h));
(i) If any substantial part of Lessee's property shall be
subjected to any levy, seizure, involuntary assignment, attachment, application
or sale for or by any creditor or governmental agency which is not removed,
terminated or stayed within twenty (20) days;
(j) If any single indebtedness of Lessee exceeding the sum of
fifty thousand dollars ($50,000.00), or aggregate indebtedness exceeding the
sum of one hundred thousand dollars ($100,000.00), under any other lease or
contract for the borrowing of money or on account of the deferred purchase
price of property shall be accelerated, or subject to acceleration upon the
giving of notice, passage of time or both as a result of a default by Lessee,
or the obligee with respect to such indebtedness shall exercise any other
remedy it may have as a result of such default; provided, however, that this
Paragraph 21(j) shall not apply to the acceleration of or the exercise of
remedies with respect to indebtedness to CSC Intelicom, Inc. under that certain
Promissory Note in the principal amount of $500,000, dated as of December 13,
1992;
(k) If an order, judgement or decree shall be entered by any court
having jurisdiction for (i) relief in respect of Lessee in an involuntary case
under any applicable bankruptcy, insolvency or other similar law (as now or
hereafter in effect), (ii) appointing of receiver, liquidator, assignee,
trustee, custodian, sequestrator (or similar official) for Lessee or for any
substantial part of its property, or sequestering any substantial part of the
property of Lessee, or (iii) liquidating of Lessee's affairs, and any such
order, judgement or decree shall remain in force undismissed, unstayed or
unvacated for a period of sixty (60) days after the date of entry thereof; or
if Lessee shall seek relief of any kind under any such law or consent to any of
the foregoing; or
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<PAGE> 14
(l) Nonperformance of any of Lessee's obligations under this Lease
other than those described elsewhere in this Paragraph 24, and such
nonperformance shall continue for a period of twenty (20) days after notice
thereof is given to Lessee.
25. REMEDIES. Upon the occurrence and during the continuance of
any Event of Default, Lessor or its agent shall have the right, without demand
or prior notice, in Lessor's sole discretion, to exercise any one or more of
the following remedies:
(a) To cancel this Lease and all Schedules;
(b) To declare the damages specified in Paragraph 26 to be
immediately due and payable;
(c) To take possession of any or all Units of Equipment with or
without any court order or other process of law, and for this purpose Lessor
and/or its agents may enter upon any premises of or under the control or
jurisdiction of Lessee or any agent of Lessee, without liability for suit,
action or other proceeding by Lessee (except those based upon Lessor's or
Lessor's agent's gross negligence or willful misconduct) and remove the
Equipment therefrom; Lessee further agrees, on demand, to assemble the
Equipment and make it available to Lessor at a place to be designated by Lessor
which is reasonably convenient to Lessor and Lessee; notwithstanding the
foregoing, such taking of possession shall not relieve Lessee of its
obligations to pay damages as set forth in Paragraph 26.
(d) To exercise any other right or remedy which may be available
to Lessor under the UCC or any other applicable law.
26. DAMAGES. Lessor's damages, in the event of default by Lessee,
shall include (in addition to all other damages available to Lessor under
applicable law): (i) the due and unpaid balance of Rental Payments and all
other amounts payable hereunder plus late charges and interest due under
Paragraph 5(c) (but not more than the maximum rate permitted by law) for the
period after the date such payments were due, (ii) the aggregate of all
remaining Rental Payments through the end of the Noncancellable Term of each
Schedule, discounted to present value at the Discount Rate, (iii) the Residual
Value (unless the Equipment is returned to Lessor in the condition required by
Section 18), discounted to present value at the Discount Rate, (iv) any
indemnification payments due hereunder plus interest at a rate equal to the
lesser of 1.5% per month or the maximum rate permitted by law for the period
after the date such payments were due, (v) reasonable costs of repossession,
recovery, storage and repairs and of lease or sale to a third party, plus (vi)
all other reasonable expenses including court costs and reasonable attorneys'
fees and expenses. Lessor's obligation to mitigate said damages and any
reduction of the amounts due to Lessor shall be limited as follows:
(a) Lessor shall make best efforts to mitigate its damages by
re-leasing the Equipment to a third party, and any rentals received in
consideration for such third party's use of said Equipment during any period of
the Noncancellable Term of any Schedule shall be applied only to that portion
of Lessor's damages resulting from loss of rentals that Lessor would have
received from Lessee during the same period had Lessee not become in default.
Amounts received from such third party shall be applied in mitigation of
Lessor's damages only to the extent such amounts are payable in connection with
such third party's periodic rental obligations as specified in the preceding
sentence; in no event shall any other amount received from such third party,
including without limitation as a security deposit or as an advance on periodic
rental obligations, be applied in mitigation of Lessor's damages hereunder.
(b) Lessor shall have no obligation to sell any of the Equipment;
however, any amounts received from a sale to a third party shall be applied to
Lessor's damages as specified in this Paragraph 26.
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<PAGE> 15
27. MISCELLANEOUS.
(a) If more than one Lessee is named in or added to this Lease,
the liability of each shall be joint and several.
(b) All notices related hereto shall be mailed to Lessor or Lessee
at its respective address as specified on the cover page of this Lease, or at
such other address as either party may designate upon ten days written notice
to the other party.
(c) Paragraph titles are solely for convenience and are not an aid
in the interpretation of this Lease.
(d) Time is of the essence of this Lease and each of its
provisions.
(e) If notwithstanding the intent of the parties this Lease and
any Schedules hereto are determined to be a lease for security or a security
agreement, Lessee shall have been deemed to have granted to Lessor a security
interest in all of Lessee's right, title and interest in and to the Equipment
and the proceeds thereof to secure all of Lessee's obligations to Lessor
arising hereunder.
(f) This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument; provided, however, that to the extent, if any, that this Lease
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Lease may be created through the transfer or possession of any counterpart of
this Lease or any Schedule other than the original counterparts marked
"Original Counterpart No. 1".
28. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee shall
fail duly and promptly to perform any of its obligations under this Lease,
Lessor may, at its option and at any time, perform the same without waiving any
default on the part of Lessee, or any of Lessor's rights. Lessee shall
reimburse Lessor, within five (5) days after notice thereof is given to Lessee,
for all expenses and liabilities incurred by Lessor in the performance of
Lessee's obligations.
29. NONWAIVER; RIGHTS AND REMEDIES CUMULATIVE. Lessor's failure
at any time to require strict performance by Lessee shall not constitute waiver
of, or diminish, Lessor's right to demand strict compliance with any provision
of this Lease. Waiver by Lessor of any default shall not constitute waiver of
any other default. No rights or remedies referred to herein shall be
exclusive, but shall be cumulative and in addition to any other right or remedy
set forth herein or otherwise available to Lessee at law or in equity.
30. SURVIVAL OF OBLIGATIONS; LIMITATIONS ON ACTIONS. All
agreements, covenants, representations and warranties of Lessee contained in
this Lease or in the Schedules or other documents delivered pursuant hereto or
in connection herewith shall survive the execution and delivery, and the
expiration, cancellation or other termination of this Lease. Any action by
Lessee against Lessor for any default by Lessor under this Lease shall be
commenced within one (1) year after Lessee obtains knowledge of the facts
underlying any such cause of action.
31. SEVERABILITY. If any provision or remedy herein provided is
determined invalid under applicable law, such provision shall be inapplicable
and deemed omitted; but the remaining provisions, including remaining default
remedies, shall be given effect in accordance with their terms.
32. UPGRADES, ADDITIONS AND ATTACHMENTS. Any added memory,
upgrades, additions and attachments to Equipment previously placed under this
Lease shall, upon approval by Lessor, be included on a
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<PAGE> 16
Schedule, with a Noncancellable Term that is coterminous with the Equipment to
which such added memory, upgrade, addition or attachment is being attached.
33. CHOICE OF LAW. THIS LEASE SHALL BE DEEMED TO HAVE BEEN MADE
AND ACCEPTED AND PERFORMED IN THE COUNTY OF SAN FRANCISCO, IN THE STATE OF
CALIFORNIA, WHERE THE LESSOR'S PRINCIPAL PLACE OF BUSINESS IS LOCATED. THIS
LEASE AND ALL TRANSACTIONS HEREUNDER, AND ALL RIGHTS AND LIABILITIES OF THE
PARTIES HERETO, SHALL BE DETERMINED AND GOVERNED AS TO THE VALIDITY,
INTERPRETATION, ENFORCEMENT AND EFFECT BY THE LAWS OF THE STATE OF CALIFORNIA.
THE LESSEE HEREBY CONSENTS, IN ALL ACTIONS AND PROCEEDINGS ARISING DIRECTLY OR
INDIRECTLY FROM THIS LEASE, TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL
DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR ANY STATE COURT
LOCATED WITHIN SAN FRANCISCO COUNTY IN THE STATE OF CALIFORNIA. LESSEE HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS LEASE.
Lessee Initials: /s/ EJ Lessor Initials: /s/ KJC
----------- -----------
34. ENTIRE AGREEMENT. This instrument and any confidentiality
agreement executed in connection herewith constitutes the entire agreement
between the parties and may not be modified except in writing executed by
Lessor and Lessee. No supplier or agent of Lessor is authorized to bind Lessor
or to waive or modify any term of this Lease.
Lessee Initials: /s/ EJ Lessor Initials: /s/ KJC
----------- -----------
The undersigned representative of Lessee affirms that he or she has
read and understood this Lease and is duly authorized to execute this Lease on
behalf of Lessee and that, if Lessee is a corporation, this Lease is entered
into with consent of Lessee's Board of Directors and stockholders if so
required.
IN WITNESS WHEREOF, the parties hereto execute this noncancellable
Lease as of the date on the cover page hereof.
LESSEE: LESSOR:
CORAL SYSTEMS, INC. DOMINION VENTURES, INC.
By: /s/ ERIC ALAN JOHNSON By: /s/ KENDALL J. COOPER
------------------------------- -------------------------------
Name: Eric Alan Johnson Name: Kendall J. Cooper
----------------------------- -----------------------------
Title: President & CEO Title: CFO
---------------------------- ----------------------------
This Lease incorporates the following Addenda as if fully set forth herein:
Addendum I
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<PAGE> 17
ADDENDUM I
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 10450
DATED AUGUST 9, 1995
Conditions to Lessor's Obligations
By their initials below and on the signature page of the
Master Lease Agreement referenced in the upper right corner of this page,
Lessor and Lessee agree that the Lease incorporates the following terms:
Part 1: On or prior to the date of execution of the Lease by
Lessor, Lessor shall have received in form and substance
satisfactory to Lessor:
(a) Copies, certified, in substantially the manner set
forth in Exhibit E to the Lease, by the Secretary or
Assistant Secretary of: (A) the Articles of
Incorporation and By-Laws of Lessee (as amended to
the date of the Lease) and (B) the resolutions
adopted by Lessee's board of directors authorizing
the transaction and the documents being executed in
connection therewith.
(b) A Good Standing Certificate (including tax status if
available) with respect to Lessee from Lessee's
state of incorporation, dated a date reasonably
close to the date of acceptance of the Lease by
Lessor.
(c) Evidence of the insurance coverage required by
Paragraph 23 of the Lease.
(d) All necessary consents of shareholders and other
third parties with respect to the subject matter of
the Lease and the other documents being executed in
connection therewith.
(e) Landlord waiver(s) in the form of Exhibit A.
(f) The Advance Rental plus applicable taxes.
(g) The Certificate regarding IBM Master Pension Plan.
(h) All other documents as Lessor shall have reasonably
requested.
Part 2: Prior to any funding of a Schedule, each of the conditions
set forth in Part 1 of this Addendum I shall have been
satisfied and Lessor shall have received in form and
substance satisfactory to Lessor:
(a) Such documentation as Lessor may request with
respect to invoices, purchase orders, canceled
checks and the like relating to the Equipment to be
subject to the Schedule.
(b) A Purchase Order Assignment or Bill of Sale if
applicable.
(c) A UCC-1 financing statement duly executed by Lessee.
(d) An Acceptance Certificate with respect to the
Equipment to be subject to the Schedule.
Initials /s/ KJC (Lessor)
------------------------------
ADDENDUM I Initials /s/ EJ (Lessee)
------------------------------
16
<PAGE> 1
EXHIBIT 10.6
CORAL SYSTEMS, INC.
[PIONEER BANK OF LONGMONT LOGO] COMMERCIAL/
1610 Hover Street AGRICULTURAL
Longmont, Colorado 80501 ---------------------------------- REVOLVING OR DRAW
(303) 651-7777 ADDRESS NOTE-VARIABLE RATE
"LENDER" ----------------------------------
1500 KANSAS AVE, SUITE 2E
LONGMONT, CO 80501
----------------------------------
TELEPHONE NO. IDENTIFICATION NO.
----------------------------------
<TABLE>
<CAPTION>
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OFFICER INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
INITIALS RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DLA VARIABLE $750,000.00 04/26/96 04/26/97 3528103
- -----------------------------------------------------------------------------------------------------
</TABLE>
PROMISE TO PAY
For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of SEVEN HUNDRED FIFTY THOUSAND AND NO/100 Dollars
($750,000.00) or, if less, the aggregate unpaid principal amount of all loans
or advances made by the Lender to the Borrower, plus interest on the unpaid
principal balance at the rate and in the manner described below. All amounts
received by Lender shall be applied first to late payment charges and expenses,
then to accrued interest, and then to principal.
INTEREST RATE: This Note has a variable rate feature. Interest on the Note may
change from time to time if the Index Rate identified below changes. Interest
shall be computed on the basis of 360 days per year. Interest on this Note
shall be calculated at a variable rate equal to ONE AND 250/1000 percent
(1.250%) per annum over the Index Rate. The initial Index Rate is currently
EIGHT AND 250/1000 percent (8.250%) per annum. Therefore, the initial interest
rate on this Note shall be NINE AND 500/1000 percent (9.500%) per annum. Any
change in the interest rate resulting from a change in the Index Rate will be
effective on: A DAILY BASIS DETERMINED AND ANNOUNCED BY THE BANK. AT ITS SOLE
DISCRETION THE BANK RESERVES THE RIGHT TO MAKE LOANS AT, ABOVE, OR BELOW THE
BASE RATE INDEX RATE: The Index Rate for this Note shall be: NEW YORK PRIME
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be n/a
percent (na%) per annum. The maximum interest rate on this Note shall not
exceed n/a percent (n/a%) per annum or the maximum interest rate Lender is
permitted to charge by law, whichever is less.
DEFAULT RATE: In the event of any default under this Note, the Lender may in its
discretion, determine that all amounts owed to Lender shall bear interest at the
lesser of: 8.0 or the maximum interest rate Lender is permitted to charge by
law.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to
the following schedule:
INTEREST DUE AND PAYABLE ON A MONTHLY BASIS COMMENCING 5-26-96 WITH ALL UNPAID
PRINCIPAL AND ACCRUED INTEREST DUE AT OR BEFORE MATURITY ON 04-26-97
All payments will be made to Lender at its address described above and in
lawful currency of the United States of America.
RENEWAL: If checked, [ ] this Note is a renewal of loan number _______________ .
SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest, in all monies,
instruments, savings, checking and other deposit accounts of Borrower's,
(excluding IRA, Keogh and trust accounts and deposits subject to tax penalties
if so assigned) that are now or in the future in Lender's custody or control.
Upon default, and to the extent permitted by applicable law, Lender may
exercise its security interest in all such property which shall be in addition
to Lender's common law right of setoff. [X] If checked, the obligations under
this Note are also secured by a lien and/or security interest in the property
described in the documents executed in connection with this Note as well as any
other property designated as security now or in the future.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
will be credited as determined by Lender and as permitted by law. If this Note
is prepaid in full, there will be: [ ] No minimum finance charge or prepayment
penalty. [X] A minimum finance charge of $25.00. [ ] A prepayment penalty of
_____% of the principal prepaid.
LATE PAYMENT CHARGE: If a payment is received more than 10 days late, Borrower
will be charged a late payment charge of $10.00 or 5.000% of the payment amount,
whichever is [ ] greater [X] less, as permitted by law.
REVOLVING OR DRAW FEATURE: [X] This Note possesses a revolving feature. Upon
satisfaction of the conditions set forth in this Note, Borrower shall be
entitled to borrow up to the full principal amount of the Note and to repay and
reborrow from time to time during the term of this Note. [ ] This Note
possesses a draw feature. Upon satisfaction of the conditions set forth in this
Note, Borrower shall be entitled to make one or more draws under this Note. The
aggregate amount of such draws shall not exceed the full principal amount of
this Note.
Lender shall maintain a written ledger of the amounts loaned to and repaid by
Borrower under this Note. The aggregate unpaid principal amount shown on such
ledger shall be rebuttable presumptive evidence of the principal amount owing
and unpaid on this Note. The Lender's failure to record the date and amount of
any loan or advance on such ledger shall not limit or otherwise affect the
obligations of the Borrower under this Note to repay the principal amount of
the loans or advances together with all interest accruing thereon. Lender shall
not be obligated to provide Borrower with a copy of the ledger on a periodic
basis, however, Borrower shall be entitled to inspect or obtain a copy of the
ledger during Lender's business hours.
CONDITIONS FOR ADVANCES: If there is no default under this Note, Borrower shall
be entitled to borrow monies under this Note (subject to the limitations
described above) under the following conditions:
- --------------------------------------------------------------------------------
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
NOTE DATE: APRIL 26, 1996
BORROWER: CORAL SYSTEMS, INC. BORROWER: CORAL SYSTEMS, INC.
/s/ ERIC JOHNSON /s/ HOWARD KAUSHANSKY
- ------------------------------------ ----------------------------------------
ERIC JOHNSON HOWARD KAUSHANSKY
<PAGE> 2
TERMS AND CONDITIONS
1. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor:
(a) fails to make any payment on this Note or any other indebtedness to
Lender when due;
(b) fails to perform any obligation or breaches any warranty or covenant
to Lender contained in this Note or any other present or future
written agreement regarding this or any indebtedness of Borrower to
Lender;
(c) provides or causes any false or misleading signature or representation
to be provided to Lender;
(d) allows the collateral securing this Note (lf any) to be lost, stolen,
destroyed, damaged in any material respect, or subjected to seizure or
confiscation;
(e) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Borrower, any guarantor, or any of their
property;
(f) dies, becomes legally incompetent, is dissolved or terminated, ceases
to operate its business, becomes insolvent, makes an assignment for
the benefit of creditors, or becomes the subject of any bankruptcy,
insolvency or debtor rehabilitation proceeding; or
(g) causes Lender to deem itself insecure for any reason, or Lender, for
any reason, in good faith deems itself insecure.
2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender
will be entitled to exercise one or more of the following remedies without
notice or demand (except as required by law):
(a) to declare the principal amount plus accrued interest under this Note
and all other present and future obligations of Borrower immediately
due and payable in full;
(b) to collect the outstanding obligations of Borrower with or without
resorting to judicial process;
(c) to take possession of any collateral in any manner permitted by law;
(d) to require Borrower to deliver and make available to Lender any
collateral at a place reasonably convenient to Borrower and Lender;
(e) to sell, lease or otherwise dispose of any collateral and collect any
deficiency balance with or without resorting to legal process;
(f) to set-off Borrower's obligations against any amounts due to Borrower
including, but not limited to monies, instruments, and deposit
accounts maintained with Lender; and
(g) to exercise all other rights available to Lender under any other
written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately, and
in any order. Lender's remedies under this paragraph are in addition to those
available at common law, such as the right of set-off.
3. DEMAND FEATURE: If this Note contains a demand feature, then notwithstanding
anything to the contrary contained in this Note, Lender's rights with respect
to the events of default identified above shall not be limited, restricted,
impaired or otherwise adversely affected by the demand feature of this Note.
Lender's right to demand payment, at any time, and from time to time, shall
be in Lender's sole and absolute discretion, whether or not any default has
occurred.
4. FINANCIAL INFORMATION: Borrower will provide Lender with current financial
statements and other financial information (including, but not limited to,
balance sheets and profit and loss statements) upon request.
5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a writing
signed by Lender. Lender may perform any of Borrower's obligations or delay or
fail to exercise any of its rights without causing a waiver of those
obligations or rights. A waiver on one occasion will not constitute a waiver on
any other occasion. Borrower's obligations under this Note shall not be
affected if Lender amends, compromises, exchanges, fails to exercise, impairs
or releases any of the obligations belonging to any co-borrower or guarantor or
any of its rights against any co-borrower, guarantor or collateral.
6. SEVERABILITY AND INTEREST LIMITATION: If any provision of this Note violates
the law or is unenforceable, the rest of the Note will remain valid.
Notwithstanding anything contained in this Note to the contrary, in no event
shall interest accrue under this Note, before or after maturity, at a rate in
excess of the highest rate permitted by applicable law, and if interest
(including any charge or fee held to be interest by a court of competent
jurisdiction) in excess thereof be paid, any excess shall constitute a payment
of, and be applied to, the principal balance hereof, and if the principal
balance has been fully paid, then such interest shall be repaid to the
Borrower.
7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written
consent of Lender which may be withheld by Lender in its sole discretion.
Lender will be entitled to assign some or all of its rights and remedies
described in this Note without notice to or the prior consent of Borrower in
any manner.
8. NOTICE: Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
9. APPLICABLE LAW: This Note shall be governed by the laws of the state
indicated in Lender's address. Borrower consents to the jurisdiction and venue
of any court located in the state indicated in Lender's address in the event of
any legal proceeding pertaining to the negotiaton, execution, performance or
enforcement of any term or condition contained in this Note or any related loan
document and agrees not to commence or seek to remove such legal proceeding in
or to a different court.
10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting any
amount due or enforcing any right or remedy under this Note, Borrower agrees to
pay Lender's attorney's fees, to the extent permitted by applicable law, and
collection costs.
11. MISCELLANEOUS: This Note is being executed for commercial/agricultural
purposes. Borrower and Lender agree that time is of the essence. Borrower
waives presentment, demand for payment, notice of dishonor and protest.
Borrower hereby waives any right to trial by jurv in any civil action arising
out of, or based upon, this Note or the collateral securing this Note. If
Lender obtains a Judgment for any amount due under this Note interest will
accrue on the judgment at the Default Rate described in this Note. All
references to Borrower in this Note shall include all of the parties signing
this Note. If there is more than one Borrower, their obligations will be joint
and several. This Note and any related documents represents the complete and
integrated understanding between Borrower and Lender pertaining to the terms
and conditions of those documents.
12. ADDITIONAL TERMS: Borrower agrees to provide yearly financial statements and
income tax returns, both business and personal (where applicable).
<PAGE> 3
CORAL SYSTEMS, INC
[PIONEER BANK OF LONGMONT LOGO] DISBURSEMENT
1610 Hover Street INSTRUCTIONS
Longmont, Colorado 80501 ------------------------------------
(303) 651-7777 ADDRESS
"LENDER" ------------------------------------
1500 KANSAS AVE, SUITE 2E
LONGMONT, CO 80501
------------------------------------
TELEPHONE NO. IDENTIFICATION NO.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
OFFICER INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
INITIALS RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DLA VARIABLE $750,000.00 04/26/96 04/26/97 3528103
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Dated: APRIL 26, 1996
Borrower has borrowed money from Lender indicated above pursuant to a
PROMISSORY NOTE dated APRIL 26, 1996
Borrower hereby instructs Lender to disburse the initial or complete proceeds
from the PROMISSORY NOTE in the following manner:
<TABLE>
<S> <C>
TITLE EXAMINATION n/a
TITLE INSURANCE COMPANY n/a
APPRAISAL FEE n/a
PAID TO PUBLIC OFFICIALS n/a
ATTORNEY FEES n/a
MORTGAGE REGISTRATION FEE n/a
CREDIT REPORTING FEE n/a
PAID TO n/a
PAID TO n/a
PAID TO n/a
PAID TO n/a
PAID TO n/a
</TABLE>
- --------------------------------------------------------------------------------
BORROWER: CORAL SYSTEMS, INC. BORROWER: CORAL SYSTEMS, INC.
By: /s/ ERIC JOHNSON By: /s/ HOWARD KAUSHANSKY
-------------------------- --------------------------
ERIC JOHNSON HOWARD KAUSHANSKY
<PAGE> 4
<TABLE>
<S> <C>
--------------------------------------------
[PIONEER BANK OF LONGMONT LOGO] OWNER OF COLLATERAL
1610 Hover Street -------------------------------------------- COMMERCIAL
Longmont, Colorado 80501 Coral Systems, Inc SECURITY
(303) 651-7777 AGREEMENT
"LENDER" --------------------------------------------
ADDRESS
--------------------------------------------
1500 KANSAS AVE, SUITE 2E
LONGMONT, CO 80501
--------------------------------------------
TELEPHONE NO. IDENTIFICATION NO.
- ---------------------------------------------------------------------------------------------------------------------------------
BORROWER LOCATION OF COLLATERAL
- ---------------------------------------------------------------------------------------------------------------------------------
CORAL SYSTEMS, INC
- --------------------------------------------
ADDRESS
- --------------------------------------------
1500 KANSAS AVE,, SUITE 2E
LONGMONT, CO 80501
- --------------------------------------------
TELEPHONE NO. IDENTIFICATION NO.
- --------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. SECURITY INTEREST. Owner of Collateral ("Owner") grants to Lender
identified above a continuing security interest in the Collateral described
below to secure the obligations described in this Agreement.
2. OBLIGATIONS. The Collateral shall secure the payment and performance of
all of Borrower's and Owner's present and future, joint and/or several, direct
and indirect, absolute and contingent, express and implied, indebtedness,
(including costs of collection, legal expenses and attorneys' fees, incurred by
Lender upon the occurrence of a default under this Agreement, in collecting or
enforcing payment of such indebtedness, or preserving, protecting or realizing
on the Collateral herein), liabilities, obligations and covenants (cumulatively
"Obligations") to Lender including (without limitation) those arising under or
pursuant to:
a. this Agreement and the following promissory notes and agreements:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VARIABLE $750,000.00 4/26/96 4/26/97 3528103
- -------------------------------------------------------------------------------------------------------------
</TABLE>
b. all other present or future, Obligations of Borrower or Owner to
Lender (WHETHER INCURRED FOR THE SAME OR DIFFERENT PURPOSES THAN THE
FOREGOING);
c. all amendments, modifications, replacements or substitutions to any of
the foregoing; and
d. applicable law.
3. COLLATERAL. The Collateral shall consist of all of the
following-described property and Owner's rights, title and interest in such
property whether now owned or hereafter acquired by Owner and wheresoever
located:
[X] All accounts and contract rights including, but not limited to, the
accounts and contract rights described on Schedule A attached hereto and
incorporated herein by this reference;
[ ] All chattel paper including, but not limited to, the chattel paper
described on Schedule A attached hereto and incorporated herein by this
reference;
[ ] All documents including, but not limited to, the documents described on
Schedule A attached hereto and incorporated herein by this reference;
[X] All equipment, including, but not limited to, the equipment described on
Schedule A attached hereto and incorporated herein by this reference;
[ ] All fixtures, including, but not limited to, the fixtures located or to
be located on the real property described on Schedule B attached hereto
and incorporated herein by this reference;
[ ] All general intangibles including, but not limited to, the general
intangibles described on Schedule A attached hereto and incorporated
herein by this reference;
[ ] All instruments including, but not limited to, the instruments
described on Schedule A attached hereto and incorporated herein by this
reference;
[X] All inventory including, but not limited to, the inventory described on
Schedule A attached hereto and incorporated herein by this reference;
[ ] All minerals or the like located on or related to the real property
described on Schedule B attached hereto and incorporated herein by this
reference;
<PAGE> 5
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS. Owner represents, warrants
and covenants to Lender that:
(a) Owner is and shall remain the sole owner of the Collateral;
(b) Neither Owner nor, to the best of Owner's knowledge, any other party
has used, generated, released, discharged, stored, or disposed of any
hazardous waste, toxic substance, or related material (cumulatively
"Hazardous Materials") or transported any Hazardous Materials across
the property. Owner shall not commit or permit such actions to be
taken in the future. The term "Hazardous Materials" shall mean any
substance, material, or waste which is or becomes regulated by any
governmental authority including, but not limited to, (i) petroleum;
(ii) asbestos; (iii) polychlorinated biphenyls; (iv) those substances,
materials or wastes designated as a "hazardous substance" pursuant to
Section 311 of the Clean Water Act or listed pursuant to Section 307
of the Clean Water Act or any amendments or replacements to these
statutes; (v) those substances, materials or wastes defined as a
"hazardous waste" pursuant to Section 1004 of the Resource Conservation
and Recovery Act or any amendments or replacements to that statute; or
(vi) those substances, materials or wastes defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, or any amendments or
replacements to that statute;
(c) Owner's chief executive office, chief place of business, office where
its business records are located, or residence is the address
identified above. Owner's other executive offices, places of business,
locations of its business records, or domiciles are described on
Schedule C attached hereto and incorporated herein by this reference.
Owner shall immediately advise Lender in writing of any change in or
addition to the foregoing addresses;
(d) Owner shall not become a party to any restructuring of its form of
business or participate in any consolidation, merger, liquidation or
dissolution without providing Lender with thirty (30) or more days'
prior written notice of such change;
(e) Owner shall notify Lender of the nature of any intended change of
Owner's name, or the use of any trade name, and the effective date of
such change;
(f) The Collateral is and shall at all times remain free of all tax and
other liens, security interests, encumbrances and claims of any kind
except for those belonging to Lender and those described on Schedule D
attached hereto and incorporated herein by this reference. Without
waiving the event of default as a result thereof, Owner shall take any
action and execute any document needed to discharge the foregoing
liens, security interests, encumbrances and claims;
(g) Owner shall defend the Collateral against all claims and demands of
all persons at any time claiming any interest therein;
(h) All of the goods, fixtures, minerals or the like, and standing timber
constituting the Collateral is and shall be located at Owner's
executive offices, places of business, residence and domiciles
specifically described in this Agreement. Owner shall not change the
location of any Collateral without the prior written consent of
Lender;
(i) Owner shall provide Lender with possession of all chattel paper and
instruments constituting the Collateral, and Owner shall promptly mark
all chattel paper, instruments, and documents constituting the
Collateral to show that the same are subject to Lender's security
interest;
(j) All of Owner's accounts or contract rights; chattel paper; documents;
general intangibles; instruments; and federal, state, county, and
municipal government and other permits and licenses; trusts, liens,
contracts, leases, and agreements constituting the Collateral are and
shall be valid, genuine and legally enforceable obligations and rights
belonging to Owner against one or more third parties and not subject
to any claim, defense, set-off or counterclaim of any kind;
(k) Owner shall not amend, modify, replace, or substitute any account or
contract right; chattel paper; document; general intangible; or
instrument constituting the Collateral without the prior written
consent of Lender;
(l) Owner has the right and is duly authorized to enter into and perform
its obligations under this Agreement. Owner's execution and
performance of these obligations do not and shall not conflict with
the provisions of any statute, regulation, ordinance, rule of law,
contract or other agreement which may now or hereafter be binding on
Owner;
(m) No action or proceeding is pending against Owner which might result in
any material or adverse change in its business operations or financial
condition or materially affect the Collateral;
(n) Owner has not violated and shall not violate any applicable federal,
state, county or municipal statute, regulation or ordinance (including
but not limited to those governing Hazardous Materials) which may
materially and adversely affect its business operations or financial
condition or the Collateral;
(o) Owner shall, upon Lender's request, deposit all proceeds of the
Collateral into an account or accounts maintained by Owner or Lender
at Lender's institution; and
(p) This Agreement and the obligations described in this Agreement are
executed and incurred for business and not consumer purposes.
7. SALE OF COLLATERAL. Owner shall not assign, convey, lease, sell or
transfer any of the Collateral to any third party without the prior written
consent of Lender except for sales of inventory to buyers in the ordinary
course of business.
8. FINANCING STATEMENTS AND OTHER DOCUMENTS. Owner shall take all actions and
execute all documents required by Lender to attach, perfect and maintain
Lender's security interest in the Collateral and establish and maintain Lender's
right to receive the payment of the proceeds of the Collateral including, but
not limited to, executing any financing statements, fixture filings,
continuation statements, notices of security interest and other documents
required by the Uniform Commercial Code and other applicable law. Owner shall
pay the costs of filing such documents in all offices wherever filing or
recording is deemed by Lender to be necessary or desirable. Lender shall be
entitled to perfect its security interest in the Collateral by filing carbon,
photographic or other reproductions of the aforementioned documents with any
authority required by the Uniform Commercial Code or other applicable law.
Lender may execute and file any financing statements, as well as extensions,
renewals and amendments of financing statements in such form as Lender may
require to perfect and maintain perfection of any security interest granted in
this Agreement.
9. INQUIRIES AND NOTIFICATION TO THIRD PARTIES. Owner hereby authorizes
Lender to contact any third party and make any inquiry pertaining to Owner's
financial condition or the Collateral. In addition, Lender is authorized to
provide oral or written notice of its security interest in the Collateral to
any third party.
10. COLLECTION OF INDEBTEDNESS FROM THIRD PARTIES. Lender shall be entitled
to notify, and upon the request of Lender, Owner shall notify any account debtor
or other third party (including, but not limited to, insurance companies) to
pay any indebtedness or obligation owing to Owner and constituting the
Collateral (cumulatively "Indebtedness") to Lender whether or not a default
exists under this Agreement. Owner shall diligently collect the Indebtedness
owing to Owner from its account debtors and other third parties until the
giving of such notification. In the event that Owner possesses or receives
possession of any instruments or other remittances with respect to the
Indebtedness following the giving of such notification or if the instruments or
other remittances constitute the prepayment of any Indebtedness or the payment
of any insurance proceeds, Owner shall hold such instruments and other
remittances in trust for Lender apart from its other property, endorse the
instruments and other remittances to Lender, and immediately provide Lender
with possession of the instruments and other remittances. Lender shall be
entitled, but not required, to collect (by legal proceedings or otherwise),
extend the time for payment, compromise, exchange or release any obligor or
collateral upon, or otherwise settle any of the Indebtedness whether or not an
event of default exists under this Agreement. Lender shall not be liable to
Owner for any action, error, mistake, omission or delay pertaining to the
actions described in this paragraph or any damages resulting therefrom.
11. POWER OF ATTORNEY. Owner hereby appoints Lender as its attorney-in-fact
to endorse Owner's name on all instruments and other remittances payable to
Owner with respect to the Indebtedness or other documents pertaining to
Lender's actions in connection with the Indebtedness. In addition, Lender
shall be entitled, but not required, to perform any action or execute any
document required to be taken or executed by Owner under this Agreement.
Lender's performance of such action or execution of such documents shall not
relieve Owner from any obligation or cure any default under this Agreement. The
powers of attorney described in this paragraph are coupled with an interest and
are irrevocable.
12. USE AND MAINTENANCE OF COLLATERAL. Owner shall use the Collateral solely
in the ordinary course of its business, for the usual purposes intended by the
manufacturer (if applicable), with due care, and in compliance with the laws,
ordinances, regulations, requirements and rules of all federal, state, county
and municipal authorities including environmental laws and regulations and
insurance policies. Owner shall not make any alterations, additions or
improvements to the Collateral without the prior written consent of Lender.
Without limiting the foregoing, all alterations, additions and improvements
made to the Collateral shall be subject to the security interest belonging to
Lender, shall not be removed without the prior written consent of Lender, and
shall be made at Owner's sole expense. Owner shall take all actions and make
any repairs or replacements needed to maintain the Collateral in good condition
and working order.
13. LOSS OR DAMAGE. Owner shall bear the entire risk of any loss, theft,
destruction or damage (cumulatively "Loss or Damage") to all or any part of the
Collateral. In the event of any Loss or Damage, Owner will either restore the
Collateral to its previous condition, replace the Collateral with similar
property acceptable to Lender in its sole discretion, or pay or cause to be paid
to Lender the decrease in the fair market value of the affected Collateral.
<PAGE> 6
14. INSURANCE. The Collateral will be kept insured for its full value
against all hazards including loss or damage caused by fire, collision, theft or
other casualty. If the Collateral consists of a motor vehicle, Owner will
obtain comprehensive and collision coverage in amounts at least equal to the
actual cash value of the vehicle with deductibles not to exceed $ ___n/a__ .
Insurance coverage obtained by Owner shall be from a licensed insurer subject
to Lender's approval. Owner shall assign to Lender all rights to receive
proceeds of insurance not exceeding the amount owed under the obligations
described above, and direct the insurer to pay all proceeds directly to Lender.
The insurance policies shall require the insurance company to provide Lender
with at least thirty (30) days' written notice before such policies are altered
or cancelled in any manner. The insurance policies shall name Lender as a loss
payee and provide that no act or omission of Owner or any other person shall
affect the right of Lender to be paid the insurance proceeds pertaining to the
loss or damage of the Collateral. In the event Owner fails to acquire or
maintain insurance, Lender (after providing notice as may be required by law)
may in its discretion procure appropriate insurance coverage upon the
Collateral and charge the insurance cost as an advance of principal under the
promissory note. Owner shall furnish Lender with evidence of insurance
indicating the required coverage. Lender may act as attorney-in-fact for Owner
in making and settling claims under insurance policies, cancelling any policy
or endorsing Owners name on any draft or negotiable instrument drawn by any
insurer.
15. INDEMNIFICATION. Lender shall not assume or be responsible for the
performance of any of Owner's obligations with respect to the Collateral under
any circumstances. Owner shall immediately provide Lender with written notice
of and indemnify and hold Lender and its shareholders, directors, officers,
employees and agents harmless from all claims, damages, liabilities (including
attorneys' fees and legal expenses), causes of action, actions, suits and other
legal proceedings (cumulatively "Claims") pertaining to its business operations
or the Collateral including, but not limited to, those arising from Lender's
performance of Owner's obligations with respect to the Collateral. Owner, upon
the request of Lender, shall hire legal counsel to defend Lender from such
Claims, and pay the attorneys' fees, legal expenses and other costs to the
extent permitted by applicable law, incurred in connection therewith. In the
alternative, Lender shall be entitled to employ its own legal counsel to defend
such Claims at Owner's cost.
16. TAXES AND ASSESSMENTS. Owner shall execute and file all tax returns and
pay all taxes, licenses, fees and assessments relating to its business
operations and the Collateral (including, but not limited to, income taxes,
personal property taxes, withholding taxes, sales taxes, use taxes, excise
taxes and workers' compensation premiums) in a timely manner.
17. INSPECTION OF COLLATERAL AND BOOKS AND RECORDS. Owner shall allow
Lender or its agents to examine, inspect and make abstracts and copies of the
Collateral and Owner's books and records pertaining to Owner's business
operations and financial condition or the Collateral during normal business
hours. Owner shall provide any assistance required by Lender for these
purposes. All of the signatures and information pertaining to the Collateral or
contained in the books and records shall be genuine, true, accurate and
complete in all respects. Owner shall note the existence of Lender's security
interest in its books and records pertaining to the Collateral.
18. DEFAULT. Owner shall be in default under this Agreement in the event
that Owner, Borrower or any guarantor:
(a) fails to make any payment under this Agreement or any other
indebtedness to Lender when due;
(b) fails to perform any obligation or breaches any warranty or
covenant to Lender contained in this Agreement or any other present
or future written agreement regarding this or any other
indebtedness to Lender;
(c) provides or causes any false or misleading signature or
representation to be provided to Lender;
(d) allows the Collateral to be destroyed, lost or stolen, damaged in any
material respect, or subjected to seizure or confiscation;
(e) seeks to revoke, terminate or otherwise limit its liability under
any continuing guaranty;
(f) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Owner, any guarantor, or any of their
property;
(g) dies, becomes legally incompetent, is dissolved or terminated,
ceases to operate its business, becomes insolvent, makes an
assignment for the benefit of creditors, or becomes the subject of
any bankruptcy, insolvency or debtor rehabilitation proceeding;
(h) allows the Collateral to be used by anyone to transport or store
goods, the possession, transportation, or use of which, is illegal;
or;
(i) causes Lender in good faith to deem itself insecure for any reason.
19. RIGHTS OF LENDER ON DEFAULT. If there is a default under this Agreement,
Lender shall be entitled to exercise one or more of the following remedies
without notice or demand (except as required by law):
(a) to declare the Obligations immediately due and payable in full;
(b) to collect the outstanding Obligations with or without resorting to
judicial process;
(c) to change Owner's mailing address, open Owner's mail, and retain
any instruments or other remittances constituting the Collateral
contained therein;
(d) to take possession of any Collateral in any manner permitted by law;
(e) to apply for and obtain, without notice and upon ex parte
application, the appointment of a receiver for the Collateral
without regard to Owner's financial condition or solvency, the
adequacy of the Collateral to secure the payment or performance of
the obligations, or the existence of any waste to the Collateral;
(f) to require Owner to deliver and make available to Lender any
Collateral at a place reasonably convenient to Owner and Lender;
(g) to sell, lease or otherwise dispose of any Collateral and collect
any deficiency balance with or without resorting to legal process;
(h) to set-off Owner's obligations against any amounts due to Owner
including, but not limited to, monies, instruments, and deposit
accounts maintained with Lender; and
(i) to exercise all other rights available to Lender under any other
written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately, and in
any order. If notice to Owner of intended disposition of Collateral is required
by law, Lender will provide reasonable notification of the time and place of any
sale or intended disposition as required under the Uniform Commercial Code. In
the event that Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of a prejudgment remedy in an action against
Owner, Owner waives the posting of any bond which might otherwise be required.
Lender's remedies under this paragraph are in addition to those available at
common law, such as setoff.
20. WAIVER OF JURY TRIAL. LENDER AND OWNER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO
ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THE
PROMISSORY NOTE, THIS AGREEMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH OR THEREWITH, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER MAKING THE LOAN EVIDENCED BY
THE PROMISSORY NOTE.
21. APPLICATION OF PAYMENTS. Whether or not a default has occurred under
this Agreement, all payments made by or on behalf of Owner and all credits due
to Owner from the disposition of the Collateral or otherwise may be applied
against the amounts paid by Lender (including attorneys' fees and legal
expenses) in connection with the exercise of its rights or remedies described in
this Agreement and any interest thereon and then to the payment of the
remaining Obligations in whatever order Lender chooses.
22. REIMBURSEMENT OF AMOUNTS EXPENDED BY LENDER. Owner shall reimburse
Lender for all amounts (including attorneys' fees and legal expenses) expended
by Lender in the performance of any action required to be taken by Owner or the
exercise of any right or remedy belonging to Lender under this Agreement,
together with interest thereon at the lower of the highest rate described in
any promissory note or credit agreement executed by Borrower or Owner at the
highest rate allowed by law from the date of payment until the date of
reimbursement. These sums shall be included in the determination of
Obligations, shall be secured by the Collateral identified in this Agreement
and shall be payable upon demand.
23. ASSIGNMENT. Owner shall not be entitled to assign any of its rights,
remedies or obligations described in this Agreement without the prior written
consent of Lender. Consent may be withheld by Lender in its sole discretion.
Lender shall be entitled to assign some or all of its rights and remedies
described in this Agreement without notice to or the prior consent of Owner in
any manner.
24. MODIFICATION AND WAIVER. The modification or waiver of any of Owner's
Obligations or Lender's rights under this Agreement must be contained in a
writing signed by Lender. Lender may perform any of Owner's Obligations or
delay or fail to exercise any of its rights without causing a waiver of those
Obligations or rights. A waiver on one occasion shall not constitute a waiver
on any other occasion. Owner's Obligations under this Agreement shall not be
affected if Lender amends, compromises, exchanges, fails to exercise, impairs
or releases any of the obligations belonging to any Owner or third party or any
of its rights against any Owner, third party or collateral.
<PAGE> 7
25. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of Owner and Lender and their respective successors, assigns,
trustees, receivers, administrators, personal representatives, legatees, and
devisees.
26. NOTICES. Any notice or other communication to be provided under this
Agreement shall be in writing and sent to the parties at the addresses
described in this Agreement or such other address as the parties may designate
in writing from time to time.
27. SEVERABILITY. If any provision of this Agreement violates the law or is
unenforceable, the rest of the Agreement shall remain valid.
28. APPLICABLE LAW. This Agreement shall be governed by the laws of the
state identified in Lender's address. Owner consents to the jurisdiction and
venue of any court located in the state indicated in Lender's address in the
event of any legal proceeding pertaining to the negotiation, execution,
performance or enforcement of any term or condition contained in this Agreement
or any related document and agrees not to commence or seek to remove such legal
proceeding in or to a different court.
29. COLLECTION COSTS. If Lender hires an attorney to assist in collecting
any amount due or enforcing any right or remedy under this Agreement, Owner
agrees to pay Lender's attorneys' fees and collection costs.
30. MISCELLANEOUS. This Agreement is executed for commercial purposes. Owner
shall supply information regarding Owner's business operations and financial
condition or the Collateral in the form and manner as requested by Lender from
time to time. All information furnished by Owner to Lender shall be true,
accurate and complete in all respects. Owner and Lender agree that time is of
the essence. Owner waives presentment, demand for payment, notice of dishonor
and protest except as required by law. All references to Owner in this
Agreement shall include all parties signing below except Lender. If there is
more than one Owner, their obligations shall be joint and several. This
Agreement shall remain in full force and effect until Lender provides Owner
with written notice of termination. This Agreement and any related documents
represent the complete and integrated understanding between Owner and Lender
pertaining to the terms and conditions of those documents.
31. ADDITIONAL TERMS:
Owner acknowledges that Owner has read, understands, and agrees to the terms
and conditions of this Agreement.
Dated: APRIL 26, 1996
LENDER: PIONEER BANK OF LONGMONT
/s/ DANIEL L. ALLEN
----------------------------------------
DANIEL L ALLEN
PRESIDENT AND CEO
OWNER: CORAL SYSTEMS, INC. OWNER: CORAL SYSTEMS, INC.
/s/ ERIC JOHNSON /s/ HOWARD KAUSHANSKY
- ------------------------------------- ----------------------------------------
ERIC JOHNSON HOWARD KAUSHANSKY
<PAGE> 8
SCHEDULE A
ALL ACCOUNTS, ACCOUNTS RECEIVABLE, CASH, EQUIPMENT, TRANSFERABLE THIRD PARTY
SOFTWARE RIGHTS, HARDWARE, FURNITURE, AND INVENTORY NOW OWNED OR HEREAFTER
ACQUIRED WHEREVER LOCATED, EXCEPTING PURCHASE MONEY SECURITY INTERESTS WHERE
APPLICABLE.
SCHEDULE B
SCHEDULE C
<PAGE> 9
<TABLE>
<S> <C>
--------------------------------------------
[PIONEER BANK OF LONGMONT LOGO] OWNER OF COLLATERAL
1610 Hover Street -------------------------------------------- AGREEMENT
Longmont, Colorado 80501 CORAL SYSTEMS, INC TO FURNISH
(303) 651-7777 INSURANCE
"LENDER" --------------------------------------------
ADDRESS
--------------------------------------------
1500 KANSAS AVE, SUITE 2E
LONGMONT, CO 80501
--------------------------------------------
TELEPHONE NO. IDENTIFICATION NO.
-------------------------------------------------------------------------------------------------------------------
OFFICER INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
INITIALS RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER
-------------------------------------------------------------------------------------------------------------------
DLA VARIABLE $750,000.00 4/26/96 4/26/97 3528103
-------------------------------------------------------------------------------------------------------------------
</TABLE>
INSURANCE REQUIREMENT:
The Borrower identified above understands that one of the requirements of the
loan or financial accommodation is that the property pledged as collateral on
the loan must be insured.
INSURANCE COVERAGE:
The insurance coverage must provide at least fire, theft, combined additional
coverages, and in addition, $ n/a deductible comprehensive and collision
coverage on motor vehicles. The insurance policy must contain a loss payable
clause endorsement naming the Lender.
INSURANCE COMPANY:
BORROWER UNDERSTANDS THAT BORROWER MAY CHOOSE THE PERSON THROUGH WHOM THE
INSURANCE IS TO BE OBTAINED, AND THAT IF IT IS OBTAINED THROUGH LENDER, THE
COST OF THE INSURANCE WILL BE $ n/a . The Insurance coverage must be provided
by an insurance company reasonably acceptable to Lender.
DURATION OF INSURANCE COVERAGE:
The insurance coverage identified above must remain in effect during the term of
the loan or financial accommodation.
FAILURE TO PROVIDE INSURANCE:
Proof of the required insurance coverage with an effective date the same or
earlier than the Funding/Agreement Date indicated above must be delivered to
Lender within ten (10) days from the Funding/Agreement Date. Borrower
acknowledges and understands that if Borrower fails to provide proof of the
required insurance or fails to maintain such insurance at any time during the
term of the loan or financial accommodation, the Lender may obtain a policy
protecting Lender's interest in the collateral for the remaining term of the
loan. BORROWER ACKNOWLEDGES AND UNDERSTANDS THAT IF LENDER PURCHASES ANY SUCH
INSURANCE COVERAGE THE INSURANCE COVERAGE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL UP TO THE AMOUNT OF THE LOAN.
Borrower further acknowledges that: Any equity in the collateral will not be
insured; the insurance coverage will not provide any public liability or
property damage indemnification, and will not meet the requirements of any
financial responsibility law.
AUTHORIZATION:
Borrower authorizes Lender to obtain insurance coverage to protect Lender's
interest in the collateral and to add the premium to the loan or account
balance in the event that Borrower fails to provide proof of the required
insurance coverage, or if such insurance coverage is cancelled or terminated.
Interest on the premium shall accrue at the interest rate indicated on the
promissory note or agreement and shall be charged from the date the premium is
added to the loan amount.
PROPERTY TO BE INSURED:
EQUIPMENT, HARDWARE, FURNITURE, AND INVENTORY
INSURER:
Borrower has arranged for the required insurance to be provided through the
insurance company shown below and requested an insurance agent of the company
to note a loss payable clause endorsement in favor of Lender on the policy and
to send proof of such coverage to Lender.
<TABLE>
<S> <C>
INSURANCE COMPANY:
-----------------------------------------------------------------------------------------------------------
AGENT: PHONE:
-------------------------------------------------------------------------- -------------------------------------
POLICY OR BINDER DATE: NO:
---------------------------------------------------------- --------------------------------------
EFFECTIVE DATE: EXPIRATION DATE:
----------------------------------------------------------------- -------------------------
=============================================================================================================================
</TABLE>
Borrower has read, understands and agrees to the terms and conditions of this
Agreement and acknowledges receipt of an exact copy of this Agreement.
DATED: APRIL 26, 1996
BORROWER: CORAL SYSTEMS, INC. BORROWER: CORAL SYSTEMS, INC.
/s/ ERIC JOHNSON /s/ HOWARD KAUSHANSKY
- -------------------------------------- --------------------------------------
ERIC JOHNSON HOWARD KAUSHANSKY
<PAGE> 10
[PIONEER BANK OF LONGMONT LETTERHEAD]
LOAN AGREEMENT
April 15, 1996
Coral Systems, Inc
1500 Kansas Ave. Suite 2E
Longmont, CO 80501
Dear Gentlemen:
Pioneer Bank of Longmont has approved the credit request of Coral Systems, Inc.
Funds may be drawn under this loan beginning at such time as all conditions of
lending described therein have been satisfied. We are pleased to serve your
business needs and look forward to our business relationship. The following
describes the terms and conditions of our loan.
Borrower: Coral Systems, Inc
Lender: Pioneer Bank of Longmont ("Bank")
Loan Amount: $750,000.00, to be evidenced by a promissory note in that
amount.
Interest Rate: Floating rate at 1.25% over New York Prime rate
Loan Fees: Associated documentation and recording fees, to be paid by
Borrower
Loan Term: 1 year
Repayment Terms: Interest payable monthly, balance due at maturity
<PAGE> 11
Financial Statement
Upon preparation, but in any event within 60 days after the last day
of each fiscal year of Borrower, the financial statements of the
Borrower as of the end of and for such fiscal year setting forth in
comparative form the corresponding figures of the financial statements
showing the balance sheet and income statement, all in reasonable
detail.
Additional Information
Such further information as may reasonably be necessary or as the Bank
may reasonably request to determine whether Borrower is complying with
its obligations under this Agreement, the notes and the security
documents, or the Agreement, security documents, or to determine the
financial condition of Borrower.
AFFIRMATIVE COVENANTS
Until payment in full of the Obligation contemplated hereby and the
performance of all other obligations of the Borrower under this
Agreement, the Borrower agrees to do all of the following unless the
Bank shall otherwise consent in writing:
Borrower will maintain a primary depository account with the
Bank.
Borrower will notify the Bank of any material adverse claims
against the Borrower if and when any claims arise.
EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute and
"Event of Default" hereunder and under the related documents and
instruments:
The Borrower shall fail to pay, when due, any amount of
principal of or interest on any Obligation contemplated hereby
(whether due on the date provided for therein or by
acceleration or otherwise) or any other amount payable by
Borrower hereunder the related documents or instruments.
<PAGE> 12
Default with respect to any other indebtedness of the Borrower
for borrowed money if the effect is to accelerate such
indebtedness or permit the holder thereof to cause such
indebtedness to become due prior to its stated maturity and
such indebtedness to become due prior to its stated maturity
and such indebtedness shall not be paid when due.
Any representation or warranty made by the Borrower herein, or
in the related documents or instruments, or in any certificate
or financial statement furnished pursuant to the provisions
hereof or thereof, shall prove to have been false or
misleading in any material respect as of the time made or
furnished; or the Borrower shall default in the performance or
observance of any covenant contained in this Agreement or the
related documents and instruments if the default shall remain
uncorrected for thirty (30) days after the Bank gives notice
to the Borrower, plus such additional reasonable time as may
be necessary if default cannot be remedied within the
foregoing thirty days for reasons beyond the Borrower's
control.
CONSEQUENCES OF DEFAULT
Upon the occurrence of any Event of Default and thereafter, the Bank
shall be under no further obligation to make loans or further advances
hereunder and may at its option declare the principal of any the
interest on any Obligation contemplated hereby and all other sums
payable, whereupon the same shall become immediately due and payable
without protest, presentment, notice of demand, all of which the
Borrower expressly waives. Regardless of whether the Bank shall
exercise its option to accelerate pursuant to the preceding sentence,
the Bank may, at its option, realize on any of all of the Collateral
by exercising any remedies provided in related documents and
instruments or otherwise provided by law.
The Bank shall have the right to set off against the obligation held
by it any debt owing to the Borrower by the Bank, including, without
limiting the generality of the foregoing, any funds in any deposit
accounts now or hereafter maintained by the Borrower with the Bank,
and for such purposes the Bank shall have and there is hereby granted
to and created in favor of the Bank a security interest in all such
deposit accounts.
<PAGE> 13
MISCELLANEOUS
Amendments
No provision or term of this Agreement may be amended, modified,
revoked, supplemented, waived or otherwise changed by Borrower or the
Bank unless designated by both as an amendment, supplement, or waiver.
Entire Agreement
This Agreement, and the documents and instruments executed and
delivered in conjunction herewith, constitute and incorporate the
entire agreement between the Bank and Borrower concerning the subject
matter of this Agreement, and supersede any prior agreements between
the Bank and Borrower concerning the subject matter thereof.
We appreciate the opportunity to extend this commitment to you. If these terms
and conditions meet with your approval, please indicate acceptance by signing
below and returning this document to the Bank. This loan will be available once
all the documentation has been executed and returned to the Bank. If you have
any questions regarding the above, or if I can provide you with any help,
please call me.
Sincerely,
/s/ DANIEL L ALLEN
Daniel L Allen
President and CEO
Acknowledged and accepted by Coral Systems, Inc on this 26th day of April 1996.
by: /s/ ERIC ALAN JOHNSON
----------------------------------------------------------------------------
Coral Systems, Inc
<PAGE> 14
Collateral: Perfected 1st Security interest in all accounts, accounts
receivable, cash, equipment, transferable third party software
rights, hardware, furniture, and inventory now owned or hereafter
acquired wherever located, excepting purchase money security
interests where applicable
Other conditions precedent to funding:
The Bank shall be under no obligation to make the initial advance
contemplated unless all of the following have been executed and
delivered to the Bank.
Borrower will maintain compensating deposit accounts with Lender at
all times during the loan term. The required amounts to be maintained
at the Bank shall be contingent on the loan balance exceeding
$500,000.00. When the loan balance advances above $500,000.00, a
$250,000.00 deposit shall be maintained at the Bank until the loan is
reduced below the $500,000.00 level. To recapitulate: loan balance 0-
$500,000.00--no specified compensating balance required, $500,000.00-
$750,000.00--a $250,000.00 compensating balance is required.
"Borrowing" and Bank resolution of Borrower on the Bank's standard
forms or others acceptable to Bank.
All duly executed security guaranty agreements that are required
pursuant to this agreement.
Borrower agrees to maintain adequate hazard insurance with coverage on
secured collateral property. Provide Bank with evidence of such
insurance, require insurance companies to notify Bank with not less
than 30 days notice before such policies are altered or canceled, and
said insurance policies shall name Bank as loss payee.
REPORTING REQUIREMENTS
Borrower shall provide and deliver the following financial statements and other
reports to the Bank:
Balance Sheet and Income Statement
Within 60 days after the last day of the year, a copy of the
Borrower's consolidated balance sheet and income statement prepared by
Borrower as of the end of and for such year and certified by its
principal financial officer to be true and correct and to have been
prepared in accordance with generally accepted accounting principals
that are consistent with those previously applied in Borrower's most
recent financial statement.
<PAGE> 1
EXHIBIT 10.7
NEITHER THIS WARRANT NOR THE SECURITIES TO BE ACQUIRED UPON ITS
EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO
SALES OR DISPOSITION OF THIS WARRANT OR THOSE SECURITIES MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933 OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION.
THIS WARRANT IS SUBJECT TO RESTRICTIONS ON TRANSFERS AS SET FORTH
BELOW.
WARRANT TO PURCHASE COMMON STOCK
This certifies that, in consideration of advisory and other
services rendered, the "Holder") is entitled to subscribe for an purchase up to
_____ (post-split) shares (the "Warrant Shares") of fully paid and
nonassessable Common Stock of CORAL SYSTEMS, INC., a Colorado corporation (the
"Company"), at the price of $._____ per share, as adjusted pursuant to
paragraph 4 (the "Warrant Price"), subject to the provisions and upon the terms
and conditions hereinafter set forth. This Warrant replaces the warrant issued
to the Holder on ___________, 19__.
As used herein, the term "Common Stock" shall mean the
Company's presently authorized Common Stock and any stock into which such
Common Stock may hereafter be exchanged. The term "equity securities" shall
mean the Company's Common Stock or any other equity securities now or hereafter
authorized by the Company.
1. Conditions to Exercise.
The term of this Warrant shall begin on ____________ (the date
as of which this Warrant was authorized by the Company) and shall end ten (10)
years thereafter. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time during the term of this Warrant.
2. Methods of Exercise: Payment; Issuance of New Warrant; Vesting.
a) Subject to paragraph 1, the purchase right
represented by this Warrant may be exercised by the holder hereof, in whole or
in part, but in no event as to fewer than ten shares, by the surrender of this
Warrant (with the notice of exercise form attached as Exhibit 1 duly executed)
at the principal office of
<PAGE> 2
the Company and by the payment to the Company, by check, of an amount equal to
the then applicable Warrant Price per share multiplied by the number of shares
then being purchased. As a condition to exercising this Warrant, the Holder
shall execute and deliver to the Company a copy of a Shareholder's Agreement,
in the form requested by the Company and substantially in the form attached as
Attachment A to Exhibit 1.
In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of stock so purchased shall be delivered
to the Holder within a reasonable time and, unless this Warrant has been fully
exercised or expired, a new Warrant representing the portion of the shares, if
any, with respect to which this Warrant shall not then have been exercised
shall also be issued to the Holder within such reasonable time. Each
certificate representing Warrant Shares may be marked by the Company with a
legend substantially as follows:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS OF A SHAREHOLDER'S AGREEMENT BETWEEN THE
COMPANY AND THE OWNER OF SUCH SHARES. A COPY OF THE AGREEMENT
IS ON FILE IN THE COMPANY'S OFFICE. THE AGREEMENT, AMONG OTHER
THINGS, LIMITS THE RIGHTS OF THE OWNER TO TRANSFER OR ENCUMBER
THESE SHARES, AND GRANTS THE COMPANY RIGHTS TO PURCHASE THESE
SHARES AT A SPECIFIED PRICE UNDER CERTAIN CIRCUMSTANCES.
b) If the Holder for any reason ceases to be employed by
the Company before _____________, then, effective upon the date of termination
(or, if the termination is for cause, upon the date of the event giving cause
for termination) (the "Termination Date"), (i) this Warrant shall expire as to
a portion of the Warrant Shares equal to the lesser of (A) the number of
Forfeited Shares (as defined below) or (B) the remaining number of Warrant
Shares as to which this warrant has not been exercised; and (ii) to the extent
the Warrant had been exercised and Common Stock issued thereon before the
Termination Date, the Company shall have the right and option, exercisable upon
notice to the Holder at any time within 90 days following the Termination Date
(or, in the case of a termination for cause, the actual date of termination),
to purchase from the Holder, at a price of _______ per share, a portion of the
Warrant shares issued upon exercise of the Warrant so that the remaining number
of such Warrant Shares held by the Holder does not exceed the original number
of Warrant Shares subject to the Warrant reduced by the number of Forfeited
Shares. The number of Forfeited Shares shall equal ___ if the Termination Date
occurs before _______________, _____ if the Termination Date occurs on or after
_______________ but before ______________ and ___ if the Termination Date
occurs on or after ______________ but before _________________. The closing of
such purchase shall take place at the office of the Company within 10 days from
the date of
2
<PAGE> 3
the notice from the Company, at which time the Holder shall deliver to the
Company properly executed stock certificates and assignments transferring the
respective shares of Common Stock to the Company, and the Company shall pay the
purchase price in cash.
c) Upon any Termination Date, in determining the number
of Warrant Shares as to which this Warrant expires under paragraph 2(b)(i) or
the number of Warrant Shares subject to the purchase option under paragraph
2(b)(ii), the following items shall be adjusted as a result of the events and
in the same fashion as described in paragraph 4(a): (i) the number of Forfeited
Shares (as otherwise defined in paragraph 2(b), (ii) the original and remaining
number of Warrant Shares, and (iii) the purchase price under paragraph
2(b)(ii).
d) As used in this Warrant, the term "cause", in
reference to a termination for cause, shall mean a violation of the Company's
established policies or procedures or the theft, diversion to personal use or
misappropriation of assets or business opportunities of the Company.
3. Stock Fully Paid; Reservation of Shares.
All Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
4. Adjustment of Purchase Price and Number of Shares; Termination.
a) The kind of securities purchasable upon the exercise
of this Warrant and the Warrant Price shall be subject to adjustment from time
to time upon the occurrence of certain events as follows:
i) Reclassification, Consolidation or Merger. Except as
provided in paragraph 4(b), in case of any reclassification or change of
outstanding securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from
no par value
3
<PAGE> 4
to par value, or as a result of a subdivision or combination), or in the case
of any consolidation or merger of the Company with or into another corporation,
other than a merger with another corporation in which the Company is a
continuing corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of the Warrant, the
Company, or such successor or purchasing corporation, as the case may be, shall
execute a new Warrant, providing that the Holder shall have the right to
exercise this warrant and procure upon such exercise, in lieu of each share of
Common Stock theretofore issuable upon exercise of this Warrant, the kind and
amount of shares of stock, other securities, money and property receivable by a
holder of one share of Common Stock upon such reclassification, change,
consolidation, or merger. Such new Warrant shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this paragraph 4. The provisions of the subparagraph (a) shall
similarly apply to successive reclassification, changes, consolidations,
mergers and transfers.
(ii) Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide
or combine its Common Stock, the Warrant Price shall be proportionately
decreased in the case of subdivision or increased in the case of a combination.
(iii) Stock Dividends. If the Company at any time while this
warrant is outstanding and unexpired shall pay a dividend with respect to
Common Stock payable in Common Stock, or make any other distribution of Common
Stock with respect to Common Stock (except any distribution specifically
provided for in the foregoing paragraph (i) or (ii)), then the Warrant Price
shall be adjusted, from and after the date of determination of shareholders
entitled to receive such dividend or distribution, to that price determined by
multiplying the Warrant Price in effect immediately prior to such date of
determination by a fraction (A) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution and (B) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution.
(iv) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price, the number of shares of Common Stock purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the
4
<PAGE> 5
Warrant Price immediately prior to such adjustment and the denominator of which
shall be the Warrant Price immediately thereafter.
b) The Company may, at its election, give the Holder at least 30
days' advance written notice of any of the following events: (i) the merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of outstanding shares
of Common Stock); or (ii) the sale or conveyance of all or substantially all of
the assets of the Company (other than a sales or conveyance in which the
Company continues as holding company of an entity or entities that conduct the
business or businesses formerly conducted by the Company); or (iii) the
dissolution or liquidation of the Company. If the Company gives such notice and
the Holder has not exercised the Warrant by the date the event occurs, then on
that date the Warrant shall automatically terminate and be of no further force
and effect whatsoever, without the necessity for any additional notice or other
action by the Company. If the Company does not give such notice, then in the
case of the events described in clauses (i) or (ii) above, the Company, or the
successor or purchaser, as the case may be, shall make adequate provision for
the assumption of the outstanding Warrant or the substitution of a new Warrant
for the outstanding Warrant on terms comparable to the outstanding Warrant.
Any such assumption or substitution shall give the Holder the right thereafter
to purchase the kind and amount of securities or property or cash receivable
upon such merger, consolidation, sale or conveyance by a holder of the number
of Shares that would have been receivable upon exercise any of the Warrant
immediately prior to such merger, consolidation, sale or conveyance (assuming
such Holder failed to exercise any rights of election and received per share
the kind and amount received per share by a majority of the non-electing
shares). The provisions of this paragraph 4 (b) shall similarly apply to
successive mergers, consolidations, sales or conveyances. Notice under this
paragraph 4 (b) shall be deemed to have been given when delivered personally to
the Holder or when mailed to the Holder by registered or certified mail,
postage prepaid, at such Holder's address last known to the Company.
c) If the Company at any time while this Warrant is outstanding
and unexpired shall pay a dividend with respect to Common Stock payable in cash
or property, including without limitation securities of the Company or any
other person (other than as set forth in paragraph 4 (a)), then the Company
shall reserve and provide for the delivery to the Holder upon exercise
5
<PAGE> 6
of the Warrant a proportionate part of such cash or property, assuming the
Warrant and all warrants and options issued by the Company granting similar
rights had been exercised, and the Warrant Shares and other shares of Common
Stock had been issued and outstanding, immediately prior to the date such
dividend was declared.
5. Notice of Adjustments.
Whenever any Warrant Price shall be adjusted pursuant to
paragraph 4 (a), the Company shall make a certificate signed by its chief
financial officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Warrant Price or Prices after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (by first
class mail, postage prepaid) to the Holder at the address specified in
paragraph 9 (c) or at any address provided to the Company in writing by the
Holder.
6. Fractional Shares.
No fractional shares of Common Stock will be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect.
7. Compliance with Securities Act; Nontransferability of Warrant;
Disposition of Shares of Common Stock.
The Holder of this Warrant, by accepting it, agrees that this
Warrant and the shares of Common Stock to be issued upon exercise hereof are
being acquired for investment and that it will not offer, sell or otherwise
dispose of this Warrant or any other shares of Common Stock to be issued upon
its exercise except under circumstances which will not result in a violation of
the Securities Act of 1933, as amended (the "Act"). Upon exercise of this
Warrant, the Holder shall, if requested by the Company, execute and deliver to
the Company a copy of the statement set forth as Attachment B to Exhibit 1 or
shall otherwise confirm in writing, in a form satisfactory to the Company, that
the shares of Common Stock so purchased are being acquired for investment and
not with a view toward distribution or resale. This Warrant and all shares of
Common Stock issued upon exercise of this Warrant (unless registered under the
Act) shall be stamped or imprinted with a legend substantially in the following
form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. NO SALE OR DISPOSITION MAY BE
6
<PAGE> 7
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933 OR RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS
NOT REQUIRED.
By accepting this Warrant, the Holder understands and agrees
that the Company is under no obligation to register, redeem, repurchase or
otherwise create, locate or assist the Holder in finding a market or purchaser
for this Warrant or any Common Stock.
8. Transfer Restrictions.
a) Neither this Warrant nor any interest therein may be
directly or indirectly sold, assigned, transferred, pledged or otherwise
transferred except as permitted by this paragraph 8 or with the consent of the
Company, which may withhold consent in its discretion. Any attempt to transfer
any interest in this Warrant without complying with the provisions of this
paragraph 8 shall be null and void.
b) The consent of the Company shall not be required, and
the provisions of paragraphs 8 (c) through 8 (e) shall not apply, on the
transfer by the Holder of any portion of this Warrant to any spouse, child,
grandchild or parent, or to any partnership, corporation or other entity that
is owned entirely by one or more of the Holder and such family members;
provided that the remaining provisions of this Warrant, including without
limitation paragraph 2(b) and paragraph 8(f), shall apply to such transferee,
and the provisions of this paragraph 8 shall apply to any transfer of any
interest in any partnership, corporation or other entity to which any portion
of this Warrant is transferred under this paragraph 8 (b).
c) If the Holder at any time proposes to transfer all or
any portion of its interest in the Warrant, whether by sale, gift or otherwise
(including transfers by reason of death or in connection with any bankruptcy,
insolvency proceeding or liquidation, but excluding transfers to a personal
representative, bankruptcy trustee or receiver), the Holder shall first deliver
to the Company written notice stating the name of the proposed transferee and
all of the terms and conditions of the proposed transfer and offering to sell
the Warrant (or interest therein) to the Company at a purchase price to be
computed in accordance with the provisions of paragraph 8(e) (the "Purchase
Price") or, if the offer is being made due to a proposed sale for cash and/or
7
<PAGE> 8
deferred payments of cash to a third party at arm's length, at the price
offered in connection with such proposed sale (the "Offer Price"). Subject to
any limitations imposed by law, the Company shall have a period of 45 days
after receipt of that notice in which to elect to purchase, at the Purchase
Price or the Offer Price, as appropriate, all (but not less than all) of the
interest in the Warrant by delivering written notice to the Holder stating that
it (or its assignee) elects to purchase the interest in the Warrant. The
Company may assign its rights under this paragraph 8 to any third party on
terms determined by the Company in its discretion.
d) If the Company and its assignees do not elect to
purchase all of the interest in the Warrant being offered, they shall not be
entitled to purchase any interest in the Warrant and the Holder may transfer
the interest in the Warrant to the proposed transferee named in the initial
notice to the Company pursuant to the terms and conditions (and only on the
terms and conditions) specified therein; provided, however, that such
transferee shall acknowledge in writing and be bound by the terms of this
Warrant. If such transfer is not made within 60 days following the termination
of the right to purchase, a new offer must be made pursuant to the provisions
of this paragraph 8 before the Holder can transfer any interest in the Warrant
and the provisions of this paragraph 8 shall again apply.
e) The per-share Purchase Price for purpose of this
paragraph 8 shall be the per-share price for which shares of the Common Stock
of the Company have been sold for cash at arm's length during the preceding 90
days, reduced by the Warrant Price then applicable; provided, that if there is
no sale of Common Stock meeting those requirements, the Purchase Price shall be
determined by an arbitrator, selected jointly by the Company and the Holder.
The Company and the Holder shall each propose a per-share amount as the
Purchase Price and the sole task of the arbitrator shall be to select one of
the amounts so proposed. All costs of the arbitration shall be shared equally
by the Holder and the Company.
f) Any permitted transferee under this paragraph 8 shall
be, and shall be entitled to and subject to all of the rights and restrictions
of, a Holder under this Warrant.
9. Miscellaneous.
a) No Rights as Shareholder. No Holder shall be entitled to vote
or receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time
8
<PAGE> 9
be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance, or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant or Warrants shall have been
exercised and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
b) Replacement. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of any indemnity
agreement or bond reasonable satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at its expense, will execute and deliver, in lieu of this Warrant, a
new Warrant of like tenor.
c) Notice. Any notice given to either party under this Agreement
shall be deemed to be given when delivered in person or three (3) days after
mailing, postage prepaid, addressed to such party at the address for that party
as set forth on the signature page, or at such other address as that party may
provide by notice to the other party.
d) No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all the provisions in
this Warrant.
e) Governing Law. This Warrant shall be governed by and construed
under the laws of the State of Colorado.
CORAL SYSTEMS, INC.
By:_____________________________
Eric A. Johnson
President & CEO
Date:___________________________
Address: 1500 Kansas Ave.
Suite 2E
Longmont, CO 80501
9
<PAGE> 10
EXHIBIT 1
NOTICE OF EXERCISE
TO: CORAL SYSTEMS, INC.
1. The undersigned hereby elects to purchase____________
shares of Common Stock of Coral Systems, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. As a condition to this exercise, the undersigned has executed
and hereby delivers a copy of the Shareholder's Agreement attached to this
form as Attachment A.
3. Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned.
4. The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares. In support thereof, the undersigned agrees to execute an
Investment Representation Statement in the form attached as Attachment B.
WARRANT HOLDER:
_________________________
By:______________________
Address: ________________
_________________________
_________________________
Taxpayer Identification #:
_________________________
10
<PAGE> 11
EXHIBIT 10.7
SCHEDULE OF WARRANTHOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES
ISSUABLE UPON EXERCISE
NAME OF WARRANTHOLDER EXERCISE OF WARRANT PRICE EXPIRATION DATE
- -------------------------------- ------------------- -------- -----------------
<S> <C> <C> <C>
The Boulder Technology Incubator 152,177 $.002655 March 17, 2003
Colorado Incubator Fund 18,834 $.6637 July 15, 1998
CVM Equity Fund III 48,968 $.6637 July 15, 1998
James Blake Family Trust 267,457 $.002655 February 28, 2002
(unexercised)
Howard Kaushansky 212,949 $.002665 March 1, 2002
(unexercised)
Roger Moody 29,000 $.2000 February 27, 2005
</TABLE>
<PAGE> 1
EXHIBIT 10.8
NEITHER THIS WARRANT NOR THE SECURITIES TO BE ACQUIRED UPON ITS EXERCISE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO SALES OR
DISPOSITION OF THIS WARRANT OR THOSE SECURITIES MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE HOLDER, SATISFACTORY TO THE CORPORATION, THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR RECEIPT
OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
THIS WARRANT IS SUBJECT TO RESTRICTIONS ON TRANSFERS AS SET FORTH BELOW.
WARRANT NO: XXXXX NUMBER OF SHARES: XXXXX
(SUBJECT TO ADJUSTMENT)
CORAL SYSTEMS, INC.
AMENDED AND RESTATED WARRANT TO PURCHASE COMMON STOCK
This certifies that XXXXXXXXXX (the Holder") is entitled to subscribe for
and purchase XXXXX shares (the "Warrant Shares") of fully paid and
nonassessable Common Stock of CORAL SYSTEMS, INC., a Colorado corporation (the
"Corporation"), at the price of $X.XX per share, as adjusted pursuant to
paragraph 4 (the "Warrant Price"), subject to the provisions and upon the terms
and conditions hereinafter set forth.
This Amended and Restated Warrant to Purchase Common Stock replaces the
warrant to Purchase Common Stock issued to the Holder and dated as of XXXXX,
XX,XXXX (the "Original Warrant") and such Original Warrant and all rights
thereunder are hereby terminated.
As used herein, the term "Common Stock" shall mean the Corporation's
presently authorized Common Stock and any stock into which such Common Stock
may hereafter be exchanged. The term "equity securities" shall mean the
Corporation's Common Stock or any other equity securities now or hereafter
authorized by the Corporation.
1. TERM OF WARRANT.
The term of this Warrant shall begin on September XXXXX,XX XXXX
shall end five (5) years thereafter. The purchase right represented by this
Warrant is exercisable at any time during the term of this Warrant.
2. METHODS OF EXERCISE: PAYMENT.
a) Subject to paragraph 1, the purchase right represented by
this Warrant may be exercised by the holder hereof, in whole and not in part,
by the surrender of this Warrant (with the notice of exercise form attached as
Exhibit 1 duly executed) at the principal office of
<PAGE> 2
the Corporation and by the payment to the Corporation, by cashier's check, of
an amount equal to the then applicable Warrant Price per share multiplied by
the number of shares then being purchased. As a condition to exercising this
Warrant, the Holder shall execute and deliver to the Corporation a copy of a
Shareholder's Agreement, in the form requested by the Corporation and
substantially in the form attached as Attachment A to Exhibit 1.
In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of stock so purchased shall be delivered
to the Holder within a reasonable time. Each certificate representing Warrant
Shares may be marked by the Corporation with a legend substantially as follows:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS OF A SHAREHOLDER'S AGREEMENT BETWEEN THE CORPORATION AND THE OWNER
OF SUCH SHARES. A COPY OF THE AGREEMENT IS ON FILE IN THE CORPORATION'S
OFFICE. THE AGREEMENT, AMONG OTHER THINGS, LIMITS THE RIGHTS OF THE
OWNER TO TRANSFER OR ENCUMBER THESE SHARES, AND GRANTS THE CORPORATION
RIGHTS TO PURCHASE THESE SHARES AT A SPECIFIED PRICE UNDER CERTAIN
CIRCUMSTANCES.
3. STOCK FULLY PAID; RESERVATION OF SHARES.
All Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Corporation will at all times have authorized,
and reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES; TERMINATION.
a) The kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the occurrence of certain events as follows:
(i) RECLASSIFICATION, CONSOLIDATION OR MERGER. Except as
provided in paragraph 4(b), in case of any reclassification or change of
outstanding securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or combination), or
in the case of any consolidation or merger of the Corporation with or into
another corporation, other than a merger with another corporation in which the
Corporation is a continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
the Warrant, the Corporation, or such successor purchasing corporation, as the
case may be, shall execute a new Warrant, providing that the Holder shall
<PAGE> 3
have the right to exercise this Warrant and procure upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable by a holder of one share of Common Stock upon such
reclassification, change, consolidation, or merger. Such new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this paragraph 4. The
provisions of the subparagraph (a) shall similarly apply to successive
reclassification, changes, consolidations, mergers and transfers.
(ii) SUBDIVISION OR COMBINATION OF SHARES. If the
Corporation at any time while this Warrant remains outstanding and unexpired
shall subdivide or combine its Common Stock, the Warrant Price shall be
proportionately decreased in the case of subdivision or increased in the case
of a combination.
(iii) STOCK DIVIDENDS. If the Corporation at any time while
this Warrant is outstanding and unexpired shall pay a dividend with respect to
Common Stock payable in Common Stock, or make any other distribution of Common
Stock with respect to Common Stock (except any distribution specifically
provided for in the foregoing paragraph (i) or (ii)), then the Warrant Price
shall be adjusted, from and after the date of determination of shareholders
entitled to receive such dividend or distribution, to that price determined by
multiplying the Warrant Price in effect immediately prior to such date of
determination by a fraction (A) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution and (B) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution.
(iv) ADJUSTMENTS TO WARRANT PRICE. The Warrant Price in
effect from time to time shall be subject to adjustment upon the issuance of
Common Stock or Convertible Securities so long as any Warrants are then issued
and outstanding.
A. SPECIAL DEFINITIONS. For purposes of this
Subsection 4(a)(iv), the following definitions shall apply:
(i) "Option" shall mean contractual rights,
options or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(ii) "Original Issue Date" shall mean the date on
which Warrants were first issued by the Corporation.
(iii) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock and Warrants) or
other securities directly or indirectly convertible into or exchangeable for
Common Stock.
<PAGE> 4
(iv) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or, pursuant to Subsection 4(a)(iv)(C),
deemed to be issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(a) pursuant to Options, Warrants or
Convertible Securities outstanding on the Original Issue Date;
(b) to directors, officers or employees
of, or consultants to, the Corporation pursuant to a stock grant or option plan
or other employee stock incentive program (collectively, the "Plans") approved
by the Board of Directors, subject to adjustment for all subdivisions and
combinations;
(c) as a dividend or distribution on the
Warrant or any event for which adjustment is made pursuant to Subsection 4(a)
hereof;
(d) by way of dividend or other
distribution on shares excluded from the definition of Additional Shares of
Common Stock by the foregoing clauses (a) (b) or (c) or this clause (d) or on
shares of Common Stock so excluded; or
(e) pursuant to a merger or acquisition
approved by the Board of Directors.
B. NO ADJUSTMENT OF WARRANT PRICE. No adjustment in
the Warrant Price shall be made in respect of the issuance of Additional Shares
of Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Warrant Price in effect on the date of, and immediately prior to, the issue of
such Additional Shares.
C. ISSUANCE OF SECURITIES DEEMED TO BE AN ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK.
(i) OPTIONS AND CONVERTIBLE SECURITIES. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that in
any such case in which Additional Shares of Common Stock are deemed to be
issued:
<PAGE> 5
(1) no further adjustment in the Warrant
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(2) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation or in
the number of shares of Common Stock issuable upon the exercise, conversion or
exchange thereof, the applicable Warrant Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(ii) upon the expiration of any such Options or
any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Warrant Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(1) in the case of Convertible Securities
or Options for Common Stock, the only Additional Shares of Common Stock issued
were the shares of Common Stock, if any, actually issued upon the exercise of
such Options or conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock actually deemed to have been then issued was the consideration actually
received by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration actually received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(iii) no readjustment pursuant to clause
(ii) above shall have the effect of increasing the Warrant Price to an amount
which exceeds the lower of (x) such Warrant Price on the original adjustment
date, or (y) such Warrant Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
(iv) in the case of any Options which expire by
their terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Warrant Price shall be made until the expiration or exercise
of all such Options; provided, however, that
<PAGE> 6
this clause (iv) shall not apply to Options that are issued within thirty (30)
days of a transaction described under Subsection 4(a)(iv)(C)(i) or (ii) hereof.
D. ADJUSTMENT OF WARRANT PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event this Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Subsection 4(a)(iv)(C)) without consideration
or for a consideration per share less than the Warrant Price in effect on the
date of and immediately prior to such issue, then and in such event, such
Warrant Price, as applicable, shall be reduced, concurrently with such issue,
to a price (calculated to the nearest cent) equal to the per share
consideration received by the Corporation for the Additional Shares of Common
Stock so issued.
E. DETERMINATION OF CONSIDERATION. For purposes of
this Section 4(a)(iv), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(i) CASH AND PROPERTY. Such consideration
shall:
(a) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(b) insofar as it consists of property
other than cash, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
(c) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(a) and (b) above, as determined in good faith by the Board of Directors.
(ii) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(a)(iv)(C)(i),
relating to Options and Convertible Securities, shall be determined by
dividing:
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by
<PAGE> 7
(2) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
(v) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment
in the Warrant Price, the number of shares of Common Stock purchasable
hereunder shall be adjusted, to the nearest whole share, to the product
obtained by multiplying the number of shares purchasable immediately prior to
such adjustment in the Warrant Price by a fraction, the numerator of which
shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
b) The Corporation may, at its election, give the Holder at
least 30 days' advance written notice of any of the following events: (i) the
merger or consolidation of the Corporation with or into another corporation
(other than a consolidation or merger in which the Corporation is the
continuing corporation and which does not result in any reclassification or
change of outstanding shares of Common Stock); or (ii) the sale or conveyance
of all or substantially all of the assets of the Corporation (other than a
sales or conveyance in which the Corporation continues as holding company of an
entity or entities that conduct the business or businesses formerly conducted
by the Corporation); or (iii) the dissolution or liquidation of the
Corporation. If the Corporation gives such notice and the Holder has not
exercised the Warrant by the date the event occurs, then on that date the
Warrant shall automatically terminate and be of no further force and effect
whatsoever, without the necessity for any additional notice or other action by
the Corporation. If the Corporation does not give such notice, then in the
case of the events described in clauses (i) or (ii) above, the Corporation, or
the successor or purchaser, as the case may be, shall make adequate provision
for the assumption of the outstanding Warrant or the substitution of a new
Warrant for the outstanding Warrant on terms comparable to the outstanding
Warrant. Any such assumption or substitution shall give the Holder the right
thereafter to purchase the kind and amount of securities or property or cash
receivable upon such merger, consolidation, sale or conveyance by a holder of
the number of Shares that would have been receivable upon exercise any of the
Warrant immediately prior to such merger, consolidation, sale or conveyance
(assuming such Holder failed to exercise any rights of election and received
per share the kind and amount received per share by a majority of the non-
electing shares). The provisions of this paragraph 4(b) shall similarly apply
to successive mergers, consolidations, sales or conveyances. Notice under this
paragraph 4(b) shall be deemed to have been given when delivered personally to
the Holder or when mailed to the Holder by registered or certified mail,
postage prepaid, at such Holder's address last known to the Corporation.
c) If the Corporation at any time while this Warrant is
outstanding and unexpired shall pay a dividend with respect to Common Stock
payable in cash or property, including without limitation securities of the
Corporation or any other person (other than as set forth in paragraph 4(a)),
then the Corporation shall reserve and provide for the delivery to the Holder
upon exercise of the Warrant a proportionate part of such cash or property,
assuming the Warrant and all warrants and options issued by the Corporation
granting similar rights had been exercised, and the Warrant Shares and other
shares of Common Stock had been issued and outstanding, immediately prior to
the date such dividend was declared.
<PAGE> 8
5. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to paragraph
4(a), the Corporation shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Warrant Price or Prices after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (by first
class mail, postage prepaid) to the Holder at the address specified in
paragraph 11(c) or at any address provided to the Corporation in writing by the
Holder.
6. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued in connection
with any exercise hereunder, but in lieu of such fractional shares the
Corporation shall make a cash payment therefor upon the basis of the Warrant
Price then in effect.
7. COMPLIANCE WITH SECURITIES ACT; NONTRANSFERABILITY OF WARRANT;
DISPOSITION OF SHARES OF COMMON STOCK.
The Holder of this Warrant, by accepting it, agrees that this
Warrant and the shares of Common Stock to be issued upon exercise hereof are
being acquired for investment and that it will not offer, sell or otherwise
dispose of this Warrant or any other shares of Common Stock to be issued upon
its exercise except under circumstances which will not result in a violation of
the Securities Act of 1933, as amended (the "Act"). Upon exercise of this
Warrant, the Holder shall, if requested by the Corporation, execute and deliver
to the Corporation a statement, in a form satisfactory to the Corporation, that
the shares of Common Stock so purchased are being acquired for investment and
not with a view toward distribution or resale. This Warrant and all shares of
Common Stock issued upon exercise of this Warrant (unless registered under the
Act) shall be stamped or imprinted with a legend substantially in the following
form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933 OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION THAT SUCH REGISTRATION IS NOT REQUIRED.
By accepting this Warrant, the Holder understands and agrees that the
Corporation is under no obligation to register, redeem, repurchase or otherwise
create, locate or assist the Holder in finding a market or purchaser for this
Warrant or any Common Stock.
8. REGISTRATION RIGHTS.
<PAGE> 9
The Holders of the Warrants shall become a party to the Amended and
Restated Investor Rights Agreement between the Corporation and the parties set
forth therein dated on or about February 27, 1995 and shall have the
registration rights as provided therein.
9. RIGHT OF FIRST REFUSAL.
The Holders of the Warrants shall become a party to the Amended and
Restated Investor Rights Agreement between the Corporation and the parties set
forth therein dated on or about February 27, 1995 and shall have the right of
first refusal as provided therein.
10. TRANSFER RESTRICTIONS.
a) Neither this Warrant nor any interest therein may be directly
or indirectly sold, assigned, transferred, pledged or otherwise transferred
except as permitted by this paragraph 10 or with the consent of the
Corporation, which may withhold consent in its discretion. Any attempt to
transfer any interest in this Warrant without complying with the provisions of
this paragraph 10 shall be null and void.
b) If the Holder at any time proposes to transfer all or any
portion of its interest in the Warrant, whether by sale, gift or otherwise
(including transfers in connection with any bankruptcy, insolvency proceeding
or liquidation, but excluding transfers to a bankruptcy trustee or receiver),
the Holder shall first deliver to the Corporation written notice stating the
name of the proposed transferee and all of the terms and conditions of the
proposed transfer and offering to sell the Warrant (or interest therein) to the
Corporation at a purchase price to be computed in accordance with the
provisions of paragraph 10(d) (the "Purchase Price") or, if the offer is being
made due to a proposed sale for cash and/or deferred payments of cash to a
third party at arm's length, at the price offered in connection with such
proposed sale (but in no event more than the fair market value of the Warrant),
(the "Offer Price"). Subject to any limitations imposed by law, the
Corporation shall have a period of 45 days after receipt of that notice in
which to elect to purchase, at the Purchase Price or the Offer Price, as
appropriate, all (but not less than all) of the interest in the Warrant by
delivering written notice to the Holder stating that it (or its assignee)
elects to purchase the interest in the Warrant. The Corporation may assign its
rights under this paragraph 10 to any third party on terms determined by the
Corporation in its discretion.
c) If the Corporation and its assignees do not elect to purchase
all of the interest in the Warrant being offered, they shall not be entitled to
purchase any interest in the Warrant and the Holder may transfer the interest
in the Warrant to the proposed transferee named in the initial notice to the
Corporation pursuant to the terms and conditions (and only on the terms and
conditions) specified therein; provided, however, that such transferee shall
acknowledge in writing and be bound by the terms of this Warrant. If such
transfer is not made within 60 days following the termination of the right to
purchase, a new offer must be made pursuant to the provisions of this paragraph
10 before the Holder can transfer any interest in the Warrant and the
provisions of this paragraph 10 shall again apply.
<PAGE> 10
d) The per-share Purchase Price for purpose of this paragraph 10
shall be the per-share price for which shares of the Common Stock of the
Corporation have been sold for cash at arm's length during the preceding 90
days, reduced by the Warrant Price then applicable; provided, that if there is
no sale of Common Stock meeting those requirements, the Purchase Price shall be
determined by an arbitrator, selected jointly by the Corporation and the
Holder. The Corporation and the Holder shall each propose a per-share amount
as the Purchase Price, and the sole task of the arbitrator shall be to select
one of the amounts so proposed. All costs of the arbitration shall be shared
equally by the Holder and the Corporation.
e) Any permitted transferee under this paragraph 10 shall be,
and shall be entitled to and subject to all of the rights and restrictions of,
a Holder under this Warrant.
11. MISCELLANEOUS.
a) NO RIGHTS AS SHAREHOLDER. The Holder shall not be entitled
to vote or receive dividends or be deemed the holder of Common Stock or any
other securities of the Corporation which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder, as such, any of the rights of a
shareholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance, or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant or Warrants shall have been
exercised and the Warrant Shares purchasable upon the exercise hereof shall
have become deliverable, as provided herein.
b) REPLACEMENT. On receipt of evidence reasonably satisfactory
to the Corporation of the loss, theft, destruction, or mutilation of this
Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonable satisfactory in form and amount to the
Corporation or, in the case of mutilation, on surrender and cancellation of
this Warrant, the Corporation, at its expense, will execute and deliver, in
lieu of this Warrant, a new Warrant of like tenor.
c) NOTICE. Any notice given to either party under this
Agreement shall be deemed to be given when delivered in person or three (3)
days after mailing, postage prepaid, addressed to such party at the address for
that party as set forth on the signature page, or at such other address as that
party may provide by notice to the other party.
d) NO IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all the provisions in
this Warrant.
<PAGE> 11
e) WARRANT ISSUANCE. This Warrant is being issued pursuant to
an assignment of warrant rights granted to Armata Partners, L.P. in
consideration for certain funding facilitated by Armata Partners, L.P.
f) GOVERNING LAW. This Warrant shall be governed by and
construed under the laws of the State of Colorado.
g) WAIVER OF ADJUSTMENT. If the holders of a majority of the
Warrants shall consent to limit or waive in its entirety any anti-dilution
adjustment to which the Warrants would otherwise be entitled under Subsection
4(a) hereof, the Corporation shall not be required to make any adjustment
whatsoever with respect to any shares of the Warrants, or to make any
adjustment with respect to any shares of the Warrants in excess of such limit,
as the terms of such consent may dictate.
CORAL SYSTEMS, INC.
By:
-----------------------------------
Eric A. Johnson
President & CEO
Date:
---------------------------------
Address: 1500 Kansas Ave., Suite 2E
Longmont, CO 80501
<PAGE> 12
EXHIBIT 1
NOTICE OF EXERCISE
TO: CORAL SYSTEMS, INC.
1. The undersigned hereby elects to purchase ___________ shares of
Common Stock of Coral Systems, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. As a condition to this exercise, the undersigned has executed and
hereby delivers a copy of the Shareholder's Agreement attached to this form as
Attachment A.
3. Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned.
4. The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares. In support thereof, the undersigned agrees to execute an
Investment Representation Statement in the form acceptable to the Corporation.
WARRANT HOLDER:
--------------------------------------
By:
Address:
------------------------------
--------------------------------------
--------------------------------------
Taxpayer Identification #:
--------------------------------------
<PAGE> 13
EXHIBIT 10.8
SCHEDULE OF WARRANTHOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES TERM
ISSUABLE UPON EXERCISE PRICE OF COMMENCEMENT DATE
NAME OF HOLDER EXERCISE OF WARRANT WARRANT OF WARRANT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jack S. Griswold 4,760 $ 2.00 October 5, 1994
Jack S. Griswold 37,668 $ .6637 September 10, 1993
Frank A. Bonsal, Jr. 18,834 $ .6637 September 10, 1993
Frank A. Bonsal, Jr. 2,380 $ 2.00 October 5, 1994
Gregory Barnhill 1,200 $ 2.00 October 5, 1994
Anne Gayhardt 1,451 $ 2.00 October 5, 1994
Gordon L. Smith 75,335 $ .6637 September 10, 1993
Gordon L. Smith 4,760 $ 2.00 October 5,1994
William F. Nicklin 22,601 $ .6637 September 10, 1993
Robert Stewart 15,444 $ .6637 September 10, 1993
Robert Stewart 7,160 $ 2.00 October 5, 1994
Beechwood Capital Management 59 $ 2.00 October 5, 1994
George S. Rich 37,668 $ .6637 September 10, 1993
George S. Rich 15,500 $ 2.00 October 5, 1994
S. Bonsal White 1,432 $ 2.00 October 5, 1994
Jeffrey Schlesinger 4,300 $ 2.00 October 5, 1994
</TABLE>
<PAGE> 1
EXHIBIT 10.9
June 20, 1996
Robert Buescher
Bessemer Venture Partners
3000 Sand Hill Road, 3-225
Menlo Park, CA 94025
Bruce Graham
Vertex Investment (II) Pte. Ltd.
3 Lagoon Drive, Suite 220
Redwood City, CA 94065
Dear Bob and Bruce:
As we discussed, in order to expedite and facilitate the closing of the
proposed stock sales by Flemming B. Jensen and the Jensen Charitable Remainder
Trust (the "Sellers"), Bessemer Venture Partners III, L.P. and Vertex
Investment (II) Pte. Ltd. have agreed to purchase all of the shares of Common
Stock of Coral Systems, Inc. (the "Company") offered for sale by the Sellers
(the "Shares") and subsequently to resell a portion of the Shares to the
Company and certain existing stockholders of the Company. The number of Shares
to be resold by Bessemer and Vertex to each subsequent purchaser (or group of
purchasers) is set forth on the attached Share Allocation List. All such
resales will occur within 30 days of the acquisition of the Shares by Bessemer
and Vertex at the same price and on substantially the same terms and conditions
as those set forth in the Stock Purchase Agreements entered into with the
Sellers. In the event any of the persons or entities on the Share Allocation
List elect not to acquire their proportionate number of Shares, Bessemer and
Vertex will retain such Shares (to be divided evenly between Bessemer and
Vertex) for their own account for investment only, and not with a view towards
their distribution, unless Bessemer and Vertex agree to a modification of the
Share Allocation List prior to the expiration of the 30-day period. Bessemer
and Vertex each agree to pay their proportionate amounts of the legal fees and
expenses incurred by Cooley Godward Castro Huddleson & Tatum in the preparation
and negotiation of the Stock Purchase Agreements by and among Bessemer, Vertex
and the Sellers. All subsequent purchasers will agree to pay their
proportionate amounts of such legal fees and expenses in a letter of
representations to be signed in connection with their purchases.
1
<PAGE> 2
If this letter correctly states your agreement and understanding with respect
to the purchase and allocation of the Shares, please execute this letter in the
spaces provided below and return to my attention.
Thank you for your continued support of Coral Systems.
Sincerely,
/s/ Eric A. Johnson
Eric A. Johnson
Accepted and agreed to this 20 day of June, 1996:
Bessemer Venture Partners
/s/ ROBERT BUESCHER
- -----------------------------------
By: Robert Buescher
Title:
Vertex Investment (II) Pte. Ltd.
/s/ BRUCE GRAHAM
- -----------------------------------
By: Bruce Graham
Title:
2
<PAGE> 3
SHARE ALLOCATION LIST
Total Number of Shares to be Acquired From
Flemming Jensen and the Jensen Charitable Remainder Trust: 1,353,698
Purchaser Shares Purchased
Bessemer Venture Partners III, L.P. 159,337
Vertex Investment (II) Pte. Ltd. 159,337
Unterberg Harris 72,862
PA Fund 68,024
Series A Holders 188,934
CBIS 171,870
CVM 266,667
Coral Systems 266,667
Total 1,353,698
---------
3
<PAGE> 1
EXHIBIT 10.10
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of the 21st day of June, 1996, by and
among the JENSEN CHARITABLE REMAINDER TRUST (the "Seller"), BESSEMER VENTURE
PARTNERS III, L.P. ("Bessemer") and VERTEX INVESTMENT (II) PTE. LTD. (together
with Bessemer, the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE AND SALE OF THE SHARES.
Subject to the terms and conditions hereof, at the Closing
provided for in Section 2.1 below, the Seller shall sell to each Purchaser and
each Purchaser shall purchase from the Seller the number of shares of Common
Stock of the Company, par value $0.001 per share (the "Shares") set forth
opposite such Purchaser's name on the Schedule of Purchasers attached hereto as
Exhibit A, at a purchase price of $0.75 per share.
2. CLOSING DATE; DELIVERY.
2.1 Closing. The Closing of the purchase and sale of the
Shares under this Agreement (the "Closing") will be held at the offices of
Cooley Godward Castro Huddleson & Tatum in Boulder, Colorado on June 21, 1996
or on such other date as the Seller and the Purchasers may agree, orally or in
writing (the "Closing Date").
2.2 Delivery. Subject to the terms of this Agreement, at
the Closing: (a) the Seller shall deliver to the Purchasers certificates
representing the Shares ("Certificates"), accompanied by duly executed stock
powers in a form appropriate for transfer of the Shares to the Purchasers, and
(b) the Purchasers shall deliver to the Seller the purchase price therefor by
check or wire transfer made payable to the order of the Seller.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
Except as otherwise described below, the Seller hereby
represents and warrants to, and agrees with, the Purchasers as set forth in
this Section 3.
3.1 Title. The Seller owns and holds good and valid title
to the Shares being sold to the Purchasers, free and clear of any liens,
security interests, restrictions, options or encumbrances other than (i)
restrictions on transfer under applicable securities
<PAGE> 2
laws and (ii) restrictions contained in each of the Shareholders Agreements,
dated November 1, 1991 and March 25, 1992, by and among Seller, the Company and
certain other holders of the capital stock of the Company. The Seller has not
pledged the shares, granted any option or similar right with respect to any
such Shares or granted any right to acquire any of the Shares other than as
contemplated hereby.
3.2 Validity.
(a) The Seller has the full and unrestricted right,
power and capacity to enter into, execute and deliver this Agreement, and as of
the Closing will have the full unrestricted right, power and capacity to
transfer and deliver good and valid title to the Shares being sold by the
Seller free and clear of any liens, security interests, restrictions, options,
or encumbrances (other than restrictions on transfer under applicable
securities laws) and to transfer and deliver the Shares, as represented by the
Certificates.
(b) This Agreement is a valid and binding obligation
of the Seller enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and rules or laws concerning equitable remedies.
3.3 Share Disposition Decision.
(a) Information. The Seller has had a continuing
opportunity to discuss the Company's business, condition, assets, properties,
prospects, plans, management, financial affairs and the like, together with the
terms and conditions of this sale of the Shares, with the Company's management
and Board of Directors, and has had a continuing opportunity to inspect and
review, and to make inquiries of the Company's management concerning, the
Company's facilities, plant and equipment. In addition, the Seller has
received all information regarding the Company that the Seller believes is
material or otherwise necessary to the Seller's decision to sell the Shares to
the Purchasers, including but not limited to, copies of the Company's unaudited
financial statements dated March 31, 1996 and budget and forecasts dated April
30, 1996.
(b) Acknowledgment. The Seller hereby acknowledges
that it has been informed by the Company's management that the Company is
considering the pursuit of an initial public offering of its Common Stock
("IPO") as early as six (6) months from the date hereof, which, if it occurs,
would have a direct and positive affect on the Shares. There is no guarantee,
however, that an IPO will in fact occur within this, or any other, timeframe.
The Seller further acknowledges its unequivocal understanding, after
discussions with the Company's management, that if such IPO occurs, the
post-IPO market value of the Shares, in terms of, among other factors, market
price and liquidity,
2
<PAGE> 3
may be materially and substantially higher than the purchase price received by
the Seller for the Shares pursuant to this Agreement, and in fact the post-IPO
price is likely to be many times greater than such purchase price to be
received by the Seller. The Seller also acknowledges that the amount (i.e.,
the purchase price) to be received by it for the Shares pursuant to this
Agreement represents, in light of all the factors and potentiality surrounding
the likely value of the Company's shares in the very near future, a fair,
reasonable, full, sufficient and adequate consideration for the sale of the
Shares at this time under this Agreement.
(c) Advice. In connection with this Agreement and
the associated sale of the Shares, the Seller has had an opportunity to consult
with and to avail himself of, or has otherwise consulted with and obtained
advice from, financial advisors, attorneys and others with substantial
experience in transactions of the nature contemplated by this Agreement, and in
the valuation, price and liquidity features of stock of privately held
companies that are similar to the Company. By virtue of its own knowledge, and
through investigations of the Company and inquiries of such advisors, attorneys
and others, as well as the Company's management and Board of Directors,
together with advice obtained by the Seller specifically for the purpose of
assessing the transaction contemplated by this Agreement, the Seller has
independently arrived at its decision to sell the Shares pursuant to the terms
and conditions of this Agreement.
(d) Determination. Notwithstanding that it is
extremely likely, although not a certainty, that the Seller would realize
substantially greater value for the Shares by holding the Shares in
anticipation of appreciation of their price in the future, together with the
potential for liquidity through the IPO or other transaction in which the
Company's shares may be sold, the Seller hereby desires, without reservation,
to sell the Shares under the terms and conditions of this Agreement. The
Seller understands that by making such sale under this Agreement it is forever
giving up its right to seek, obtain or claim any different disposition of his
Shares on any terms, no matter how much greater value the Shares would have
achieved and no matter how much greater price it may otherwise have obtained
for the Shares. The Seller further understands and agrees that any claim,
assertion, allegation or the like by it to the contrary or that is otherwise
inconsistent is void.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Except as otherwise described below, each Purchaser hereby
represents and warrants to and agrees with the Seller as set forth in this
Section 4.
3
<PAGE> 4
4.1 Requisite Power and Authority. The Purchaser has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and to carry out its provisions. All actions on the
Purchaser's part required for the lawful execution and delivery of this
Agreement have been or will be effectively taken prior to the Closing.
4.2 Investment Representations. The Purchaser understands
that the Shares have not been registered under the Securities Act. The
Purchaser also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon the Purchaser's representations contained in the Agreement. The Purchaser
hereby represents and warrants as follows:
(a) Purchaser Bears Economic Risk. The Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. The Purchaser must bear the
economic risk of this investment indefinitely unless the Shares are registered
pursuant to the Securities Act, or an exemption from registration is available.
The Purchaser understands that the Company has no present intention of
registering the Shares. The Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow the
Purchaser to transfer all or any portion of the Shares under the circumstances,
in the amounts or at the times the Purchaser might propose.
(b) Acquisition for Own Account; Limited Resale. The
Purchaser is acquiring the Shares for the Purchaser's own account for
investment only, and not with a view towards their distribution, except as
expressly described in this paragraph. On or before the thirtieth (30th) day
following the Closing Date, each of the Purchasers intends to sell certain of
the Shares purchased pursuant to this Agreement to certain existing
stockholders of the Company (the "Subsequent Purchasers"). As a condition to
any resale of Shares by the Purchasers to the Subsequent Purchasers, the
Purchasers will require each Subsequent Purchaser to execute and deliver a
letter substantially in the form attached hereto as Exhibit B pursuant to which
each Purchaser shall provide representations and warranties identical to those
contained in this Section 4, except that each Subsequent Purchaser will
represent and warrant that will be acquiring such Shares for its own account
for investment only, and not with a view towards their distribution.
(c) Purchaser Can Protect Its Interest. The Purchaser
represents that by reason of its, or of its management's business or financial
experience, the Purchaser has the capacity to protect its own interests in
connection with the
4
<PAGE> 5
transactions contemplated in this Agreement. Further, the Purchaser is aware
of no publication of any advertisement in connection with the transactions
contemplated in the Agreement.
(d) Company Information. The Purchaser has had an
opportunity to discuss the Company's business, management and financial affairs
with directors, officers and management of the Company. The Purchaser has also
had the opportunity to ask questions of and receive answers from, the Company
and its management regarding the terms and conditions of this investment.
(e) Rule 144. The Purchaser acknowledges and agrees
that the Shares must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. The Purchaser has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act, which permits limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things: the availability of certain current
public information about the Company, the resale occurring not less than two
years after a party has purchased and paid for the security to be sold, the
sale being through an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934, as amended) and the number of shares being sold during
any three month period not exceeding specified limitations.
5. MISCELLANEOUS.
5.1 Waiver of Right of First Offer. The Purchasers will
cause each person or entity, if any, who holds any preemptive right with
respect to the Shares and who is not a party to this Agreement to execute and
deliver to the Seller and the Purchasers a written waiver of such right on or
prior to the Closing.
5.2 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Colorado as such laws are applied to
agreements between Colorado residents entered into and to be performed entirely
within Colorado.
5.3 Successors and Assigns. The rights and obligations of
the parties hereto may not be assigned or transferred, other than by operation
of law or except as otherwise expressly provided herein, without the express
written consent of the Seller and the Purchasers. Any unauthorized attempt to
assign or transfer is void. Subject to the foregoing, the provisions hereof
shall inure executors and administrators of the parties hereto.
5.4 Entire Agreement. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof.
5
<PAGE> 6
5.5 Separability. In case any provision of this Agreement
shall be declared invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
5.6 Title and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.7 Counterparts. This Agreement may be executed in any manner
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.8 Attorney's Fees. In the event legal action is instituted
in connection with this Agreement, the party prevailing in such action shall be
entitled to recover such party's reasonable attorneys' fees and related costs.
5.9 Represented by Counsel. Each party represents to all
other parties to this Agreement that it has been represented by legal counsel
of its choice in all aspects of considering, understanding, negotiating and
making a determination to enter into this Agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SELLER:
JENSEN CHARITABLE REMAINDER TRUST
/s/ DAWAYNE TAYLOR
-----------------------------------
By: DaWayne Taylor, Trustee
PURCHASERS:
BESSEMER VENTURE PARTNERS III, L.P.
/s/ ROBERT H. BUESCHER
-----------------------------------
By: Robert H. Buescher
VERTEX INVESTMENT (II) PTE. LTD.
/s/ BRUCE GRAHAM
-----------------------------------
By: Bruce Graham
7
<PAGE> 8
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Aggregate
Name and Address Shares Purchase Price
---------------- -------- --------------
<S> <C> <C>
Bessemer Venture Partners III, L.P.
1025 Old Country Road, Ste. 205
Westbury, New York 11590
Vertex Investment (II) Pte. Ltd.
3 Lagoon Drive, Suite 220
Redwood City, California 94065
Total 933,333 $699,999.75
----- ------- -----------
</TABLE>
8
<PAGE> 1
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of the 21st day of June, 1996, by and
among the FLEMMING B. JENSEN (the "Seller"), BESSEMER VENTURE PARTNERS III,
L.P. ("Bessemer") and VERTEX INVESTMENT (II) PTE. LTD. (together with Bessemer,
the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE AND SALE OF THE SHARES.
Subject to the terms and conditions hereof, at the Closing provided
for in Section 2.1 below, the Seller shall sell to each Purchaser and each
Purchaser shall purchase from the Seller the number of shares of Common Stock
of the Company, par value $0.001 per share (the "Shares") set forth opposite
such Purchaser's name on the Schedule of Purchasers attached hereto as Exhibit
A, at a purchase price of $0.75 per share.
2. CLOSING DATE; DELIVERY.
2.1 Closing. The Closing of the purchase and sale of the Shares
under this Agreement (the "Closing") will be held at the offices of Cooley
Godward Castro Huddleson & Tatum in Boulder, Colorado on June 21, 1996 or on
such other date as the Seller and the Purchasers may agree, orally or in
writing (the "Closing Date").
2.2 Delivery. Subject to the terms of this Agreement, at the
Closing: (a) the Seller shall deliver to the Purchasers certificates
representing the Shares ("Certificates"), accompanied by duly executed stock
powers in a form appropriate for transfer of the Shares to the Purchasers, and
(b) the Purchasers shall deliver to the Seller the purchase price therefor by
check or wire transfer made payable to the order of the Seller.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
Except as otherwise described below, the Seller hereby represents
and warrants to, and agrees with, the Purchasers as set forth in this Section
3.
3.1 Title. The Seller owns and holds good and valid title to the
Shares being sold to the Purchasers, free and clear of any liens, security
interests, restrictions, options or encumbrances other than (i) restrictions on
transfer under applicable securities
<PAGE> 2
laws and (ii) restrictions contained in each of the Shareholders Agreements,
dated November 1, 1991 and March 25, 1992, by and among Seller, the Company and
certain other holders of the capital stock of the Company. The Seller has not
pledged the shares, granted any option or similar right with respect to any
such Shares or granted any right to acquire any of the Shares other than as
contemplated hereby.
3.2 Validity.
(a) The Seller has the full and unrestricted right,
power and capacity to enter into, execute and deliver this Agreement, and as of
the Closing will have the full unrestricted right, power and capacity to
transfer and deliver good and valid title to the Shares being sold by the
Seller free and clear of any liens, security interests, restrictions, options,
or encumbrances (other than restrictions on transfer under applicable
securities laws) and to transfer and deliver the Shares, as represented by the
Certificates.
(b) This Agreement is a valid and binding obligation
of the Seller enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and rules or laws concerning equitable remedies.
3.3 Share Disposition Decision.
(a) Information. The Seller has had a continuing
opportunity to discuss the Company's business, condition, assets, properties,
prospects, plans, management, financial affairs and the like, together with the
terms and conditions of this sale of the Shares, with the Company's management
and Board of Directors, and has had a continuing opportunity to inspect and
review, and to make inquiries of the Company's management concerning, the
Company's facilities, plant and equipment. In addition, the Seller has
received all information regarding the Company that the Seller believes is
material or otherwise necessary to the Seller's decision to sell the Shares to
the Purchasers, including but not limited to, copies of the Company's unaudited
financial statements dated March 31, 1996 and budget and forecasts dated April
30, 1996.
(b) Acknowledgment. The Seller hereby acknowledges
that he has been informed by the Company's management that the Company is
considering the pursuit of an initial public offering of its Common Stock
("IPO") as early as six (6) months from the date hereof, which, if it occurs,
would have a direct and positive affect on the Shares. There is no guarantee,
however, that an IPO will in fact occur within this, or any other, timeframe.
The Seller further acknowledges its unequivocal understanding, after
discussions with the Company's management, that if such IPO occurs, the
post-IPO market value of the Shares, in terms of, among other
2
<PAGE> 3
factors, market price and liquidity, may be materially and substantially higher
than the purchase price received by the Seller for the Shares pursuant to this
Agreement, and in fact the post-IPO price is likely to be many times greater
than such purchase price to be received by the Seller. The Seller also
acknowledges that the amount (i.e., the purchase price) to be received by him
for the Shares pursuant to this Agreement represents, in light of all the
factors and potentiality surrounding the likely value of the Company's shares
in the very near future, a fair, reasonable, full, sufficient and adequate
consideration for the sale of the Shares at this time under this Agreement.
(c) Advice. In connection with this Agreement and
the associated sale of the Shares, the Seller has had an opportunity to consult
with and to avail himself of, or has otherwise consulted with and obtained
advice from, financial advisors, attorneys and others with substantial
experience in transactions of the nature contemplated by this Agreement, and in
the valuation, price and liquidity features of stock of privately held
companies that are similar to the Company. By virtue of his own knowledge, and
through investigations of the Company and inquiries of such advisors, attorneys
and others, as well as the Company's management and Board of Directors,
together with advice obtained by the Seller specifically for the purpose of
assessing the transaction contemplated by this Agreement, the Seller has
independently arrived at his decision to sell the Shares pursuant to the terms
and conditions of this Agreement.
(d) Determination. Notwithstanding that it is
extremely likely, although not a certainty, that the Seller would realize
substantially greater value for the Shares by holding the Shares in
anticipation of appreciation of their price in the future, together with the
potential for liquidity through the IPO or other transaction in which the
Company's shares may be sold, the Seller hereby desires, without reservation,
to sell the Shares under the terms and conditions of this Agreement. The
Seller understands that by making such sale under this Agreement he is forever
giving up its right to seek, obtain or claim any different disposition of his
Shares on any terms, no matter how much greater value the Shares would have
achieved and no matter how much greater price he may otherwise have obtained
for the Shares. The Seller further understands and agrees that any claim,
assertion, allegation or the like by him to the contrary or that is otherwise
inconsistent is void.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Except as otherwise described below, each Purchaser hereby
represents and warrants to and agrees with the Seller as set forth in this
Section 4.
3
<PAGE> 4
4.1 Requisite Power and Authority. The Purchaser has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and to carry out its provisions. All actions on the
Purchaser's part required for the lawful execution and delivery of this
Agreement have been or will be effectively taken prior to the Closing.
4.2 Investment Representations. The Purchaser understands that
the Shares have not been registered under the Securities Act. The Purchaser
also understands that the Shares are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
the Purchaser's representations contained in the Agreement. The Purchaser
hereby represents and warrants as follows:
(a) Purchaser Bears Economic Risk. The Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. The Purchaser must bear the
economic risk of this investment indefinitely unless the Shares are registered
pursuant to the Securities Act, or an exemption from registration is available.
The Purchaser understands that the Company has no present intention of
registering the Shares. The Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow the
Purchaser to transfer all or any portion of the Shares under the circumstances,
in the amounts or at the times the Purchaser might propose.
(b) Acquisition for Own Account; Limited Resale. The
Purchaser is acquiring the Shares for the Purchaser's own account for
investment only, and not with a view towards their distribution, except as
expressly described in this paragraph. On or before the thirtieth (30th) day
following the Closing Date, each of the Purchasers intends to sell certain of
the Shares purchased pursuant to this Agreement to certain existing
stockholders of the Company (the "Subsequent Purchasers"). As a condition to
any resale of Shares by the Purchasers to the Subsequent Purchasers, the
Purchasers will require each Subsequent Purchaser to execute and deliver a
letter substantially in the form attached hereto as Exhibit B pursuant to which
each Purchaser shall provide representations and warranties identical to those
contained in this Section 4, except that each Subsequent Purchaser will
represent and warrant that will be acquiring such Shares for its own account
for investment only, and not with a view towards their distribution.
(c) Purchaser Can Protect Its Interest. The
Purchaser represents that by reason of its, or of its management's business or
financial experience, the Purchaser has the capacity to protect its own
interests in connection with the
4
<PAGE> 5
transactions contemplated in this Agreement. Further, the Purchaser is aware
of no publication of any advertisement in connection with the transactions
contemplated in the Agreement.
(d) Company Information. The Purchaser has had an
opportunity to discuss the Company's business, management and financial affairs
with directors, officers and management of the Company. The Purchaser has also
had the opportunity to ask questions of and receive answers from, the Company
and its management regarding the terms and conditions of this investment.
(e) Rule 144. The Purchaser acknowledges and agrees
that the Shares must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. The Purchaser has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act, which permits limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things: the availability of certain current
public information about the Company, the resale occurring not less than two
years after a party has purchased and paid for the security to be sold, the
sale being through an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934, as amended) and the number of shares being sold during
any three month period not exceeding specified limitations.
5. MISCELLANEOUS.
5.1 Waiver of Right of First Offer. The Purchasers will cause
each person or entity, if any, who holds any preemptive right with respect to
the Shares and who is not a party to this Agreement to execute and deliver to
the Seller and the Purchasers a written waiver of such right on or prior to the
Closing.
5.2 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Colorado as such laws are applied to
agreements between Colorado residents entered into and to be performed entirely
within Colorado.
5.3 Successors and Assigns. The rights and obligations of the
parties hereto may not be assigned or transferred, other than by operation of
law or except as otherwise expressly provided herein, without the express
written consent of the Seller and the Purchasers. Any unauthorized attempt to
assign or transfer is void. Subject to the foregoing, the provisions hereof
shall inure executors and administrators of the parties hereto.
5.4 Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof.
5
<PAGE> 6
5.5 Separability. In case any provision of this Agreement shall
be declared invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
5.6 Title and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.7 Counterparts. This Agreement may be executed in any manner
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.8 Attorney's Fees. In the event legal action is instituted in
connection with this Agreement, the party prevailing in such action shall be
entitled to recover such party's reasonable attorneys' fees and related costs.
5.9 Represented by Counsel. Each party represents to all other
parties to this Agreement that it has been represented by legal counsel of its
choice in all aspects of considering, understanding, negotiating and making a
determination to enter into this Agreement.
6
<PAGE> 7
In Witness Whereof, the parties have executed this Agreement as of the
day and year first above written.
Seller:
Flemming B. Jensen
/s/ FLEMMING B. JENSEN
-----------------------------------
Purchasers:
Bessemer Venture Partners III, L.P.
/s/ ROBERT H. BUESCHER
-----------------------------------
By: Robert H. Buescher
Vertex Investment (II) Pte. Ltd.
/s/ BRUCE GRAHAM
-----------------------------------
By: Bruce Graham
7
<PAGE> 8
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Aggregate
Name and Address Shares Purchase Price
---------------- -------- --------------
<S> <C> <C>
Bessemer Venture Partners III, L.P.
1025 Old Country Road, Ste. 205
Westbury, New York 11590
Vertex Investment (II) Pte. Ltd.
3 Lagoon Drive, Suite 220
Redwood City, California 94065
Total 420,366 $315,274.50
----- ------- -----------
</TABLE>
8
<PAGE> 1
EXHIBIT 10.12
STOCK PURCHASE AGREEMENT
July 15, 1996
Bessemer Venture Partners III L.P.
c/o Bessemer Securities Corporation
630 Fifth Avenue
New York, NY 10111
Vertex Investment (II), Ltd.
3 Lagoon Drive, Suite 220
Redwood City, CA 94065
Ladies and Gentlemen:
The undersigned (the "Purchaser") hereby offers to purchase 214,841 shares of
Common Stock (the "Shares") of Coral Systems, Inc. (the "Company") from you at
a purchase price of $0.75 per share plus the Purchaser's pro-rata portion of
certain fees and expenses described below in Section 6.
In connection with the purchase and sale of the Shares, Purchaser hereby
acknowledges and agrees and makes the following certifications and
representations:
1. The Purchaser has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
The Purchaser must bear the economic risk of this investment indefinitely
unless the Shares are registered pursuant to the Securities Act, or an
exemption from registration is available. The Purchaser understands that the
Company has no present intention of registering the Shares. The Purchaser also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow the Purchaser to transfer all or any portion of the
Shares under the circumstances, in the amounts or at the times the Purchaser
might propose.
2. The Purchaser is acquiring the Shares for the Purchaser's own account
for investment only, and not with a view towards their distribution.
1
<PAGE> 2
3. The Purchaser represents that by reason of its, or of its management's
business or financial experience, the Purchaser has the capacity to protect its
own interests in connection with the transactions contemplated in this
Agreement. Further, the Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the
Agreement.
4. The Purchaser has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company. The Purchaser has also had the opportunity to ask
questions of and receive answers from, the Company and its management regarding
the terms and conditions of this investment.
5. The Purchaser acknowledges and agrees that the Shares must be held
indefinitely unless they are subsequently registered under the Securities Act
or an exemption from such registration is available. The Purchaser has been
advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things: the availability of certain current public information about the
Company, the resale occurring not less than two years after a party has
purchased and paid for the security to be sold, the sale being through an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the number of shares being sold during any three month period not
exceeding specified limitations.
6. The Purchaser has reviewed the terms of the Stock Purchase Agreements
(the "Agreements"), each dated June 21, 1996, by and among Bessemer Venture
Partners III, L.P. and Vertex Investment (II) Pte. Ltd. (the "Original
Purchasers"), and Flemming B. Jensen and the Jensen Charitable Remainder Trust
(the "Original Sellers"), and hereby agrees and acknowledges as follows:
(a) The Purchaser will be deemed to be a party to the
Agreements for purposes of dividing and paying any fees, liabilities and
expenses incurred by the Original Purchasers in connection with the negotiation
and execution of the Agreements.
(b) Accordingly, the purchase price for the Shares shall
include the Purchaser's pro-rata portion of the legal and other expenses
incurred by the Original Purchasers in preparing the Agreements, including the
legal expenses incurred by Cooley Godward Castro Huddleson & Tatum. In
addition, the Purchaser will be responsible on a pro-rata basis for any and
all fees, liabilities and expenses incurred in the future by the Original
Purchasers in connection with the enforcement of, or potential or actual
litigation with respect to, the Agreements.
2
<PAGE> 3
7. Purchaser will deliver to you the purchase price for the Shares
(including the Purchaser's pro-rata portion of the fees and expenses described
in Section 6 above) on or before July 17, 1996, in exchange for which you will
deliver to the Purchaser a share certificate reflecting the number of Shares
purchased hereunder. If you have not received the purchase price in full
(including the pro-rata fees and expenses) on or before July 17, 1996, the
Purchaser hereby acknowledges that this agreement is void and unenforceable and
that you have no obligation to deliver any Shares to the Purchaser under any
circumstances.
If this letter accurately reflects our agreement with respect to our
purchase from you of the Shares, please sign the acknowledgement below and
return to the Purchaser
Very truly yours,
CORAL SYSTEMS, INC.
By: /s/ HOWARD KAUSHANSKY
---------------------------
Howard Kaushansky
---------------------------
Title: Chief Financial Officer and
---------------------------
Secretary
Acknowledged and accepted:
/s/ ROBERT BUESCHER
- -----------------------------------
Bessemer Venture Partners III L.P.
/s/ BRUCE GRAHAM
- -----------------------------------
Vertex Investment (II), Ltd.
3
<PAGE> 1
EXHIBIT 10.13
CORAL SYSTEMS, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
II. REGISTRATION; RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.1 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
2.2 Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
2.3 Piggyback Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
2.4 Form S-3 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.5 Expenses of Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.6 Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.7 Termination of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
2.8 Delay of Registration; Furnishing Information . . . . . . . . . . . . . . . . . . . . . -9-
2.9 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
2.10 Assignment of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.11 Amendment of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.12 Limitation on Subsequent Registration Rights . . . . . . . . . . . . . . . . . . . . . . -12-
2.13 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
III. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
3.1 Basic Financial Information and Reporting . . . . . . . . . . . . . . . . . . . . . . . -12-
3.2 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
3.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
3.4 Reservation of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
3.5 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
3.6 Termination of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
3.7 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
IV. RIGHTS OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
4.1 Subsequent Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
4.2 Exercise of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
4.3 Termination of Rights of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . -15-
4.4 Issuance of Equity Securities to Other Persons . . . . . . . . . . . . . . . . . . . . . -15-
4.5 Sales by Management Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
4.6 Transfer of Rights of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.7 Excluded Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4.8 Waiver of Rights of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
V. CO-SALE RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
5.1 Major Shareholders' Notice of Purchase Offers . . . . . . . . . . . . . . . . . . . . . -17-
5.2 Right to Participate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
5.3 Consummation of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
5.4 Permitted Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.5 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
5.6 Termination of Co-Sale Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
5.7 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
5.8 Minor Management Shareholders' Notice of Purchase Offers . . . . . . . . . . . . . . . . -19-
5.9 Right to Participate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
5.10 Consummation of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
5.11 Permitted Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
5.12 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
5.13 Termination of Co-Sale Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
5.14 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
VI. OPTION TO PURCHASE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
6.1 Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
6.2 Automatic Amendment of this Agreement Pursuant to Closing of Option Sale . . . . . . . . -22-
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
7.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
7.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
7.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
7.4 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
7.5 Entire Agreement; Amendments, Modifications and Waivers . . . . . . . . . . . . . . . . -23-
7.6 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
7.8 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
7.9 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
7.10 Pronouns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
7.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (the
"Agreement") is entered into as of the 21 day of March, 1996, by and among
Coral Systems, Inc., a Delaware corporation (the "Company"), Cincinnati Bell
Information Systems Inc., an Ohio corporation (the "Purchaser"), the holders of
the Company's Series B Preferred Stock ("Series B Holders") set forth on
Schedule I attached hereto, CVM Equity Fund III, Ltd. ("CVM"), Colorado
Incubator Fund ("CIF"), certain warrantholders of the Company set forth in
Schedule II attached hereto (the "Warrantholders"), certain holders of the
Company's Series A Preferred Stock set forth in Schedule III attached hereto
(the "Series A Holders"), Eric A. Johnson, Howard Kaushansky, Kyle Hubbart and
Tom Fedro (the "Minor Management Shareholders").
RECITALS
WHEREAS; The Company proposes to sell and issue up to one million,
eight hundred seven thousand, six hundred forty-two (1,807,642) shares of its
Series C Stock pursuant to the Purchase Agreement (the "Shares");
WHEREAS, as a condition of entering into the Purchase Agreement, the
Purchaser has requested that the Company extend to it registration rights,
information rights and a right of first refusal as set forth below; and
WHEREAS, in order to induce the Purchaser to enter into the Purchase
Agreement, the Company and all of the other parties to that Investors Rights'
Agreement dated March 21, 1995 (the "1995 Agreement") have agreed to modify
their respective rights set forth in the 1995 Agreement by entering into this
Agreement which supersedes the 1995 Agreement in its entirety.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
I. GENERAL
1.1 Definitions. As used in this Agreement the following terms
shall have the following respective meanings:
"Equity Securities" shall mean (i) any stock or similar security of
the Company, (ii) any security convertible, with or without consideration, into
any stock or similar security (including any option to purchase such a
convertible security), (iii) any security carrying any warrant or right to
subscribe to or purchase any stock or similar security or (iv) any such warrant
or right.
"Holder" means any person owning or having the right to acquire
Registrable Securities or any assignee of record thereof in accordance with
Section 2.10 hereof.
"On A Fully Diluted Basis" shall refer to the number of shares of
Common Stock of the
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<PAGE> 5
Company which would be outstanding and issued assuming that all shares of
Common Stock which are issuable (i) upon the conversion or exchange of the
Company's outstanding convertible or exchangeable securities, including notes
and debentures, and (ii) upon the exercise of the Company's outstanding options
and warrants for the purchase of Common Stock and rights to subscribe for or
purchase Common Stock, were in fact issued.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement or similar document
in compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"Registrable Securities" means (i) Common Stock of the Company held by
CVM and CIF as the date hereof; (ii) Common Stock of the Company issued or
issuable upon conversion of the Series A Preferred Stock held by the Series A
Holders, (iii) Common Stock of the Company issued or issuable upon conversion
of the Series B Preferred Stock held by the Series B Holders, (iv) Common Stock
of the Company issued or issuable upon conversion of the Shares; and (v) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under Article II of this
Agreement are not assigned.
"Registrable Securities then outstanding" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration, filing and qualification fees, printing expenses,
fees and disbursements of counsel for the Company, reasonable fees and
disbursements of a single special counsel for the Holders, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale.
"Series C Preferred Qualified Public Offering" shall mean the sale of
the Company's Common Stock in a firm commitment, underwritten public offering
registered under the Securities Act (other than a registration relating solely
to a transaction under Rule 145 or such act (or any successor thereto) or to an
employee benefit plan of the Company), at a public offering price, with
aggregate gross proceeds to the Company and/or any selling stockholders which
equal
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<PAGE> 6
or exceed $15,000,000; provided, however, that the number of shares sold in
such public offering shall not be less than fifteen percent (15%) of the
Company's Equity Securities outstanding immediately after such public offering.
"Shares" shall mean the Company's Series C Stock.
"Form S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Warrant Securities" means Common Stock of the Company issued or
issuable upon the exercise of warrants held by the Warrantholders as of the
date hereof.
II. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 Restrictions on Transfer.
(a) Each Holder agrees not to make any disposition of all
or any portion of the Registrable Securities unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by the terms
of this Agreement and:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (B) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such shares
under the Securities Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by a Holder which is (A) a partnership to its
partners in accordance with partnership interests, (B) a corporation to another
entity under common control with such corporation, or (C) to the Holder's
family member or trust for the benefit of an individual Holder, provided the
transferee agrees in writing to be subject to the terms of this Agreement to
the same extent as if he were an original Holder hereunder.
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<PAGE> 7
(b) Each certificate representing the Shares or
Registrable Securities shall (unless otherwise permitted by the provisions of
the Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in the Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
2.2 Demand Registration.
2.2.1 Subject to the conditions of this Section 2.2, if the
Company shall receive at any time after the date two hundred seventy (270) days
following the effective date of the registration statement pertaining to the
initial public offering of the Company's common stock (the "Initial Offering"),
a written request from the Purchaser or from Holders (or any assignee pursuant
to Section 2.10 hereof) holding more than twenty percent (20%) of the
Registrable Securities then outstanding (the "20% Holders") (either of the
Purchaser or the 20% Holders is referred to herein as the "Initiating Holders")
that the Company file a registration statement under the Securities Act
covering the registration of all or any portion of the Registrable Securities,
then the Company shall, within fifteen (15) days of the receipt thereof, give
written notice of such request to all Holders, and subject to the limitations
of Section 2.2.2, effect, as soon as practicable, and in any event within
ninety (90) days of the receipt of such request the registration under the
Securities Act of all Registrable Securities that the Holders request to be
registered.
2.2.2 If the 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
this Section 2.2 and the Company shall include such information in the written
notice referred to in Section 2.2.1. In such event, the right of any
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<PAGE> 8
Holder to include her 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 enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company (which underwriter or
underwriters shall be reasonably acceptable to a majority in interest of the
Initiating Holders). Notwithstanding any other provision of this Section 2.2,
if the underwriter advises the Company in writing that marketing factors
require a limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a pro rata basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders). Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from the registration.
2.2.3 The Company shall not be obligated to effect more
than two (2) registrations demanded by Purchaser pursuant to this Section 2.2
nor more than two (2) registrations demanded by the 20% Holders pursuant to
this Section 2.2.
2.2.4 The Company shall not be required to effect a
registration pursuant to this Section 2.2 during the period starting with the
date of filing of, and ending on the date one hundred eighty (180) days
following the effective date of the registration statement pertaining to its
Initial Offering, provided that the Company is making reasonable and good faith
efforts to cause such registration statement to become effective. In addition,
the Company shall not be required to effect a registration pursuant to this
Section 2.2 if within thirty (30) days of receipt of a written request from
Initiating Holders pursuant to Section 2.2.1, the Company gives notice to the
Holders of the Company's intention to make a public offering of the Company's
Common Stock within ninety (90) days.
2.2.5 Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
2.2, a certificate signed by the Chairman of the Board 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 shareholders 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 such filing
for a period of not more than one hundred and twenty (120) days after receipt
of the request of the Initiating Holders; provided that such right to delay a
request shall be exercised by the Company no more than once in any one-year
period.
2.3 Piggyback Registrations. For purposes of Sections 2.3, 2.8,
2.9, 2.10, 2.11 and 2.13 only; "Registrable Securities" shall also be deemed to
include Warrant Securities and "Holder" shall also be deemed to include each
Warrantholder. The Company shall notify all Holders of Registrable Securities
in writing at least thirty (30) days prior to the filing of any registration
statement under the Securities Act for purposes of a public offering of
securities of
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<PAGE> 9
the Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to employee benefit plans and corporate reorganizations)
and will afford each such Holder an opportunity to include in such registration
statement all or part of such Registrable Securities held by such Holder,
provided, that such notice shall not obligate the Company to file such
registration statement. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within twenty (20) days after receipt of the above-described notice from
the Company, so notify the Company in writing. Such notice shall state the
intended method of disposition of the Registrable Securities by such Holder.
If a Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities
in any subsequent registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein.
2.3.1 Underwriting. If the registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, the Company shall so advise the Holders of Registrable Securities.
In such event, the right of any such Holder to be included in a registration
pursuant to this Section 2.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected by the Company for such underwriting.
Notwithstanding any other provision of the Agreement, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated, first, to the Company; second, to the
Holders on a pro rata basis based on the total number of Registrable Securities
held by the Holders; and third, to any shareholder of the Company (other than a
Holder) on a pro rata basis. No such reduction shall reduce the securities
being offered by the Company for its own account to be included in the
registration and underwriting, except that in no event shall the amount of
securities of the Holders included in the registration be reduced below thirty
percent (30%) of the total amount of securities included in such registration,
unless such offering is the Initial Offering, in which event any or all of the
Registrable Securities of the Holders may be excluded in accordance with the
immediately preceding sentence. In no event will shares of any other selling
shareholder be included in such registration which would reduce the number of
shares which may be included by any Holders without the written consent of
Holders holding not less than a majority of the Registrable Securities proposed
to be sold in the offering.
2.4 Form S-3 Registration. In case the Company shall receive from
the Initiating Holders a written request or requests 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 Holders,
the Company will:
2.4.1 promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
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2.4.2 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
Initiating 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 2.4: (i) if Form S-3 is not available for such offering by the Holders,
(ii) if the Initiating 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 of less than $1,000,000, (iii) if the Company
shall furnish to the Holders a certificate signed by the Chairman of the Board
of Directors 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 shareholders 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 one
hundred one hundred twenty (120) days after receipt of the request of the
Initiating Holder or Holders under this Section 2.4, (iv) if the Company has,
within the twelve (12) month period preceding the date of such request, already
effected one (1) registration on Form S-3 for the Holders pursuant to this
Section 2.4, or (v) 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.
In addition, the Company shall not be required to effect a registration
pursuant to this Section 2.4 if within thirty (30) days receipt of a written
request from the Initiating Holders pursuant to this Section 2.4, the Company
gives notice to the Holders of the Company's intention to make a public
offering of the Company's Common Stock within ninety (90) days.
2.4.3 Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable and, in any
event, within ninety (90) days after receipt of the request or requests of the
Initiating Holders.
2.5 Expenses of Registration. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
Section 2.2 or any registration under Section 2.3 or Section 2.4 herein shall
be borne by the Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered. The
Company shall not, however, be required to pay for the Registration Expenses of
any registration proceeding begun pursuant to Section 2.2 or 2.4, the request
of which has been subsequently withdrawn by the Initiating Holders unless (a)
the withdrawal is based upon material adverse information concerning the
Company of which the Initiating Holders were not aware at the time of such
request or (b) the Purchaser or the Holders of a majority of Registrable
Securities, as the case may be, agree to forfeit their right to one requested
registration pursuant to Section 2.2 in which event such right shall be
forfeited by the Purchaser or by all Holders). If the Purchaser or the
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<PAGE> 11
Holders are required to pay the Registration Expenses, such expenses shall be
borne by the holders of securities (including Registrable Securities) requesting
such registration in proportion to the number of shares for which registration
was requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to Section 2.5, then the Purchaser or the Holders
shall not forfeit their rights pursuant to Section 2.2 to a demand registration.
2.6 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
2.6.1 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 up to ninety (90)
days.
2.6.2 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 Securities Act with respect to the disposition of all
securities covered by such registration statement.
2.6.3 Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
2.6.4 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.
2.6.5 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(s) of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
2.6.6 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 Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
2.6.7 Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold
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<PAGE> 12
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
2.7 Termination of Registration Rights. All registration rights
granted under this Article II shall terminate and be of no further force and
effect seven (7) years after the date following the closing of the Company's
Initial Offering.
2.8 Delay of Registration; Furnishing Information.
(a) 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 Article II.
(b) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to Article II that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
(c) The Company shall have no obligation with respect to
any registration requested pursuant to Section 2.2 or Section 2.4 if, due to
the operation of subsection 2.8(b), 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 Section 2.2 or Section
2.4, whichever is applicable.
2.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
2.9.1 To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities 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
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<PAGE> 13
of or are based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (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 Securities Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each
such Holder, partner, officer or director, underwriter or controlling person
for 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 Section 2.9.1
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 such
Holder, partner, officer, director, underwriter or controlling person of such
Holder.
2.9.2 To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities 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 under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company
or any such director, officer, controlling person, underwriter or other Holder,
or partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 2.9.2 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 further, that in no event shall any indemnity under this Section 2.9
exceed the net proceeds from the offering received by such Holder.
2.9.3 Promptly after receipt by an indemnified party under
this Section 2.9 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
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Section 2.9, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own 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 materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.9, 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 2.9.
2.9.4 If the indemnification provided for in this Section
2.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability 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 Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the Violation 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.
2.9.5 The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished to the indemnified party and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Securities Act.
2.9.6 The obligations of the Company and Holders under this
Section 2.9 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
2.10 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Article II may be
assigned by a Holder to a transferee or assignee of Registrable Securities;
provided, however, that no such transferee or assignee shall be
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entitled to registration rights under Sections 2.2, 2.3 or 2.4 hereof unless it
acquires at least the greater of ten percent (10%) of such Holder's Registrable
Securities or twenty-five thousand (25,000) shares of Registrable Securities
(as adjusted for stock splits and combinations) and the Company shall, within
twenty (20) days after such transfer, be 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. Notwithstanding the
foregoing, rights to cause the Company to register securities may be assigned
to any subsidiary, parent, general partner or limited partner of a Holder.
2.11 Amendment of Registration Rights. Any provision of this
Article II may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of (i) the Company, (ii) the
Holders of at least a majority of the Registrable Securities then outstanding,
(iii) the Holders of at least a majority of the Registrable Securities held by
the purchasers of the Series B Preferred Stock, and (iv) the Purchaser. Any
amendment or waiver effected in accordance with this Section 2.11 shall be
binding upon each Holder and the Company. By acceptance of any benefits under
this Article II, Holders of Registrable Securities hereby agree to be bound by
the provisions hereunder.
2.12 Limitation on Subsequent Registration Rights. After the date
of this Agreement, the Company shall not, without the prior written consent of
(i) the Holders of at least a majority of the Registrable Securities then
outstanding, (ii) the Holders of at least a majority of the Registrable
Securities held by the purchasers of the Series B Preferred Stock and (iii) the
Purchaser, enter into any agreement with any holder or prospective holder of
any securities of the Company providing for the granting to such holder of
registration rights superior or equal to those granted to the Holders pursuant
to this Section 2, or of registration rights which might cause a reduction in
the number of shares includable by the Holders in any offering pursuant to
Sections 2.2, 2.3 or 2.4.
2.13 "Market Stand-Off" Agreement. If requested by the Company and
an underwriter of Common Stock (or other securities) of the Company, a Holder
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Holder (other than those included in
the registration) for a period specified by the underwriters not to exceed one
hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act relating to the Initial
Offering, provided that all officers, key employees, and directors of the
Company and all holders holding 2% or more of the outstanding Common Stock of
the Company enter into similar agreements (including Common Stock issuable upon
the exercise or conversion of outstanding securities).
The obligations described in this Section 2.13 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 Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject
to the foregoing restriction until the end of said one hundred eighty (180) day
period.
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III. COVENANTS OF THE COMPANY
3.1 Basic Financial Information and Reporting.
3.1.1 The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently
applied.
3.1.2 The Company will furnish each of CVM, CIF, each
Series A Holder, each Series B Holder and the Purchaser (the "Shareholders") as
soon as practicable after the end of each fiscal year of the Company, and in
any event within 90 days thereafter, a balance sheet of the Company, as at the
end of such fiscal year, and a statement of income and a statement of cash
flows of the Company, for such year, all prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail. Such
financial statements shall be accompanied by a report and opinion thereon by
independent public accountants of national standing selected by the Company's
Board of Directors.
3.1.3 The Company will furnish each Shareholder as soon as
practicable after the end of each month, and in any event within 30 days
thereafter, a balance sheet, as at the end of such month and a statement of
income, all prepared in accordance with generally accepted accounting
principles.
3.1.4 The Company will furnish each Shareholder (i) at
least thirty (30) days prior to the beginning of each fiscal year an annual
budget of sales and expenses for such fiscal year; and (ii) within twenty (20)
days after the end of each month, an unaudited balance sheet and statements of
income and cash flows, prepared in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to
such statements and year-end audit adjustments may not have been made, but such
statement shall set forth applicable budget figures and variances from budget.
3.1.5 The Company will furnish each Shareholder with such
other financial information as such Shareholder may reasonably request;
provided, however, that the Company shall not be obligated under this
Subsection 3.1.5 with respect to information which the Board of Directors
determines in good faith is confidential and should not, therefore, be
disclosed.
3.2 Inspection Rights. Each Shareholder shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the Company
or any of its subsidiaries with its officers, all at such reasonable times and
as often as may be reasonably requested; provided, however, that the Company
shall not be obligated under this Section 3.2 with respect to a competitor of
the Company or with respect to information which the Board of Directors
determines in good faith is confidential and should not, therefore, be
disclosed.
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3.3 Confidentiality. Each Shareholder agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Shareholder may obtain from the Company, and
which the Company has prominently marked "confidential", "proprietary" or
"secret" or has otherwise identified as being such or if due to its character
or nature, a reasonable person in a like position and under like circumstances
would treat the information as confidential, proprietary or secret, pursuant to
financial statements, reports and other materials submitted by the Company as
required hereunder, or pursuant to visitation or inspection rights granted
hereunder unless such information (i) is or becomes known to the Shareholder
from a source other than the Company which, to such Shareholder's knowledge, is
not under any confidentiality obligation, whether imposed by law or contract
(ii) is or becomes publicly known without any breach of this Section 3.3, (iii)
unless the Company gives its written consent to the Shareholder's release of
such information, except that no such written consent shall be required (and
Shareholder shall be free to release such information) if such information is
to be provided to a Shareholder's counsel or accountant, or to an officer,
director or partner of a Shareholder, provided that the Shareholder shall
inform the recipient of the confidential nature of such information, and shall
instruct the recipient to treat the information as confidential, or (iv) is
required by court order.
3.4 Reservation of Common Stock. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
conversion of the Shares, all Common Stock issuable from time to time upon such
conversion.
3.5 Board of Directors. The Board shall meet at least once each
three-month period. The Directors shall be paid their travel and lodging
expenses, if any, of attendance at each meeting of the Board of Directors and
each meeting of any committee of the Board which he is a member.
3.6 Termination of Covenants. Except for covenants in Sections
3.3 and 3.5, all covenants of the Company contained in Article III of this
Agreement shall expire and terminate as to each Shareholder immediately after
the time of effectiveness of the Company's Initial Offering.
3.7 Amendment and Waiver. This Article III may be amended
modified or waived only upon the written consent of (i) the Company, (ii) the
Holders of at least a majority of the shares of Common Stock (including Common
Stock issuable upon the exercise or conversion of outstanding securities of the
Company) held by the Shareholders, (iii) the Holders of at least a majority of
the Shares of Common Stock held by the purchasers of the Series B Preferred
Stock, and (iv) the Purchaser.
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IV. RIGHTS OF FIRST REFUSAL
4.1 Subsequent Offerings. The Purchaser, CVM, CIF and each of the
Warrantholders (for purposes of this Article IV, each of CVM, CIF and each of
the Warrantholders is referred to as a "Right Holder") shall have a right of
first refusal to purchase its pro rata share of all Equity Securities that the
Company may, from time to time, propose to sell and issue after the date of
this Agreement, other than the Equity Securities excluded by Section 4.7
hereof. The Purchaser's and each Right Holder's pro rata share, for purposes
of this right of first refusal, is equal to the ratio of the number of Equity
Securities (including all shares of Common Stock issued or issuable upon
conversion or exercise of the Equity Securities) which the Purchaser and such
Right Holder are deemed to be a holder immediately prior to the issuance of
such Equity Securities to the total number of Equity Securities then
outstanding (including all shares of Common Stock issued or issuable upon
conversion or exercise of the Equity Securities).
4.2 Exercise of Rights. If the Company proposes to issue any
Equity Securities, it shall give the Purchaser and each Right Holder written
notice of its intention, describing the Equity Securities, the price and the
terms and conditions upon which the Company proposes to issue the same. The
Purchaser and each Right Holder shall have fifteen (15) days from the giving of
such notice to agree to purchase its pro rata share of the Equity Securities
for the price and upon the terms and conditions specified in the notice by
giving written notice to the Company and stating therein the quantity of Equity
Securities to be purchased. If, upon the expiration of such notice period,
each Right Holder has not purchased its pro rata share of the Equity Securities
upon the terms and conditions specified in the notice, then the Company shall
notify the Purchaser of the amount of Equity Securities not purchased by the
Right Holders. The Purchaser shall have twenty-four (24) hours from the
receipt of such notice to purchase the Equity Securities not purchased by the
Right Holders; provided, however, that any such purchase of the Equity
Securities not purchased by the Right Holders may not result in the Purchaser's
total ownership of Equity Securities exceeding twenty-five percent (25%) of
the Equity Securities outstanding after such purchase. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to the Purchaser or any Right Holder who would cause the Company to
be in violation of applicable federal securities laws by virtue of such offer
or sale.
4.3 Termination of Rights of First Refusal. The rights of first
refusal of the Right Holders established by this Article IV shall terminate
upon the closing of the Company's Initial Offering. The rights of first
refusal of the Purchaser established by this Article IV shall terminate upon
the closing of the sale of the Company's Common Stock in the Series C Preferred
Qualified Public Offering.
4.4 Issuance of Equity Securities to Other Persons. If the
Purchaser or the Right Holders fail to exercise the rights of first refusal,
the Company shall have one hundred twenty (120) days thereafter to sell the
Equity Securities in respect of which the Purchaser's rights or the Right
Holders' rights were not exercised, at a price and upon terms and conditions no
more favorable to the purchasers thereof than specified in the Company's notice
to the Purchaser or the Right Holders pursuant to Section 4.2 hereof. If the
Company has not sold such Equity
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Securities within such one hundred twenty (120) days, the Company shall not
thereafter issue or sell any Equity Securities, without first offering such
securities to the Purchaser or the Right Holders in the manner provided above.
Notwithstanding the foregoing, in the event the Company proposes to sell Equity
Securities (other than Equity Securities excluded by Section 4.7 hereof) to a
Competitor of Purchaser, the Company shall provide to the Purchaser written
notice of its intention, describing each party to whom it proposes to sell such
securities. The Purchaser shall have fifteen (15) days from the receipt of
such notice to give written notice of its objection to such sale. If the
written notice of objection is given and received as herein provided, the
Company shall not proceed with such sale. If the written notice of objection
is not given and received as herein provided, the sale may proceed as proposed
provided that all other requirements of this Article IV are satisfied. For
purposes of this Section 4.4, "Competitor" shall mean any person involved in
the provision and management of billing and customer care solutions for the
communications industry as listed on Exhibit A attached hereto. Purchaser
reserves the right to update such exhibit from time to time in its sole
discretion to reflect additions to or deletions of Competitors from such
exhibit until the earlier of (a) the termination of the Option or (b) the last
day of the twelfth month following the date of the closing of the sale of the
Series C Stock and not any Subsequent Series. Upon the occurrence of the
earlier of such events until the closing of the Series C Preferred Qualified
Public Offering, such exhibit shall be amended from time to time only upon the
mutual agreement of the Company and the Purchaser to add other entities that
are Competitors. The right of the Purchaser to object to a sale as provided in
this paragraph shall expire and be of no further force and effect upon the
closing of the Series C Preferred Qualified Public Offering.
4.5 Sales by Management Shareholders.
(a) The Purchaser shall have a right of first refusal to
purchase all Equity Securities that an officer of the Company, who owns as of
the date hereof the equivalent of greater than 100,000 Equity Securities On A
Fully Diluted Basis ("Management Shareholder"), from time to time, proposes to
sell after the date of this Agreement.
(b) If a Management Shareholder proposes to sell any
Equity Securities to any third party non-employee in an arms-length transaction
for value, he shall give the Purchaser written notice of his intention,
describing the Equity Securities, the price and the terms and conditions upon
which such Management Shareholder proposes to sell the same. The Purchaser
shall have fifteen (15) days from the giving of such notice to agree to
purchase all such Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to such Management
Shareholder. Notwithstanding the foregoing, a Management Shareholder shall not
be required to offer or sell such Equity Securities to the Purchaser if it
would cause the Company or a Management Shareholder to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.6 Transfer of Rights of First Refusal. The rights of first
refusal of the Purchaser and each Right Holder under this Article IV may be
transferred to any constituent partner or affiliate of the Purchaser or such
Right Holder, respectively, to any successor in interest to all or
substantially all the assets of the Purchaser or such Right Holder,
respectively, or to a transferee
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who acquires the greater of ten percent (10%) of the Purchaser's or Right
Holder's, respectively, Common Stock (including shares convertible or
exercisable into Common Stock) or twenty-five thousand (25,000) shares (as
adjusted for stock splits, combinations and the like) of Common Stock
(including shares convertible or exercisable into Common Stock) provided that
such transferee agrees in writing to be bound by the provisions of this
Agreement.
4.7 Excluded Securities. The rights of first refusal established
by this Article IV shall have no application to any of the following Equity
Securities:
4.7.1 shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary, pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board;
4.7.2 stock issued pursuant to any rights, agreements,
options or warrants outstanding as of the date of this Agreement and stock
issued pursuant to any such rights, agreements, options or warrants granted
after the date of this Agreement, provided that the rights of first refusal
established by this Article IV applied with respect to the initial sale or
grant by the Company of such rights, agreements, options or warrants;
4.7.3 any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination;
4.7.4 any Equity Securities that are issued by the Company
as part of an underwritten public offering referred to in Section 4.3 hereof;
4.7.5 shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
4.7.6 shares of Common Stock issued upon conversion of the
Series A Preferred Stock or the Series B Preferred Stock; and
4.7.7 any Equity Securities issued pursuant to any
equipment leasing arrangement, bank financing, licenses or nonfinancial
business arrangements.
4.8 Waiver of Rights of First Refusal. Except as otherwise
expressly provided, the obligations of the Company and the rights of the
Purchaser and the Right Holders under this Article IV may be waived only with
the written consent of (i) the Company, (ii) the holders of a majority of all
Equity Securities held by the Right Holders and (iii) the Purchaser.
V. CO-SALE RIGHTS
5.1 Major Shareholders' Notice of Purchase Offers. In the event
that Eric A. Johnson and/or CVM (the "Major Shareholders") from time to time
propose to accept a bona fide offer
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(the "Purchase Offer") from any persons to purchase any shares of Common Stock
(as such number may be adjusted for any stock, dividends, combinations or stock
splits with respect to such shares) from the Major Shareholder(s), then the
Major Shareholder(s) shall promptly notify Purchaser and each Series A Holder
and Series B Holder of the terms and conditions of such Purchase Offer.
5.2 Right to Participate. The Purchaser and the Series A Holders
and Series B Holders shall have the right to participate pro rata in the Major
Shareholder's sale of Common Stock on the same terms and conditions provided
Purchaser and each participating Series A Holder and Series B Holder provide
written notice to the Major Shareholder(s) within 15 business days after
receipt of a notice of the Purchase Offer. To the extent that one or more of
Purchaser or Series A Holder or Series B Holder exercises such right of
participation, the number of shares of Common Stock that the Major
Shareholder(s) may sell pursuant to such Purchase Offer shall be
correspondingly reduced as provided herein. Any such reduction shall be
allocated among the Major Shareholder(s) in proportion to the number of shares
of each subject to the Purchase Offer. The rights of participation of the
Purchaser and/or Series A Holder and/or Series B Holder shall be subject to the
following terms and conditions:
(a) Purchaser, if participating, and each
participating Series A Holder and Series B Holder may sell all or any part of
that number of shares of Common Stock equal to the product obtained by
multiplying (i) the aggregate number of shares of Common Stock covered by the
Purchase Offer by (ii) a fraction the numerator of which is the number of
shares of Common Stock at the time owned by Purchaser or such Series A Holder
or Series B Holder and the denominator of which is the combined number of
shares of Common Stock at the time owned by the Major Shareholder(s) and
Purchaser, if participating, and all participating Series A Holders and Series
B Holders (including shares transferred to Permitted Transferees as defined and
in the manner described below).
(b) Purchaser, if participating. or each
participating Series A Holder or Series B Holder may participate in the sale by
delivering to the Major Shareholder(s) for transfer to the offeror one or more
certificates, properly endorsed for transfer, which represent the number of
shares of Common Stock which Purchaser and each Series A Holder and Series B
Holder elects to sell pursuant to this Section 5.2.
5.3 Consummation of Sale. The stock certificate or certificates
which Purchaser, if participating, and each participating Series A Holder and
Series B Holder delivers to the Major Shareholder(s) pursuant to Section 5.2
shall be transferred by the Major Shareholder(s) pursuant to the Purchase Offer
in consummation of the sale of the Common Stock pursuant to the terms and
conditions in the notice to the Purchaser and Series A Holder and Series B
Holder described in Section 5.1, and the Major Shareholder(s) shall arrange for
Purchaser and each participating Series A Holder and Series B Holder to be paid
by the purchaser or an independent agent at the same time and on the same terms
and conditions as the Major Shareholder(s).
5.4 Permitted Exemptions. The participation of the Purchaser
and/or Series A Holder and/or Series B Holder shall not apply to (a) any pledge
of Common Stock made by a Major
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Shareholder pursuant to a bona fide loan transaction which creates a mere
security interest, (b) any transfer to the Company pursuant to a written
agreement between the Company and a Major Shareholder providing for the right
of such repurchase or to a Major Shareholder's ancestors or descendants or
spouse or to a trustee for their benefit, (c) any transfer to an entity
controlled by such Major Shareholder, (d) any transfer to another Major
Shareholder, or (e) any bona fide gift or bargain sale; provided that (i) the
Major Shareholder(s) shall inform the Purchaser and Series A Holders and Series
B Holders, as appropriate, of such pledge, transfer or gift prior to effecting
it and (ii) the pledgee, transferee or donee (other than a charitable
organization not related to the Major Shareholder(s)) (collectively, the
"Permitted Transferees") shall furnish the Purchaser and Series A Holders and
Series B Holders, as appropriate, with a written agreement to be bound by and
comply with all provisions of this Section 5 applicable to the Major
Shareholder(s). Further, the provisions of this Section 5 shall not apply to
any registered offering of the Common Stock or to any sale to the Company under
agreements providing for the purchase by the Company of Common Stock upon
specified events such as the termination of employment, or failure to satisfy
vesting or performance requirements.
5.5 Payment of Expenses. If Purchaser or any Series A Holder or
Series B Holder participates in any sale under this Section 5, he shall bear a
portion of the expenses incurred by the Major Shareholder(s) in such sale
(including without limitations legal and accounting fees) equal to the number
of shares of Common Stock sold by such Purchaser or Series A Holder or Series B
Holder divided by the total number of shares of Common Stock sold in the sale.
5.6 Termination of Co-Sale Rights.
(a) The rights of the Purchaser and Series A Holders and
Series B Holders under this Article V and the obligations of the Major
Shareholder(s) with respect to the Purchaser and Series A Holders and Series B
Holders shall terminate as to a Major Shareholder, at such time as the Major
Shareholder shall no longer be the owner of at least 7.5% of the issued and
outstanding shares of capital stock of the Company.
(b) Unless sooner terminated in accordance with Section
5.6(a), the rights of the Purchaser or Series A Holder or Series B Holder under
this Section 5 shall terminate upon the occurrence of any one of the following
events:
(i) the liquidation, dissolution or
indefinite cessation of the business operations of the Company;
(ii) the execution by the Company of a
general assignment for the benefit of creditors or the appointment of a
receiver or trustee to take possession of the property and assets of the
Company; or
(iii) the consummation of an underwritten
public offering of the Company's Common Stock registered under the 1933 Act
other than a registration relating solely to Rule 145 of such Act.
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5.7 Legend. The Company agrees to cause the certificates
representing shares of Common Stock now or hereafter owned by the Major
Shareholders or issued to any Permitted Transferee to be endorsed with the
following legend:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF CERTAIN
CO-SALE RIGHTS PURSUANT TO AN AGREEMENT BY AND BETWEEN THE
SHAREHOLDER AND CERTAIN HOLDERS OF PREFERRED STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
Such legend shall be removed upon termination of the co-sale rights in
accordance with the provisions of this Article V.
5.8 Minor Management Shareholders' Notice of Purchase Offers. In
the event that any officer of the Company, other than Eric A. Johnson, owns as
of the date hereof the equivalent of greater than 100,000 Equity Securities On
A Fully Diluted Basis (the "Minor Management Shareholders") from time to time
proposes to accept a bona fide offer (the "Purchase Offer") from any persons to
purchase any shares of Common Stock (as such number may be adjusted for any
stock, dividends, combinations or stock splits with respect to such shares)
from the Minor Management Shareholder(s), then the Minor Management
Shareholder(s) shall promptly notify Purchaser of the terms and conditions of
such Purchase Offer.
5.9 Right to Participate. The Purchaser shall have the right to
participate pro rata in the Minor Management Shareholder's sale of Common Stock
on the same terms and conditions provided Purchaser provides written notice to
the Minor Management Shareholder(s) within 15 business days after receipt of a
notice of the Purchase Offer. To the extent that Purchaser exercises such
right of participation, the number of shares of Common Stock that the Minor
Management Shareholder(s) may sell pursuant to such Purchase Offer shall be
correspondingly reduced as provided herein. Any such reduction shall be
allocated among the Minor Management Shareholder(s) in proportion to the number
of shares of each subject to the Purchase Offer. The rights of participation
of the Purchaser shall be subject to the following terms and conditions:
(a) Purchaser may sell all or any part of that
number of shares of Common Stock equal to the product obtained by multiplying
(i) the aggregate number of shares of Common Stock covered by the Purchase
Offer by (ii) a fraction the numerator of which is the number of shares of
Common Stock at the time owned by Purchaser and the denominator of which is the
combined number of shares of Common Stock at the time owned by the Minor
Management Shareholder(s) and Purchaser (including shares transferred to
Permitted Transferees as defined and in the manner described below).
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(b) Purchaser may participate in the sale by
delivering to the Minor Management Shareholder(s) for transfer to the offeror
one or more certificates, properly endorsed for transfer, which represent the
number of shares of Common Stock which Purchaser elects to sell pursuant to
this Section 5.9.
5.10 Consummation of Sale. The stock certificate or certificates
which Purchaser delivers to the Minor Management Shareholder(s) pursuant to
Section 5.9 shall be transferred by the Minor Management Shareholder(s)
pursuant to the Purchase Offer in consummation of the sale of the Common Stock
pursuant to the terms and conditions in the notice to the Purchaser described
in Section 5.8, and the Minor Management Shareholder(s) shall arrange for
Purchaser to be paid by the purchaser or an independent agent at the same time
and on the same terms and conditions as the Minor Management Shareholder(s).
5.11 Permitted Exemptions. The participation of the Purchaser
shall not apply to (a) any pledge of Common Stock made by a Minor Management
Shareholder pursuant to a bona fide loan transaction which creates a mere
security interest, (b) any transfer to the Company pursuant to a written
agreement between the Company and a Minor Management Shareholder providing for
the right of such repurchase or to a Minor Management Shareholder's ancestors
or descendants or spouse or to a trustee for their benefit, (c) any transfer to
an entity controlled by such Minor Management Shareholder, (d) any transfer to
another Minor Management Shareholder, or (e) any bona fide gift or bargain
sale; provided that (i) the Minor Management Shareholder(s) shall inform the
Purchaser of such pledge, transfer or gift prior to effecting it and (ii) the
pledgee, transferee or donee (other than a charitable organization not related
to the Minor Management Shareholder(s)) (collectively, the "Permitted
Transferees") shall furnish the Purchaser with a written agreement to be bound
by and comply with all provisions of this Section 5 applicable to the Minor
Management Shareholder(s). Further, the provisions of this Section 5 shall not
apply to any registered offering of the Common Stock or to any sale to the
Company under agreements providing for the purchase by the Company of Common
Stock upon specified events such as the termination of employment, or failure
to satisfy vesting or performance requirements.
5.12 Payment of Expenses. If Purchaser participates in any sale
under this Section 5, it shall bear a portion of the expenses incurred by the
Minor Management Shareholder(s) in such sale (including without limitation
legal and accounting fees) equal to the number of shares of Common Stock sold
by Purchaser divided by the total number of shares of Common Stock sold in the
sale.
5.13 Termination of Co-Sale Rights.
(a) The rights of the Purchaser under this Section 5 and
the obligations of the Minor Management Shareholder(s) with respect to the
Purchaser shall terminate as to a Minor Management Shareholder, at such time as
the Minor Management Shareholder shall no longer be the owner of at least the
equivalent of greater than 100,000 of the Equity Securities On A Fully Diluted
Basis.
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(b) Unless sooner terminated in accordance with Section
5.13(a), the rights of the Purchaser under this Section 5 shall terminate upon
the occurrence of any one of the following events:
(i) the liquidation, dissolution or
indefinite cessation of the business operations of the Company;
(ii) the execution by the Company of a
general assignment for the benefit of creditors or the appointment of a
receiver or trustee to take possession of the property and assets of the
Company; or
(iii) the consummation of an underwritten
public offering of the Company's Common Stock registered under the 1933 Act
other than a registration relating solely to Rule 145 of such Act.
5.14 Legend. The Company agrees to cause the certificates
representing shares of Common Stock now or hereafter owned by the Minor
Management Shareholders or issued to any Permitted Transferee to be endorsed
with the following legend:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF CERTAIN
CO-SALE RIGHTS PURSUANT TO AN AGREEMENT BY AND BETWEEN THE
SHAREHOLDER AND CERTAIN HOLDERS OF PREFERRED STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
Such legend shall be removed upon termination of the co-sale rights in
accordance with the provisions of this Article V.
VI. OPTION TO PURCHASE SECURITIES
6.1 Option. The Company hereby grants to the Purchaser, and the
Purchaser hereby accepts, an option (the "Option") to purchase on a one time
basis up to that number of shares (calculated On A Fully Diluted Basis) of a
subsequent series of the Company's Preferred Stock (the "Subsequent Series") as
shall equal N in the following equation:
((X + N) (Y%)) - E = N, where Y% shall be treated as a fraction
expressed in decimal notation (i.e., where Y% = 25%, Y% shall equal .25).
Where,
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X = the number of Equity Securities On A Fully Diluted Basis
outstanding immediately prior to the closing of the sale of the shares pursuant
to the exercise of the Option.
N = the number of shares to be purchased pursuant to the exercise of
the Option.
Y% = that percent of the Equity Securities which will be owned by the
Purchaser immediately after the closing of the sale of the shares pursuant to
the exercise of the Option based on the Equity Securities outstanding On A
Fully Diluted Basis immediately after the closing of the sale of the shares
pursuant to the exercise of the Option, provided, however, that Y% (i.e., the
Purchaser's aggregate ownership of Equity Securities) shall not exceed
twenty-five percent (25%).
E = that number of Equity Securities owned by the Purchaser
immediately prior to the closing of the sale of the shares pursuant to the
exercise of the Option.
Example: ((100,000 + N)(25%)) - 10,000 = N; N = 20,000
The Subsequent Series shall have substantially the same attributes and
terms as the Company's Series C Stock but at a purchase price and with all
related terms associated with such price reflecting the purchase price of such
Subsequent Series (the "Subsequent Series Purchase Price"). The Subsequent
Series Purchase Price per share shall be equal to P in the following equation:
(($562,963)(Y% - E/X))/N = P; where, (Y% - E/X) shall be treated as a
whole number (i.e., where Y% = 25% and E/X = 10%, (Y%-E/X) shall equal 15).
Example: (($562,963) (25% - 10,000/100,000))/20,000 = P; P= 422.22
per share.
The Option shall begin on the date of the closing of the sale of the
Series C Stock and shall terminate (unless earlier exercised) upon the last day
of the twelfth (12th) month following such date; provided, however, that in the
event the Company engages an underwriter to proceed in good faith to underwrite
a public offering of securities of the Company and in any event no later than
the initial organizational meeting of such underwritten public offering, the
Purchaser and the Company shall mutually agree within fourteen (14) days of the
Purchaser's receipt of written notice of such event from the Company upon the
date and time of the exercise of the Option, and if the Option is not exercised
upon the date and time as mutually agreed, the Option shall terminate. The
closing of the sale of the shares pursuant to the exercise of the Option shall
take place on or before the twenty-first (21st) day after the exercise of the
Option. On or before such closing the Company and the Purchaser shall enter
into a stock purchase agreement substantially similar to the Series C Preferred
Stock Purchase Agreement and the Company shall file a Certificate of
Designations designating the Subsequent Series. To exercise the Option,
Purchaser shall provide written notice of such exercise to the Company's
President and Chief Executive Officer at the Company's principal business
office as otherwise required by Section 7.7. The Option is not assignable or
transferable. Any attempted assignment or transfer shall be void.
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6.2 Automatic Amendment of this Agreement Pursuant to Closing of
Option Sale. Upon the closing of the sale of the shares pursuant to the
exercise of the Option, this Agreement shall be automatically amended as
follows: the definition of "Shares" in Section 1.1 of the Agreement shall mean
all shares of the Company's Series C Stock and all shares of the Subsequent
Series sold pursuant to the exercise of the Option.
VII. MISCELLANEOUS
7.1 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Colorado as applied to agreements
among Colorado residents entered into and to be performed entirely within
Colorado.
7.2 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.3 Successors and Assigns. Except as otherwise expressly
provided herein, this Agreement, and the rights and obligations hereunder, may
not be assigned by any party hereto without the prior written consent of the
Company and the holders of at least a majority in interest of the Shares. The
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, permitted assigns, heirs, executors, and administrators of the
parties hereto; provided, however, that prior to the receipt by the Company of
adequate written notice of the transfer of any Registrable Securities
specifying the full name and address of the transferee, the Company may deem
and treat the person listed as the holder of such shares in its records as the
absolute owner and holder of such shares for all purposes, including the
payment of dividends or any redemption price.
7.4 Separability. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.5 Entire Agreement; Amendments, Modifications and Waivers.
7.5.1 This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof.
7.5.2 Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of (i) the
Company, (ii) the Holders of at least a majority of the Registrable Securities
then outstanding, (iii) the Holders of at least a majority of the Registrable
Securities held by the Series B Holders, (iv) the Purchaser, (v) only with
respect
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to Section 4.5, the holders of at least a majority of the Equity Securities
held by the Management Shareholders, and (vi) only with respect to Article V,
the holders of at least a majority of the Equity Securities held by the Major
Shareholders and the Minor Management Shareholders.
7.5.3 Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the (i) Company, (ii) the
Holders of at least a majority of the Registrable Securities, and (iii) the
Purchaser.
7.5.4 This Agreement (i) deletes and supersedes that
certain Registration Rights Agreement dated as of November 1, 1991, as amended
on March 25, 1992, among the Company, CVM and CIF, (ii) amends and restates
that certain Registration Rights Agreement, dated as of January 24, 1994, as
amended on March 31, 1994, among the Company and certain investors, (iii)
deletes and supersedes certain rights contained in Sections 7 and 8 of both
that certain Stock Purchase Agreement, dated as of November 1, 1991, among the
Company, CVM and certain shareholders of the Company and that certain Stock
Purchase Agreement, dated as of March 25, 1992, among the Company, CIF and
certain shareholders of the Company, (iv) deletes and supersedes certain rights
contained in Sections 8, 9 and 10 in that certain Series A Convertible
Preferred Stock Purchase Agreement, dated as of January 24, 1994, as amended
March 31, 1994, among the Company and certain investors, and (v) terminates
Section 9 of that certain Stock Purchase Agreement, dated as of November 1,
1991, among the Company, CVM and certain shareholders of the Company.
7.5.5 This Agreement amends and restates in its entirety
that certain Investors Rights' Agreement, dated as of March 2, 1995.
7.6 Delays or Omissions. It is agreed that no delay or omission
to exercise any right, power, or remedy accruing to any party hereto, upon any
breach, default or noncompliance of any other party hereto under this Agreement
shall impair any such right, power, or remedy, nor shall it be construed to be
a waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on any party's part of any breach, default or
noncompliance under the Agreement or any waiver on such party's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to the
parties hereto, shall be cumulative and not alternative.
7.7 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall
be sent to the party to be notified at the address as set forth on the
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<PAGE> 29
signature pages hereof or at such other address as such party may designate by
ten (10) days advance written notice to the other parties hereto.
7.8 Attorneys' Fees. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
7.9 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.10 Pronouns. All pronouns contained herein and any variations
thereof shall be deemed to refer to the masculine, feminine or neuter, singular
or plural, as the identity of the parties hereto may require.
7.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE> 1
EXHIBIT 10.14
CERTAIN CONFIDENTIAL
TREATMENT CONTAINED IN
THIS DOCUMENT, MARKED BY
BRACKETS AND DENOTED BY AN
ASTERISK, HAS BEEN OMITTED
AND FILED SEPARATELY WITH
THE SECURITIES AND
EXCHANGE COMMISSION
PURSUANT TO 17 C.F.R.
SECTIONS 200.80(b)(4),
200.83 and SECTION
230.406.
MARKETING LICENSE AGREEMENT
THIS MARKETING AND LICENSE AGREEMENT (this "Agreement") is made and
entered into this 21 day of March, 1996, by and between Cincinnati Bell
Information Systems Inc. (hereinafter "CBIS"), an Ohio Corporation with offices
at 600 Vine Street, Cincinnati, Ohio 45202, and Coral Systems Inc.
(hereinafter "Coral Systems"), a Delaware Corporation with offices at 1500
Kansas Avenue, Suite 2E, Longmont, CO 80501:
WITNESSETH:
WHEREAS, Coral Systems is the owner of certain computer programs,
documentation, and related information, including the intellectual property
rights pertaining thereto (such programs, documentation and related
information, as defined more specifically below, being collectively referred to
as the "Licensed Materials");
WHEREAS, CBIS desires to obtain from Coral Systems the rights and licenses
granted herein in such programs, documentation, and related information for
purposes of engaging in the sublicensing, offering on a service bureau basis
and marketing of various software programs and/or devices that consist of, use,
or incorporate the Licensed Materials (such programs and/or devices, as
integrated and introduced by CBIS from time to time, and as defined more
specifically below, being collectively referred to as the "Products"),
throughout the world; and
WHEREAS, Coral Systems is willing to grant such rights and licenses under the
terms and conditions of this Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:
SECTION 1
DEFINITIONS
When used in this Agreement, the capitalized terms listed below shall
have the following meanings:
1.1 "CODE." Shall mean computer programming code. If not otherwise
specified, Code shall include both Object Code and Source Code. Code shall
include Maintenance Modifications and Enhancements thereto if, when, and to the
extent such Maintenance Modifications and/or Enhancements are delivered to CBIS
by Coral Systems under this Agreement or under any other agreement or
arrangement between the parties.
1.2 "DERIVATIVE WORK." Shall mean a work that is based upon one or
more preexisting works, such as a revision, modification, translation,
abridgment, condensation, expansion, or any other form in which such
preexisting works may be recast, transformed, or adapted, and that, if prepared
without authorization of the owner of the copyright in such preexisting work,
would constitute a copyright
March 21, 1996 1
<PAGE> 2
infringement. For purposes hereof, a Derivative Work shall also include any
compilation that incorporates such a preexisting work.
1.3 "DEVELOPMENT ENVIRONMENT." Shall mean any devices, programming
or documentation, including compilers, "workbenches," tools, and higher-level
(or "proprietary") languages, used by Coral Systems for the development,
maintenance, and implementation of the Code and/or Documentation, but only to
the extent that the device, programming, or documentation so used would be
necessary for the preparation of Maintenance Modifications and/or Enhancements,
if conducted by CBIS, and would not be available to CBIS on reasonable terms
through readily known sources not affiliated with Coral Systems.
l.4 "DOCUMENTATION." Shall mean user manuals and other written
materials that relate to the Licensed Materials. Documentation shall include
modifications to the Documentation to incorporate Maintenance Modifications and
Enhancements thereto if, when, and to the extent such Maintenance Modifications
and/or Enhancements are delivered to CBIS by Coral Systems under this Agreement
or under any other agreement or arrangement between the parties.
1.5 "ENHANCEMENTS." Shall mean modifications, additions, or
substitutions, other than Maintenance Modifications, made by Coral Systems to
Code or Documentation that accomplish incidental, performance, structural, or
functional improvements. Enhancements may consist of Basic Enhancements or
Major Enhancements, as defined in the following sections.
1.5.1 "BASIC ENHANCEMENTS." Shall mean Enhancements that
result from warranty or maintenance services or that otherwise accomplish
incidental, structural, functional, and performance improvements for which
Coral Systems does not generally impose a separate charge on its customers.
1.5.2 "MAJOR ENHANCEMENTS." Shall mean Enhancements that
result in substantial performance, structural, or functional improvements or
additions, including the substantial redesign or replacement of any parts of
the Source Code, for which Coral Systems does generally impose a separate
charge on its customers.
1.6 "HIGH VOLUME CARRIERS." Shall mean communications carriers,
including but not limited to wireless carriers and CATV operators with one and
one half million (1.5 million) or more POPS or TV households respectively.
1.7 "LICENSE FEES." Shall mean the per subscriber fees to be paid
by CBIS to Coral Systems in connection with the sublicensing of the Licensed
Materials by CBIS to any third party as provided in Exhibit A.
1.8 "LICENSED MATERIALS." Shall mean Object Code, all
Enhancements, Maintenance Modifications and Documentation for the Coral System
software programs listed in Exhibit A, however, does not include any third
party or ancillary software used in connection with the Licensed Materials for
which a separate license is necessary. Licensed Materials may consist of
Existing Licensed Materials or Future Licensed Materials as defined in the
following section.
March 21, 1996 2
<PAGE> 3
1.8.1 "EXISTING LICENSED MATERIALS" shall mean Licensed
Materials that have been developed by Coral Systems and are in existence and
included in Exhibit A as of the date of execution of this Agreement.
1.8.2 "FUTURE LICENSED MATERIALS" shall mean Licensed
Materials that are developed by Coral Systems after the date of execution of
this Agreement and that are, at CBIS's option at prices to be agreed, included
in Exhibit A by amendment thereto.
1.9 "LICENSED MATERIAL FEES." Shall mean the License Fees, the
Service Bureau Fees and the Maintenance Fees.
1.10 "MAINTENANCE FEES." Shall mean the per subscriber, annual fees
to be paid by CBIS to Coral Systems in connection with Coral Systems' providing
the support services provided in Section 4 below to CBIS for sublicensing to
third parties sublicensing the Licensed Materials as provided in Exhibit A.
1.11 "MAINTENANCE MODIFICATIONS." Shall mean modifications,
updates, or revisions made by Coral Systems to Code or Documentation that
correct errors, support new releases of operating systems, or support new
models of input-output (I/O) devices with which the Code is designed to
operate.
1.12 "OBJECT CODE." Shall mean Code in machine-readable form
generated by compilation of Source Code and contained in a medium that permits
it to be loaded into and operated on specified computers.
1.13 "PRODUCTS." Shall mean the CBIS software products that
incorporate the Licensed Materials.
1.14 "SERVICE BUREAU ENVIRONMENT." Shall mean the use of the
Licensed Materials by a licensee to provide services to (i) an entity or
entities which do not directly or indirectly control, are not directly or
indirectly controlled by, or are not under direct or indirect common control
with the licensee; or (ii) an entity or entities in which the licensee directly
or indirectly does not own at least a ten percent (10%) interest; or (iii) an
entity or entities for whom the licensee is not a managing partner.
1.15 "SERVICE BUREAU FEES." Shall mean the per subscriber, monthly
fee to be paid by CBIS to Coral Systems in connection with the providing of the
Licensed Materials by CBIS to any third parties in a Service Bureau
Environment.
1.16 "SOURCE CODE." Shall mean Code in programming languages such
as "C" and Fortran, including all comments and procedural code (e.g., job
control language (JCL) statements), plus all related development documents
(e.g., flow charts, schematics, statements of principles of operations,
end-user manuals, architectural standards, and any other specifications that
are used to create or that comprise the Code and the Development Environment).
March 21, 1996 3
<PAGE> 4
SECTION 2
LICENSE
2.1 GRANT. In consideration of the payments to Coral Systems
pursuant to Section 3 hereof and for the term of this Agreement, Coral Systems
hereby grants to CBIS worldwide (except as otherwise set forth herein),
irrevocable, license rights as follows:
2.1.1 Nonexclusive right to sublicense and distribute,
subject to Section 2.2, copies of the Licensed Materials, or Derivative Works
thereof authorized to be made hereunder, in whole or in part, however, only in
connection with the service bureau or licensing of significant software
applications and/or proprietary equipment of CBIS (the "CBIS Products");
2.1.2 Subject to the exceptions provided in Exhibit B
attached hereto and Sections 6.6 and 7 below, the exclusive right to use the
Existing Licensed Materials alone or in conjunction with the Products to
provide services to High Volume Carriers in a Service Bureau Environment in the
United States, North America, South America, Central America, and the countries
of Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece,
Iceland, Ireland, Italy, Luxembourg, Malta, Netherlands, Norway, Portugal,
Spain, Sweden, Switzerland, Turkey, and the United Kingdom (collectively, the
"Identified Countries"). In European Community countries such rights shall be
exclusive only to the extent permitted by law. In all other markets, CBIS shall
have a right of first refusal to provide the Licensed Materials in a Service
Bureau Environment and prior to Coral Systems operating the Licensed Materials
in a Service Bureau Environment or granting to a third party the right to do
so, CBIS shall have forty five (45) days to decide whether to accept the
Service Bureau customer. Further, CBIS has the right to convert the exclusive
license granted in this Section 2 to a nonexclusive license upon thirty (30)
days written notice to Coral Systems. CBIS agrees to waive the exclusivity
granted to CBIS in this Section 2.1.2 with respect to FraudBuster only and only
for the distributors with which Coral Systems has distribution agreements in
effect as of the Effective Date of this Agreement (including the proposed
distribution agreement with Motorola, provided that its terms and conditions do
not materially differ from those under discussion between Coral Systems and
Motorola as of the Effective Date). Further, if due to a corporate
reorganization, a portion of the operations of a licensee falls within the
definition of Service Bureau Environment, CBIS agrees to not unreasonably
withhold consent for the continued use of the license granted prior to the
Effective Date of this Agreement.
2.1.3 Subject to the exceptions provided in Exhibit B
attached hereto and Section 6.6 and 7 below, exclusive right to use in the
Identified Countries, at mutually agreed pricing, all Future Licensed Materials
alone or in conjunction with the Products to provide services to third parties
in a Service Bureau Environment. Such right shall be exclusive in each country
of the European Community only to the extent permitted by law.
2.1.4 Nonexclusive royalty-free right to make, use,
reproduce, and display the Licensed Materials, or Derivative Works thereof, for
purposes of promoting and demonstrating the Licensed Materials or Products to
third party end users;
2.1.5 Nonexclusive right to make, use, reproduce, and
sublicense Derivative Works of the Licensed Materials for purposes of
maintaining and supporting the Products, as contemplated by Section 11
March 21, 1996 4
<PAGE> 5
hereof; and
2.1.6 In addition to the foregoing provisions of this Section
2.1, the right to make, use, and reproduce Derivative Works of the Licensed
Materials as necessary to prepare or integrate Maintenance Modifications and/or
Basic Enhancements thereto that are not provided by Coral Systems within a
reasonable period after they are requested by CBIS provided however, that Coral
Systems shall not be obligated to provide any Source Code or other information
to CBIS in connection with its development of Derivative Works; and
2.1.7 The right to use and reproduce internally, the Licensed
Materials, and the Development Environment, in whole or in part, as necessary
to accomplish the foregoing.
2.2 SUBLICENSE RESTRICTIONS. The Code portion of any Licensed
Materials may be sublicensed and distributed only in Object Code form and only
in connection with the licensing of CBIS Products as provided above. CBIS shall
require each recipient of the Licensed Materials or any Product that contains
the Licensed Materials, in whole or in part to be subject to the restrictions
set forth in this Section 2.2. Such restrictions shall be set forth in a
written agreement signed by the recipient prior to or upon receipt of the
Licensed Materials or the Product containing the following sections.
2.2.1. The recipient may (1) use the Licensed Materials only
for their intended purposes; and (2) make one copy of the Object Code portion
of the Licensed Materials in machine-readable form for nonproductive backup
purposes only.
2.2.2 The recipient may not use, copy, modify, or transfer
the Licensed Materials, or any copy, adaptation, transcription, or merged
portion thereof, except as expressly permitted. The recipient's rights are
nonexclusive and nonassignable. If the recipient transfers possession of any
copy, adaptation, transcription, or merged portion of the Licensed Materials to
any other party (except to a successor in interest of the recipient's business
that assumes all of the recipient's obligations with respect to the Licensed
Materials), the recipient's rights in the Licensed Materials are automatically
terminated.
2.2.3 Coral Systems shall have the sole and exclusive
ownership of and all right, title, and interest in and to the Licensed
Materials, including ownership of all patents, trade secrets and copyrights
pertaining thereto, subject only to the rights and privileges expressly granted
by Coral Systems hereunder.
2.2.4 The recipient is not entitled to receive Source Code,
and under no circumstances may the recipient reverse-compile or
reverse-assemble the Object Code. Where the Licensed Materials are licensed for
use in the European Community, information on interoperability of the Licensed
Materials shall be made available upon request in compliance with the EC
Directive for the Legal Protection of Software . The recipient must further
maintain the confidentiality of all trade secrets of Coral Systems and CBIS.
2.2.5 The recipient must reproduce and include in all copies
of the Licensed Materials prepared by the recipient, and in all adaptations
thereof, the copyright notice(s) and proprietary legend(s) of Coral Systems
and, as applicable, CBIS, as they appear in the Licensed Materials and on the
media containing the Licensed Materials supplied to the customer by Coral
Systems or CBIS.
March 21, 1996 5
<PAGE> 6
2.2.6 The recipient's obligations hereunder remain in effect
for the Licensed Materials for as long as it continues to possess or use the
Licensed Materials and as to all trade secrets until the same are made publicly
available, and such obligations shall be for the benefit of Coral Systems and
shall be enforceable by Coral Systems.
2.2.7 The foregoing restrictions shall in no way restrict
CBIS's right to grant sublicenses to permitted sublicensees which permit the
sublicensees to operate the Licensed Materials on behalf of third parties.
2.3 SUBSIDIARIES OF CBIS. CBIS may transfer, assign, or sublicense
the rights and licenses granted hereunder to one or more affiliates of CBIS
provided in Exhibit C attached hereto, and each such affiliate may
correspondingly transfer, assign, or sublicense such rights and licenses to any
other affiliate of CBIS, provided in each case that such affiliates agree to be
bound by the obligations of CBIS and CBIS shall remain bound under written
agreement by the obligations it assumes under this Agreement. For purposes
hereof, an affiliate shall consist of any corporation, partnership, joint
venture, or other entity (a) in which CBIS has greater than fifty percent (50%)
of the profits and voting rights; or (b) has greater than fifty percent (50%)
of the profits or voting rights in CBIS; or (c) is under common control with
CBIS. CBIS may add to or remove entities from Exhibit C which satisfy the
foregoing criteria upon written notice to Coral Systems.
2.4 ANCILLARY RIGHTS. The rights and licenses granted hereunder
shall include the right and license to copy and display all pictorial, graphic,
or audiovisual works created as a result of the execution of the Licensed
Materials, even if such pictorial, graphic, or audiovisual works are created by
or with other programming or through other means.
2.5 PATENT RIGHTS. Coral Systems further grants to CBIS, its
successors, and assigns, and any sublicensees and customers rightfully using or
receiving the benefits of the Licensed Materials, a worldwide, royalty-free,
irrevocable and nonexclusive immunity from suit under any patents owned or
licensable by Coral Systems at any time during the term of this Agreement, as
necessary for CBIS to exercise any other rights and licenses granted under this
Agreement.
2.6 NO IMPLIED LICENSE. No right or license shall be implied by
estoppel or otherwise, other than the rights and licenses expressly granted in
this Agreement. Coral Systems shall retain all ownership right, title, and
interest in the Licensed Materials, Source Code and Additional Developments
subject only to the rights and licenses specifically granted herein.
SECTION 3
PAYMENTS
3.1 LICENSED MATERIALS FEES. For each of the Licensed Materials
provided in Exhibit A attached hereto, CBIS shall provide the Licensed Material
Fees, as appropriate, in consideration of the use in a Service Bureau
Environment or sublicense of the Licensed Materials. All Licensed Material Fees
shall be due upon the acceptance by sublicensee or service bureau customer of
the Licensed Materials. Unless otherwise agreed to in writing by the Parties,
acceptance shall occur the earlier of (a) demonstration by Coral Systems that
the Licensed Materials perform according to the criteria provided for each of
the Licensed
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Materials in Exhibit A; or (b) upon production use of the Licensed Materials by
the sublicensee or service bureau customer. Coral Systems shall provide CBIS a
new criteria for each Enhancement.
3.2 REVIEW OF LICENSED MATERIAL FEES. Six months after the
Effective Date, CBIS and Coral Systems will jointly review the actual prices at
which the Licensed Materials were licensed during the first six months of this
Agreement to determine what effect there should be on the Licensed Material
Fees. Further, the Parties shall perform a similar review and determination
twelve (12) months after the Effective Date and annually thereafter.
3.2 OTHER PAYMENTS. In addition to the Licensed Materials Fees
provided above, CBIS may be obligated to provided to Coral Systems additional
payments under this Agreement. Such payments may include, without limitation,
installation fees and training fees as provided in Section 4 below and fees
associated with any Additional Development as provided in Section 8 below.
3.3 TIMING OF PAYMENT; INTEREST. All Licensed Material Fees and
all other fees owing under this Agreement shall be made within thirty (30) days
of the date the obligation accrues. All amounts due to Coral Systems under this
Agreement and not paid on the date such amounts are due shall accrue interest
at the lesser of 1% per month or the maximum allowable rate by law.
3.4 AUDIT RIGHTS. CBIS shall keep accurate and complete records of
the number of wireless telecommunications subscribers of CBIS customers for the
Licensed Materials in either a Service Bureau Environment or sublicensing.
Coral Systems shall be permitted, at is cost and from time to time, to conduct
an audit of those books and records of CBIS relating to the foregoing. In the
event any audit reveals a discrepancy of ten percent (10%) or greater in the
amounts that should have been paid to Coral Systems, CBIS shall reimburse Coral
Systems for the costs of such audit along with all underpayments.
SECTION 4
DELIVERY AND MAINTENANCE AND SUPPORT OF LICENSED MATERIALS BY
CORAL SYSTEMS
4.1 DELIVERY OF LICENSED MATERIALS, MAINTENANCE MODIFICATIONS AND
ENHANCEMENTS. Within thirty (30) days of the execution of this Agreement (or as
otherwise agreed in writing), Coral Systems shall deliver to CBIS one complete
copy of the Licensed Materials in Object Code form. Further, Coral Systems
shall deliver to CBIS, when and as prepared by Coral Systems in the course of
its business, all Enhancements and Maintenance Modifications arising from time
to time, for inclusion in the Code and/ or Documentation. Coral Systems agrees
to consider and discuss with CBIS any proposal of CBIS with respect to the
preparation of possible further Basic Enhancements and Maintenance
Modifications.
4.2 SECONDARY SUPPORT. Coral Systems shall provide secondary
support for the Licensed Materials. Such support shall include the providing of
reasonable telephone support on a seven days per week, twenty four hours per
day basis. Coral Systems' response time shall be as set forth in Exhibit D to
this Agreement. In the event on site support is necessary after reasonable
attempts to resolve the matters requiring support, CBIS and Coral Systems shall
determine the severity of the support needs and mutually
March 21, 1996 7
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determine the timing and personnel necessary to address the relevant support
issues. Coral Systems reserves the right to require CBIS to reimburse it for
international telephone charges (including modem charges) and for all
reasonable and customary travel and accommodation expenses incurred by Coral
Systems in the providing of on-site support. CBIS shall have no obligation to
reimburse Coral Systems for travel expenses which are not pre-approved by CBIS
in writing.
4.3 TECHNICAL TRAINING. Coral Systems shall provide to those
employees of CBIS designated by CBIS, a five (5) day training seminar
concerning the use, operation, installation, attributes and maintenance of each
of the Licensed Materials and a two (2) day training seminar covering the same
for each Major Enhancement provided to CBIS under this Agreement. The date,
time and location of the foregoing shall be at the mutual agreement of the
parties. Coral Systems shall provide such additional technical training seminar
as CBIS may request from time to time at a time, date and location as the
parties may mutually determine. Such additional training seminars from Coral
Systems shall be subject to charge at Coral Systems' then current rates for
such services.
4.4 INSTALLATION. Coral Systems shall install the first two
Service Bureau Environment and sublicensed applications of each of the Licensed
Materials without charge, excepting reasonable travel and accommodations
expenses of Coral Systems personnel which shall be paid by CBIS. CBIS may
contract Coral Systems from time to time to install the Licensed Materials in
either a Service Bureau Environment or sublicensed setting. Such installation
services shall be provided at a time and date mutually acceptable to the
parties and be subject to charge at Coral Systems' then current rates for such
services.
4.5 DIRECT SERVICES. At CBIS' sole discretion, it may elect to
have Coral Systems provide any of the support or maintenance services provided
in this Section 4 directly to any customer of CBIS by having Coral Systems and
such customer contract directly under terms acceptable to Coral Systems and the
CBIS customer.
4.6 CONTINGENT SERVICES. Coral Systems' obligations to provide
CBIS with the support and maintenance services hereunder are contingent upon
CBIS' timely payment of all Maintenance Fees and other fees provided in this
Agreement.
SECTION 5
SUPPORT OBLIGATIONS OF CBIS
5.1 PRIMARY SUPPORT. Unless CBIS elects to have Coral Systems
contract directly with the CBIS customer as provided in Section 4.5 above, CBIS
shall provide primary responsibility for all installations, telephone and
on-site support of the Licensed Materials, whether in a Service Bureau
Environment or sublicense. Such primary support shall include, but not be
limited to, (a) installing the Licensed Materials, (b) receiving all initial
support requests from all CBIS customers regarding the Licensed Materials, (c)
screening support requests to identify the issue, error or problem and, if such
issue, error or problem is other than one requiring a Maintenance Modification,
attempting to remedy the same prior to contacting Coral Systems, and (d) where
reasonably necessary, accompanying Coral Systems on on-site support provided.
March 21, 1996 8
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5.2 CBIS PERSONNEL. CBIS shall provide a sufficient number of
support personnel for the Licensed Materials who have the requisite training,
education and capabilities to undertake and successfully complete the support
and, if appropriate, installation obligations of CBIS provided in this Section
5.
SECTION 6
MARKETING OBLIGATIONS OF CORAL SYSTEMS
6.1 SALES TRAINING. Coral Systems shall provide to CBIS designated
sales and marketing personnel, at Coral Systems' expense, two two day sales
training seminars for the Existing Licensed Materials, two one day sales
training seminar for each Major Enhancement and two two day sales training
seminar for each Future Licensed Materials. All seminars shall be conducted at
a mutually agreed upon location and shall be set at a date and time mutually
acceptable to the parties. Each seminar shall include, without limitation, a
detailed overview of the Licensed Materials, any competitive information
possessed by Coral Systems on the Licensed Materials, and any strengths and
weaknesses Coral Systems believes relates to the offering of the Licensed
Materials in a Service Bureau Environment. Coral Systems shall bear its own
travel expenses for the first seminar to which it is required to send
employees. Thereafter, CBIS shall reimburse Coral Systems for reasonable travel
and living expenses for sales training seminars to which Coral Systems
employees are required to travel.
6.2 SALES SUPPORT. Coral Systems shall provide reasonable
secondary sales support to CBIS in connection with the offering or sublicensing
of the Licensed Materials. Such support shall include, without limitation, the
attending of a reasonable number of sales calls and the providing to CBIS of
any marketing materials relating to the Licensed Materials produced by Coral
Systems.
6.3 FUTURE LICENSED MATERIALS. Coral Systems shall provide CBIS
with notice of any new applications developed by Coral Systems for
consideration as a Future Licensed Material. Coral Systems shall provide CBIS
with written notification of the availability of any such application sixty
(60) days prior to commercial availability of such application with proposed
Licensed Material Fees and such other terms and conditions as may be
appropriate for such application. CBIS shall have thirty (30) days from receipt
of the foregoing notice to agree to or enter into and conclude negotiations
with Coral Systems to have such application become a Future Licensed Material.
The parties shall act in good faith in setting any Licensed Material Fees for
such applications.
6.4 RIGHT OF FIRST REFUSAL. In the event the parties fail to reach
agreement on the prices of any application identified in Section 6.3 above, and
Coral Systems has identified another entity with which it desires to provide
such application for offering in a Service Bureau Environment, Coral Systems
shall provide a written notice of the same including prices of such offering
thirty (30) days prior to consummation of such transaction. CBIS shall have
thirty (30) days from receipt of such notice to provide written notice to Coral
Systems of its decision to offer the application in question in a Service
Bureau Environment under the same prices as those provided in the foregoing
notice. In the event CBIS fails to timely provide Coral Systems with the
requisite written notice Coral Systems shall be free to consummate the
foregoing relationship. In the event the prices of such relationship materially
change from those provided in the notice to CBIS prior to closing, such new
terms and conditions shall constitute a new offer for which Coral Systems shall
be obligated to provide CBIS with another written notice and CBIS shall have
the rights provided above.
March 21, 1996 9
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CONFIDENTIAL TREATMENT REQUESTED
6.5 CBIS RECOMMENDATIONS. Throughout the period of exclusivity
provided to CBIS in Sections 2.1.2 and 2.1.3 above, Coral Systems shall
recommend and offer to all customers to whom it offers for licensing the
Licensed Materials, the opportunity for the customer to acquire the Licensed
Materials from CBIS in a Service Bureau Environment. In the event a prospective
customer of Coral Systems expresses an interest in pursuing the Licensed
Materials in a Service Bureau Environment from CBIS, Coral Systems shall
provide the name and contact individual of the prospective customer to CBIS and
shall provide to CBIS the sales support provided in Section 6.2 above.
6.6 SPECIAL ACCOUNTS. Attached to this Agreement as Exhibit E is a
list of accounts which CBIS and Coral Systems shall jointly solicit for the
licensing and/or Service Bureau of the Licensed Materials (the "Special
Accounts") during the term of this Agreement. The Parties shall collectively
determine the strategy to jointly solicit the Special Accounts and shall begin
work on such strategies as soon as practical after the Effective Date.
Notwithstanding the foregoing, in the event any of the Special Accounts elects
to not acquire the Licensed Materials through CBIS' Service Bureau Environment,
then Coral Systems and CBIS shall pursue a license of the Licensed Materials
and, unless the customer desires to contract directly with Coral Systems, CBIS
shall enter into the license agreement with the customer. Nothing in this
Section shall restrict or impact the ability of other distributors of Coral
Systems to sublicense or offer the Licensed Materials to any entities and Coral
Systems shall be free to support such distributors in such activities provided
such activities do not violate the exclusivity provided to CBIS in Section
2.1.2 or 2.1.3. CBIS and Coral Systems shall mutually agree to changes to
Exhibit E. Regardless of whether the revenue is Service Bureau, or License, the
Parties agree that the pricing schedule set forth in Exhibit A hereto shall
apply to the Special Accounts contracted by CBIS. During the period of
exclusivity under this Agreement the Parties agree that in addition to those
Special Accounts set forth on Exhibit E, the Parties will jointly market the
Licensed Materials to any telecommunications provider identified as included in
the Service Bureau Environment as provided in 2.1.8 above, all of whom shall be
considered Special Accounts.
6.7 ACCOUNT TRANSFER. Coral Systems shall consider, on a case by
case basis, the transfer of existing license and maintenance agreements it
currently has granted to its customers to CBIS where the Coral Systems customer
is also a billing Service Bureau Environment customer of CBIS and such entity
desires the transfer of such agreements or parts thereof to CBIS. The terms of
the transfer and the compensation provided to Coral Systems shall be mutually
acceptable to CBIS and Coral Systems, provided however, that the parties shall
act in good faith in such negotiations.
SECTION 7
MARKETING OBLIGATIONS OF CBIS
7.1 PERFORMANCE. The exclusivity provided to CBIS in Sections
2.1.2 and 2.1.3 above is subject to CBIS providing to Coral Systems the
revenues under this Agreement from CBIS sublicensing or providing in a Service
Bureau Environment the FraudBuster and ChurnAlert Licensed Materials for the
following minimum number of cumulative subscribers: [ * ]
[ * ]; and an additional [ * ] subscribers per calendar
quarter until [ * ] The calculation of subscribers shall be accomplished on
a cumulative basis for all subscribers analyzed by the foregoing Licensed
Materials on the last day of each calendar quarter and shall not include
sublicensed or Service Bureau Environment subscribers of those markets trading
under the [ * ] brand name as of the Effective Date of this
March 21, 1996 10
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Agreement. In the event CBIS fails to provide the minimum to Coral Systems
during any calendar quarter, it shall have one additional quarter to meet the
cumulative for the Licensed Materials for the two calendar quarters in
question. In the event CBIS fails to meet the cumulative minimum after two
calendar quarters, Coral Systems shall have the option of terminating the
exclusive licenses provided in Sections 2.1.2 and 2.1.3 above, as applicable,
however, such termination shall have no impact, other than the termination of
exclusivity, on the licenses granted to CBIS who shall be permitted to continue
to provide the offering or sublicensing of the applicable Licensed Materials
throughout the remainder of the term of this Agreement. The parties shall
negotiate in good faith on a case by case basis performance metrics for each
Future Licensed Material.
7.2 GENERAL MARKETING. CBIS shall undertake reasonable marketing
of the Licensed Materials, which shall include, as reasonably appropriate, the
inclusion of the Licensed Materials in CBIS collateral and marketing materials,
the inclusion of the Licensed Materials in wireless telecommunications trade
shows in which CBIS participates and the inclusion of the Licensed Materials in
any relevant and appropriate advertisements. CBIS shall provide to and receive
the consent of Coral Systems, which consent shall not be unreasonably withheld,
for all marketing materials and matters identifying the Licensed Materials or
Coral Systems prior to the publication of the same.
7.3 REPORTING. CBIS shall provide to Coral Systems a good faith
quarterly forecast of the sublicenses and Service Bureau Environment
opportunities for the Licensed Materials by the fifteenth (15th) day of the
month following each calendar quarter. All such forecasts shall be estimates
and shall impose no liability on CBIS for the accuracy of or License Fees
relating to the same.
7.4 USE OF NAME. CBIS shall use the name of the applications
provided by Coral Systems identified in Exhibit A for each of the Licensed
Materials in all sales, marketing, offerings in a Service Bureau Environment
and sublicensing of the same.
7.5 SOLUTION OF CHOICE. Provided Coral Systems complies with the
terms of this Agreement and for the period of time and in those markets where
CBIS retains exclusivity under Section 2.1 above, CBIS shall, when recommending
a Service Bureau solution, exclusively, to the extent permitted by applicable
law, recommend the Licensed Materials to their customers for the purposes for
which each of the Licensed Materials are designed and shall not enter into any
agreement for the offering in a Service Bureau Environment with any other
entities who provide or offer applications similar to the Licensed Materials.
The foregoing shall not apply in the event that a CBIS customer or prospective
customer requests that CBIS supply, support, license, sublicense, develop,
offer in a Service Bureau Environment or otherwise provide an application
similar to the Licensed Materials.
SECTION 8
ADDITIONAL DEVELOPMENT
Coral Systems acknowledges that one of CBIS's motivations in entering
this Agreement and the Series C Preferred Stock Purchase Agreement is to obtain
the development services of Coral Systems as described in this Section 8.
Accordingly, CBIS may suggest or identify additional features or modifications
March 21, 1996 11
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CONFIDENTIAL TREATMENT REQUESTED
to the Licensed Materials or new products which may become Licensed Materials by
providing to Coral Systems a written description of the feature, modification or
new product (collectively, "Additional Development") in sufficient detail to
permit Coral Systems to prepare an estimate of the time and cost associated with
the development of the Additional Development. Coral Systems shall respond to
each request by CBIS for Additional Development as to whether Coral Systems
desires that the Additional Development be (i) owned by CBIS; (ii) jointly owned
by CBIS and Coral Systems with an agreed to royalty on future sales; or (iii)
jointly owned (without any rights of contribution and without rights to
individually prosecute patent applications thereto) by CBIS and Coral Systems
with no royalty. In the event of an Additional Development that is to be owned
by CBIS, the rate proposed shall be Coral Systems' published rate for such work.
In the event that the Additional Development is to be jointly owned with a
royalty on future sales, the Parties shall agree upon the appropriate rate and
royalties. In the event that the Additional Development is to be jointly owned
without royalty, the rate proposed by Coral Systems shall be [ * ] of
Coral Systems' published rate for such work. Coral Systems shall endeavor
to provide such estimate within the time frames requested by CBIS, however,
additional time may be necessary depending upon the complexity of the request.
Coral Systems reserves the right to not provide an estimate or undertake the
requested Additional Development. In the event Coral Systems provides the
estimate and CBIS desires to proceed with the Additional Development, the
parties shall negotiate, on a case by case basis and as applicable, development
schedules, development contributions and such other matters as the parties may
determine. In any event, Coral Systems agrees that Coral Systems shall make
reasonable efforts to accommodate CBIS's requests for Additional Development
within the requested time frames. The terms and conditions of all agreed upon
Additional Development shall be reduced to writing, acknowledged by both
parties, attached hereto as part of Exhibit A and shall be subject to the terms
and conditions of this Agreement unless the foregoing terms and conditions are
in conflict, in which case such foregoing terms and conditions shall govern. In
the event CBIS elects to proceed with either a real time collector project (the
"Collector Project") or a data message handler project (the "DMH Project") after
the parties have reached agreement on the foregoing, Coral Systems shall
commence work on the foregoing project(s) within a maximum of sixty (60) days
from the parties reaching agreement and Coral Systems shall make available up to
a maximum of [ * ] individuals for the DMH Project and [ * ]
individuals for the Collector Project, provided however, that if the parties
mutually determine, certain of the individuals may work on both projects to
accomplish substantially duplicative tasks or to the extent the time to
completion of the projects is not detrimentally impacted. Further, upon
reasonable notice and an agreed schedule of milestones, Coral Systems agrees, at
CBIS's request, to make available up to the greater of [
* ] of Coral Systems' development staff to work on development
projects related to real time wireless applications in addition to the DMH
Project and the Collector Project.
SECTION 9
PROPRIETARY PROTECTION
9.1 ACKNOWLEDGMENT OF CONFIDENTIALITY. CBIS acknowledges that the
Licensed Materials, Source Code, the Additional Development to the extent owned
by Coral Systems pursuant to Section 8, above, and such other materials
identified as confidential (collectively, the "Confidential Materials") consist
of confidential information of Coral Systems. CBIS shall treat the Confidential
Materials in confidence and
March 21, 1996 12
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shall not use, copy, or disclose them, nor permit any of its personnel to use,
copy, or disclose them, for any purpose that is not specifically contemplated
by this Agreement.
9.2 SECURE HANDLING. Except for copies of Confidential Materials
in use by CBIS from time to time as permitted hereunder, CBIS shall require
that the Confidential Materials shall be maintained in a manner so as
reasonably to preclude unauthorized persons from having access thereto. CBIS
shall permit access to the Confidential Materials only as necessary for CBIS's
use thereof in accordance with the terms of this Agreement.
9.3 PROPRIETARY LEGENDS. All Code and Documentation shall be
marked with Coral Systems' copyright notice. All Products offered by CBIS shall
display Coral Systems' copyright notice. However, CBIS may mark with its own
copyright notice and register any Derivative Works of the Code and
Documentation prepared by CBIS. The parties agree to cooperate in any such
registration and to provide necessary information and prepare and deliver duly
executed documents reasonably required in such regard. In addition to the
foregoing copyright notice, all Confidential Materials shall be clearly marked
"CONFIDENTIAL--Coral Systems", or a similar mark. CBIS shall not permit any of
its personnel to remove any proprietary or other legends or restrictive notices
contained or included in any Code, Documentation, or other material provided by
Coral Systems, and CBIS shall not permit any of its personnel to reproduce or
copy any such material except as specifically authorized hereunder.
9.4 RESTRICTIONS ON ACCESS. CBIS shall limit the use of and access
to the Confidential Materials to such personnel of CBIS as are directly
involved in the use thereof by CBIS, and prevent all of its personnel from
having access to any such Confidential Materials that are not required in the
performance of their duties.
9.5 INJUNCTIVE RELIEF. The parties acknowledge the substantial
loss and irreparable harm associated with a violation of the confidentiality
provisions of this Agreement and, as such, agree that Coral Systems shall be
entitled to seek and obtain an immediate injunctive relief, without the posting
of bond or other security, in the event CBIS violates or threatens to violate
the confidentiality terms of this Agreement.
SECTION 10
REPRESENTATIONS AND WARRANTIES
10.1 RIGHT AND AUTHORITY. Coral Systems represents and warrants
that (1) it is the owner of the Code and the Documentation, including all
intellectual property rights therein under copyright, patent, trademark, trade
secret, and other applicable law; (2) it has the full and sufficient right and
authority to grant the rights and licenses granted herein; (3) the Code and
Documentation to the best of Coral Systems' knowledge have not been published
under circumstances that have caused loss of any U.S. copyright therein; and
(4) the Code and Documentation, to the best of Coral Systems' knowledge, do not
infringe any copyright or other intellectual property right of any third party.
10.2 ADEQUACY OF SOURCE CODE AND DEVELOPMENT ENVIRONMENT. Coral
Systems represents and warrants that (1) the Source Code and the Development
Environment delivered to the Escrow Agent (defined below) are and shall be
understandable and usable by trained computer-programming personnel who are
familiar with the programming languages and computer systems utilized by the
Licensed Materials;
March 21, 1996 13
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(2) such Source Code does not involve any proprietary languages or programming
components that such personnel could not reasonably be expected to understand,
except to the extent that the Source Code and the Development Documentation
contain sufficient commentary to enable such contractor to understand and use
such languages or components; and (3) such Source Code and the Development
Documentation include all of the devices, programming, and documentation
reasonably necessary for the maintenance and support of the Licensed Materials
by CBIS, if required to do so, except for devices, programming, and
documentation commercially available to CBIS on reasonable terms through
readily known sources not affiliated with Coral Systems.
10.3 CONFORMITY, PERFORMANCE, AND COMPLIANCE. Coral Systems
represents and warrants that (1) the Code and Documentation to be delivered by
Coral Systems hereunder have been prepared in a workmanlike manner and with
professional diligence and skill; (2) such Code and Documentation will function
on the machines and with operating systems for which they are designed; and (3)
such Code conforms to the specifications in the Documentation or the
requirements as appropriate.
SECTION 11
SOURCE CODE ESCROW
11.1 DEPOSITING AND UPDATING. Coral Systems shall deposit the
Source Code and Development Environment (collectively, the "Deposit Materials")
for the Licensed Materials, in escrow with a mutually acceptable agent (the
"Escrow Agent") pursuant to a mutually acceptable escrow agreement to be
executed between the parties within thirty (30) days of the execution of this
Agreement. Thereafter, Coral Systems shall diligently update and keep current
with the Escrow Agent all Enhancements, Maintenance Modifications and
Additional Development no less than ninety (90) days after the availability of
the same to CBIS. Written confirmation of all such deposits shall be delivered
to CBIS concurrently with all deposits.
11.2 GRANT OF LICENSE AND RELEASE OF DEPOSIT MATERIALS. In the
event that: (i) a voluntary or involuntary petition is filed with respect to
Coral Systems under any federal or state bankruptcy or insolvency law and the
support and maintenance obligations provided in Section 4 above (collectively,
the "Support") can no longer be provided in accordance with this Agreement;
(ii) Coral Systems files for liquidation or dissolution; or, (iii) Coral
Systems otherwise ceases to conduct business or offer the Support, or default
in the performance of any material Support obligation and fails to cure such
default within a reasonable period, then CBIS shall be deemed to be granted a
nonexclusive, perpetual, fully paid up license in the Deposit Materials and
CBIS shall be entitled to receive the Deposit Materials from the Escrow Agent.
Any such release of the Deposit Materials shall be used in accordance with the
terms and conditions of this Agreement.
SECTION 12
TERM AND TERMINATION
12.1 TERM OF AGREEMENT. This Agreement shall become effective on
the first day that it has been executed by both parties and, unless sooner
terminated hereunder, shall remain in force for a period of ten (10) years
afterwhich it shall automatically renew for successive one (1) year periods
unless either party provides notice to the other of its desire to terminate
this Agreement ninety (90) days prior to the anniversary of the applicable
renewal period.
March 21, 1996 14
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CONFIDENTIAL TREATMENT REQUESTED
12.2 TERMINATION. Either party may, at its option, terminate this
Agreement in the event of a material breach by the other party. Such
termination may be effected only through a written notice, specifically
identifying the breach on which termination is based. Following receipt of such
notice, the party in breach shall have ninety (90) days to cure such breach
plus such additional reasonable time as may be necessary in the event it is
unreasonable to complete such cure within such period, and this Agreement shall
terminate in the event that such cure is not effected by the end of such
period.
12.3 SURVIVAL. In the event of the termination of this Agreement,
in whole or in part, the provisions of Sections 9 and 10 shall survive and
continue in effect.
12.4 RIGHTS NOT AFFECTED. The termination of this Agreement shall
not affect any paid-up right or license theretofore attained by CBIS, nor shall
it impair the right or license of any third party in the Licensed Materials or
Products that have been or may yet be sublicensed in accordance with this
Agreement. Notwithstanding the termination of this Agreement, CBIS may (1)
continue to exercise the rights and licenses granted hereunder to fill any
binding commitments it has entered into with third parties as of the date of
termination, and (2) continue to exercise the rights and licenses granted
hereunder as necessary to provide maintenance and support for the Licensed
Materials which have been previously provided to third parties. The payment
obligations set forth in Section 3 hereof shall continue in effect following
termination of this Agreement with respect to any revenues that CBIS may
continue to collect.
SECTION 13
LIMITATION OF LIABILITY
13.1 EXCLUSION OF CONSEQUENTIAL DAMAGES, ETC. In no event shall
either party be liable to the other for any consequential, indirect, special,
or incidental damages, even if such party has been advised of the possibility
of such potential loss or damage. The foregoing limitations shall not be
construed to diminish the obligations of indemnity set forth in Section 9
hereof.
13.2 LIMITATION OF CBIS LIABILITY. In no event shall CBIS be liable
for amounts in excess of the direct damages proven for breach of this Agreement
and, except for claims relating to personal injury and property damages arising
from CBIS's negligence or unless CBIS shall have been found by a court of
competent jurisdiction to have engaged in bad faith or intentional misconduct,
in no event shall CBIS's total liability under this Agreement exceed [ * ]
exclusive of amounts payable in accordance with the terms of this Agreement.
13.3 LIMITATION OF CORAL SYSTEMS LIABILITY. In no event shall Coral
Systems be liable for any amounts under or relating to this Agreement in excess
of the greater of the amounts paid to Coral Systems by CBIS hereunder or the
amount paid by CBIS under the Series C Preferred Stock Purchase Agreement for
its initial purchase of Series C stock.
March 21, 1996 15
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SECTION 14
INDEMNIFICATION
14.1 SCOPE OF CORAL SYSTEMS INDEMNIFICATION. Coral Systems hereby
defends, indemnifies and holds harmless CBIS, its successors, and assigns,
including any customers from any loss, liability, claim, or damage regarding
authorized and proper use of the Code, Documentation, Additional Development or
Development Environment supplied hereunder, based on any actual or alleged
infringement of a patent, trademark, copyright, trade secret, or other
intellectual proprietary right of any third party. If such claim arises, or if
in Coral Systems' judgment is likely to arise, CBIS agrees to allow Coral
Systems, at Coral Systems' option, to procure the right for CBIS to continue to
exercise its rights and licenses granted herein, or to replace or modify them
in a functionally equivalent manner so they become noninfringing. If neither of
the foregoing alternatives is available on terms that are reasonable in Coral
Systems' judgment, Coral Systems shall (i) reimburse CBIS the amounts paid to
Coral Systems with respect to the product(s) upon which the claim(s) are based;
and (ii) allow CBIS at its option to either return the Code, Documentation,
and/or Development Environment to Coral Systems or take over the defense and/or
settlement of such claims as they relate to CBIS's sublicensees and service
bureau customers. In the event that CBIS elects to defend and/or settle such
claims, any sums expended by CBIS in such defense and/or settlement shall be
credited against any future royalties or License Fees which become due
hereunder to Coral Systems.
14.2 LIMITATIONS. Coral Systems shall have no obligation under
Section 14.1 hereof with respect to any claim of infringement of patent,
copyright, trade secret, or other intellectual proprietary right based upon
CBIS's modification of the Code, Documentation, Additional Development and/or
Development Environment or based upon their combination, operation, or use with
programs or equipment provided by CBIS or not specified by Coral Systems.
14.3 SCOPE OF CBIS INDEMNIFICATION. CBIS hereby indemnifies and
holds harmless Coral Systems, its successors, and assigns, harmless for damages
finally awarded or actually paid in settlement resulting directly from any
loss, liability, claim, or damage regarding the use, misuse, representation or
misrepresentation regarding the Licensed Materials not authorized by Coral
Systems.
14.3 CONDITIONS. The foregoing indemnity obligations shall be
contingent upon the party claiming indemnification (1) giving prompt written
notice to the other party of any claim, demand, or action for which indemnity
is sought; (2) fully cooperating in the defense or settlement of any such
claim, demand, or action; and (3) obtaining the prior written agreement of the
indemnifying party prior to any settlement or proposal of settlement, which
agreement shall not unreasonably be withheld.
SECTION 15
MISCELLANEOUS
15.1 TERMS CONFIDENTIAL. Coral Systems and CBIS shall hold in
confidence the terms of compensation set forth herein, and neither party hereto
shall disclose such terms to any other person or entity without the prior
consent of the other.
March 21, 1996 16
<PAGE> 17
CONFIDENTIAL TREATMENT REQUESTED
15.2 FREEDOM OF ACTION. Other than as specifically provided herein,
this Agreement shall not be construed to limit CBIS's right to obtain services
or software programs from other sources. This Agreement alone establishes the
rights, duties, and obligations of CBIS and Coral Systems with respect to the
subject matter hereof. CBIS shall have no right or interest whatsoever in any
product of Coral Systems other than the rights and licenses in the Code,
Documentation, and Development Environment granted herein. Nothing in this
Agreement shall be construed to obligate CBIS to a specified level of effort in
its promotion and marketing of the Licensed Materials and/or Products, or to
assure that a specified level of revenues or royalties will result therefrom.
15.3 DISTRIBUTORS. CBIS acknowledges that Coral Systems has and may
continue to enter into relationships with distributors of the Licensed
Materials, provide however, that such relationships are not in violation of the
terms and conditions of this Agreement. Exhibit B attached hereto contains a
listing of the distributors relationships of Coral Systems as of the date of
this Agreement.
15.4 INDEPENDENT CONTRACTOR. CBIS shall hold itself out only as an
independent contractor of Coral Systems.
15.5 NOTICES. All notices, authorizations, consents, or other
communications required or permitted to be given hereunder shall be made in
writing and shall be deemed effective when delivered as follows:
If to Coral Systems: If to CBIS:
Coral Systems Cincinnati Bell Information Systems Inc.
1500 Kansas Avenue 600 Vine Street
Longmont, CO 80501 Cincinnati, Ohio 45202
Attn: Howard Kaushansky Attn: Roy T. Heggland
Vice President Senior Vice President
and General Counsel and General Counsel
Any party hereto may change its address for purposes hereof by so notifying the
other party.
15.6 ASSIGNMENT. Except as provided in Section 2.3 above, neither
party may assign this Agreement to another entity, except in connection with
the merger or sale of substantially all of the assets of the assigning company,
without the prior written consent of the other party, which consent shall not
be unreasonably withheld. Any attempted assignment of this Agreement in
violation of this provision shall be void.
15.7 MERGER, ETC. This Agreement contains the whole understanding
of the parties with respect to the subject matter hereof and supersedes all
prior oral or written representations and agreements between the parties
relating thereto. This Agreement may not be varied except by a writing duly
executed by both parties.
15.8 [ * ] Coral Systems agrees that the Licensed
Material Fees offered to CBIS herein are and will be [ *
]in
the markets and[ *
]
March 21, 1996 17
<PAGE> 18
CONFIDENTIAL TREATMENT REQUESTED
[ * ] of the Licensed Materials and will[
* ]
15.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio as they apply to a
contract made and performed solely in such State.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement upon the
date first written above.
Cincinnati Bell Information Systems, Inc. Coral Systems Inc.
By: /s/ James F. Orr By: /s/ Eric A. Johnson
---------------------------------------- ---------------------------
Title: President and Chief Executive Officer Title: President and Chief
------------------------------------- ------------------------
Executive Officer
March 21, 1996 18
<PAGE> 19
CONFIDENTIAL TREATMENT REQUESTED
Exhibit A
Licensed Materials
Product Name: FraudBuster(R)
Product Description: Software application initially designed to detect certain
forms of fraud perpetrated against providers of cellular communications
services.
Service Bureau Fees:
Service Bureau Pricing Per Subscriber
Number of Subscribers: Domestic: International:
[ * ] [ * ] [ * ]
Pricing in excess of [ * ] subscribers shall be negotiated by the Parties
in good faith. Service bureau pricing represents a per subscriber fee per month
for a [ * ] term and shall include 7 day / 24 hour maintenance
with Enhancements. If the term is other than a [ * ] term, the Parties
shall negotiate the appropriate pricing.
License Fees:
Sublicense Pricing Per Subscriber
<TABLE>
<CAPTION>
Domestic International
- --------------------------------------------------------------------
<S> <C> <C>
[
*
]
</TABLE>
Sublicense pricing is per subscriber per sublicense agreement and calculated
based upon the total number of subscribers of the licensee.
Maintenance for sublicenses is [ * ] of the cumulative per subscriber sublicense
price payable annually in advance and includes 7 day / 24 hour support plus
Enhancements.
March 21, 1996 19
<PAGE> 20
CONFIDENTIAL TREATMENT REQUESTED
Exhibit A: continued
In the event the [ * ] between Coral
Systems and [ *
] is consensually or finally judicially determined to
permit [ * ] to sublicense the Licensed Materials to [ *
] entities in which [ * ] owns a ten percent or greater equity interest
(the "Additional Accounts") at the rates provided for in the [ * ]
[ * ] the above sublicensing pricing shall be adjusted such that CBIS
shall receive an [ * ] discount from Coral Systems' then current list
price for the Licensed Materials offered by [ * ] to the Additional
Accounts to the same entities. In the case of a CBIS service bureau customer,
CBIS shall receive an equivalent discount on the Service Bureau Fees set forth
above. CBIS acknowledges that it shall not receive the foregoing increased
discount for CBIS provided sublicenses to [ * ] as defined in the
[ * ] [ * ].
In the event that the [ * ] is consensually or finally judicially
determined to permit [ * ] to service bureau the Licensed Materials to
entities other than the [ * ], as that term is defined in the
[ * ], then the Service Bureau Fees set forth herein, if higher
than those offered to [ * ], shall be adjusted downward such that CBIS
shall receive the same pricing for Service Bureau Environment as that offered to
[ * ] for the entities to which [ * ] is permitted to offer the same.
March 21, 1996 20
<PAGE> 21
CONFIDENTIAL TREATMENT REQUESTED
Exhibit A: continued
Product Name: ChurnAlert(TM)
Product Description: Software application designed to detect and predict
certain subscriber patterns which may be indicative and predictive of
subscriber churn in cellular telecommunications networks.
Service Bureau Fees:
Service Bureau Pricing Per Subscriber
<TABLE>
<CAPTION>
Subscribers Domestic International
- -------------------------------------------------------------------------
<S> <C> <C>
[
*
]
</TABLE>
Service bureau pricing represents a per subscriber fee per month for a [ * ]
[ * ] minimum term and shall include 7 day / 24 hour maintenance with
Enhancements. If the term is different than [ * ] then the Parties shall
negotiate the appropriate pricing.
License Fees:
Sublicense Pricing per Subscriber
<TABLE>
<CAPTION>
Subscribers Domestic International
- -------------------------------------------------------------------------
<S> <C> <C>
[
*
]
</TABLE>
Sublicense pricing is per subscriber per sublicense agreement and calculated
based upon the total number of subscribers of the licensee.
Maintenance for sublicenses is [ * ] of the cumulative per subscriber sublicense
price payable annually in advance and includes 7 day / 24 hour support plus
Enhancements.
March 21, 1996 21
<PAGE> 22
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
Coral Systems has entered into a Letter of Intent with [ * ] for the
providing of a trial system of Churn Alert for up to [ * ] subscribers of the
[ * ] network in the [ * ] area whereby Coral Systems
will provide the computer hardware and software in a manner similar to a
Service Bureau Environment.
Pursuant to the AirTouch Agreement, AirTouch is permitted to provide
FraudBuster in a Service Bureau Environment to limited markets identified in
the AirTouch Agreement.
Coral Systems is in negotiations for the licensing or sublicensing of
FraudBuster to the following entities either through itself or its
distributors: Orange PCS, Bellsouth PCS and Sprint STV PCS*
Coral Systems has distribution arrangements with Ericsson Radio Systems and is
in negotiations with [ * ] for a similar arrangement all for its
FraudBuster product.
* In the event that Coral Systems does not receive written notification of
award or a legally binding commitment from Sprint STV PCS for the FraudBuster
system within thirty days of the Effective Date, then Sprint STV PCS shall be
considered a Special Account for purposes of Exhibit E.
March 21, 1996 22
<PAGE> 23
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C: CBIS AFFILIATES
[
*
]
March 21, 1996 23
<PAGE> 24
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D
SUPPORT RESPONSE TIMES
Coral Systems shall provide the following levels of support to CBIS and our
sublicensed clients:
Severity Level 1: Critical failure of system. Response time within [ * ] or
less from the time CBIS notifies Coral Systems of the problem by calling the
hotline number provided.
System fails, abnormally terminates or critical loss of data occurs. Coral
Systems will work [ * ] until
resolution of the problem and system is again functioning properly.
Severity Level 2: Major failure of system. Response time within [ * ] of
notification.
System works but service is degraded from usual performance levels. Coral
Systems will work [ * ] until resolution of the
problem.
Severity Level 3: Minor failure of system. Response within [ * ]
Lesser failure which does not impact operability. Coral Systems and CBIS will
negotiate time frame for correction of failure.
Severity Level 4: System inconvenience or improvement. Coral Systems will
consider correction in a maintenance or future product release.
March 21, 1996 24
<PAGE> 25
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT E
SPECIAL ACCOUNTS
Joint soliciting:
[ * ] and its affiliated partners (for all wireless, cellular, data
and PCS services.)
[
*
]
Refrain from soliciting for the term of the Agreement:
[
*
]
March 21, 1996 25
<PAGE> 26
CONFIDENTIAL TREATMENT REQUESTED
Addendum No. 1
to the Marketing License Agreement dated March 21, 1996 (the "Agreement")
between Coral Systems, Inc. ("Coral Systems") and Cincinnati Bell Information
Systems, Inc. ("CBIS"). This Addendum No.1 ("Addendum") is effective
August 15, 1996.
The Agreement is modified as follows:
The following shall be added to Exhibit A of the Agreement:
PRODUCT NAME: AMA Collection Module(TM)
PRODUCT DESCRIPTION: Collects and normalizes call detail and other identified
records from wireless telecommunications networks. The interfaces for this
product include: Lucent Technologies Billdats III product, AMA formats
definition (AT&T 401-601-133, Issue 6, Oct. 1995); the interfaces identified in
Exhibit A to this Addendum; plus other such interfaces as may be added to this
exhibit by Coral Systems in the future.
SUBLICENSING FEES:
The initial sublicense shall be for use in a Service Bureau Environment with
[ * ] for up to
[ * ] subscribers on the AMA Collection Module for a one time fee of
[ * ], payable as follows: [ * ] paid upon the acceptance of the Interim
AMA Collection Module; and, [ * ] upon the earlier of commercial use of or
acceptance of the Final AMA Collection Module. Acceptance shall occur upon
verification by the parties that the AMA Collection Modules meet the
specifications agreed upon by Coral Systems and CBIS in the document titled
Usage Collector Business Requirements and Development Milestone Summary
version 1.0 and dated May 29, 1996, Section 3.2: Summary Description of Coral
Systems' Usage Collector Requirements which are further defined in the
"Collector Design Specification" document, version 1.0 and dated July 23, 1996,
(summarized in Section 4.0: Assumptions and Constraints) which may be subject
to change by the parties. All [ * ] subscribers serviced by the AMA
Collection module in excess of [ * ] shall be subject to a one time per
subscriber license fee of [ * ] paid annually on contract anniversary.
CBIS shall be permitted to license the Product under the same terms and
conditions to [ * ] at any time within one year from
the date of this Addendum. In the event that [ * ] ends its affiliation
with [ * ] CBIS shall be entitled to exercise the
foregoing rights under the same terms and conditions to the surviving [ * ]
entity.
Pricing for additional CBIS customers shall be negotiated by the parties and
subsequently added to this Exhibit.
<PAGE> 27
CONFIDENTIAL TREATMENT REQUESTED
MAINTENANCE FEES:
Maintenance Fees for sublicensing is [ * ] per year of the cumulative per
subscriber sublicense fees. Maintenance Fees shall commence upon final
acceptance and are payable in advance and include 7 X 24 maintenance support
plus all enhancements.
PERFORMANCE REQUIREMENTS:
No exclusivity or performance requirements shall apply to the Product. The
parties can subsequently provide for the same by amending this Addendum in
writing executed by authorized representatives of both parties. This Addendum
shall be governed by the terms and conditions of the Agreement. In the event
of an inconsistency between the Agreement and this Addendum, this Addendum
shall govern.
Agreed: Agreed:
Coral Systems, Inc. Cincinnati Bell Information Systems, Inc.
By: /s/ ERIC A. JOHNSON By: /s/ DEMETRIUS TAYLOR
------------------------------ -------------------------------------
Eric A. Johnson Name: Demetrius Taylor
President & CEO -----------------------------------
Title: Vice President
----------------------------------
<PAGE> 28
EXHIBIT A
CONFIDENTIAL TREATMENT REQUESTED
Existing Interfaces
- -------------------
[
*
]
Under Development
- -----------------
[
*
]
Future Development
- ------------------
[ * ]
<PAGE> 1
EXHIBIT 10.15
CERTAIN CONFIDENTIAL
TREATMENT CONTAINED IN
THIS DOCUMENT, MARKED BY
BRACKETS AND DENOTED BY AN
ASTERISK, HAS BEEN OMITTED
AND FILED SEPARATELY WITH
THE SECURITIES AND
EXCHANGE COMMISSION
PURSUANT TO 17 C.F.R.
SECTIONS 200.80(b)(4),
200.83 and SECTION
230.406.
SOFTWARE LICENSE AND DEVELOPMENT AGREEMENT
This Software License Agreement (the "Agreement") is entered into this 24th day
of November, 1993 (the "Effective Date"), by and between QUALCOMM
Incorporated, a Delaware corporation, with its principal place of business at
6455 Lusk Boulevard, San Diego, California 92121 ("QUALCOMM"), and Coral
Systems, Inc., a Colorado corporation, with its principal place of business at
1500 Kansas Avenue, Longmont, Colorado 80501 ("Coral"), with regard to the
following facts:
RECITALS
WHEREAS, QUALCOMM has developed and is in the process of developing certain
software for use in wireless telecommunications applications;
WHEREAS, Coral has developed certain software known as Home Location Register
(HLR) software which provides seamless roaming capabilities for wireless
telecommunications applications;
WHEREAS, in accordance with the terms of this Agreement, QUALCOMM desires to
obtain the rights to use Coral's HLR software and related design documentation,
to modify and enhance portions of such software, and to create derivative works
based on such software and documentation;
WHEREAS, Coral agrees to grant QUALCOMM such rights to such HLR software and
software documentation in accordance with the terms of this Agreement;
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
QUALCOMM and Coral agree as follows:
1. DEFINITIONS.
The following capitalized terms shall have the meanings ascribed to them below:
"HLR Software" means the source code of Release 1.0 of the Home Location
Register software application owned and developed by Coral which provides
seamless roaming capabilities in wireless telecommunications systems in
compliance with Revision A of the Telecommunications Industry Association
TR45.2 Committee's specifications entitled "Cellular Radio-Telecommunications
Intersystem Operations". The HLR Software shall not include any third party
software or hardware applications.
1
<PAGE> 2
"Software Documentation" means the documentation created by Coral for the HLR
Software, as listed in Exhibit A attached hereto.
2. GRANT OF LICENSES; DELIVERY.
2.1 License for Software. Subject to the terms of this Agreement,
Coral hereby grants to QUALCOMM a personal, non-exclusive, non-transferable,
fully paid, royalty free, perpetual and irrevocable license (a) to use and
reproduce the HLR Software for the sole purpose of developing software on
behalf of QUALCOMM ("QUALCOMM Software") by, as examples and not by way of
limitation (i) emulating in such QUALCOMM Software the structure, sequence
and/or organization of the HLR Software, (ii) creating derivative works based
on the HLR Software or otherwise modifying, translating, adapting and/or
enhancing the HLR Software, and/or (iii) incorporating into such QUALCOMM
Software any portion or portions of the HLR Software and/or any such derivative
work; provided however, that in no event shall the QUALCOMM Software contain
more than ten percent (10%) of the total code of the HLR Software as delivered
to QUALCOMM hereunder, and (b) to sublicense any of such QUALCOMM Software
(including the portions of the HLR Software incorporated herein) to any other
parties for any wireless telecommunications systems or applications based in
whole or in part on QUALCOMM's Code Division Multiple Access technology.
QUALCOMM will notify Coral of the completion of the initial release of
the QUALCOMM Software within a reasonable period of time and shall provide a
written certification to Coral stating that the QUALCOMM Software does not
contain more than ten percent (10%) of the total code of the HLR Software.
2.2 License for Documentation. In addition to the license granted
in Section 2.1 above, Coral hereby grants to QUALCOMM the personal,
non-exclusive, non-transferable, fully paid, perpetual and irrevocable license
to copy, use, adapt, translate, enhance and modify the Software Documentation
and the information contained therein, to create derivative works based thereon
and to distribute any such derivative works to any other parties.
2.3 Delivery. Coral shall deliver to QUALCOMM the complete hard
copies of the HLR Software and electronic copies of the Software Documentation
on or before November 30, 1993.
3. WARRANTIES.
3.1 Ownership. Coral represents and warrants to QUALCOMM that it
owns the HLR Software and the Software Documentation and that it has the full
right and ability to grant the licenses granted in this Agreement.
2
<PAGE> 3
CONFIDENTIAL TREATMENT REQUESTED
Further, Coral represents and warrants to QUALCOMM that the HLR Software and
Software Documentation is Coral's original work and has not been copied or
derived from any work of any third party.
3.2 No Infringement. Coral represents and warrants to QUALCOMM
that the HLR Software and Software Documentation do not and will not infringe
any patent, copyright, trade secret or other intellectual property right of any
third party. Further, Coral represents and warrants to QUALCOMM that no claim
or action relating to the infringement of any patent, copyright, trademark, or
other intellectual property right has been made or is pending or, to the best
of Coral's knowledge, threatened against Coral with respect to the HLR Software
or the Software Documentation.
3.3 Absence of Malicious Components. Coral represents and
warrants to QUALCOMM that, to the best of Coral's knowledge, the HLR Software
does not contain and will not contain any malicious component (e.g., software
virus, software worm, software time bomb, or similar component) which could
damage, destroy, or alter software, firmware, or hardware or which could in any
manner reveal, damage, destroy, or alter any data or other information accessed
through or processed by any software developed from the Software Documentation.
Coral shall immediately advise QUALCOMM, in writing, upon reasonable suspicion
or actual knowledge of any of such conditions.
3.4 Limitation of Warranties. Other than the warranties provide
in Sections 3.1, 3.2 and 3.3 above, CORAL MAKES NO WARRANTY OF ANY KIND,
WHETHER EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
4. LICENSE FEES.
In consideration for the licenses granted to QUALCOMM under Section 2 above and
the delivery of the HLR Software and Software Documentation, QUALCOMM shall pay
to Coral the sum of [ * ] (the "License
Fee") within ten (10) days after QUALCOMM receives complete hard copies of the
HLR Software and the Software Documentation.
5. OWNERSHIP.
5.1 Coral. The HLR Software and the Software Documentation and
all patents, copyrights and other intellectual property rights contained or
embodied in any of the foregoing shall be and remain the property of Coral.
Except as expressly provided in this Agreement, nothing herein shall be
3
<PAGE> 4
construed to transfer or assign to QUALCOMM any right, title or interest
therein.
5.2 QUALCOMM. Notwithstanding any other provision of this
Agreement, any and all QUALCOMM Software (except for those portions of the
source code of the HLR Software which are reproduced in substantially their
original form in the QUALCOMM Software); any modifications, translations,
adaptations and enhancements of the HLR Software or the Software Documentation
which are developed by or on behalf of QUALCOMM; any and all derivative works
created by QUALCOMM which are based on, or incorporate portions of, the HLR
Software and/or the Software Documentation, and all patents, copyrights and
other intellectual property rights contained or embodied in any of the
foregoing shall be and remain the property of QUALCOMM.
6. CONFIDENTIALITY.
QUALCOMM shall protect the HLR Software and Software Documentation in its
possession from unauthorized use or disclosure to any third party with at least
the same level of effort as QUALCOMM has in effect with respect to its other
proprietary computer programs or information, but in no event shall QUALCOMM
exercise less than reasonable care. All tangible materials containing any HLR
Software or Software Documentation, other than QUALCOMM Software developed in
accordance with Section 2.1 above, shall be marked as "proprietary" and shall
contain appropriate copyright notices, and QUALCOMM shall not remove,
obliterate, or alter such notices. Notwithstanding the foregoing, QUALCOMM
agrees that it will place on any QUALCOMM Software which incorporates portions
of the original code of the HLR Software an appropriate copyright notice
indicating Coral's rights in such HLR Software.
7. PUBLICITY.
The parties agree to jointly issue a press release announcing this Agreement
shortly after the Effective Date. Such press release shall be subject to
review and approval by both QUALCOMM and Coral prior to dissemination.
8. INDEMNIFICATION.
8.1 Coral Indemnification. Coral agrees to indemnify, defend and
hold QUALCOMM harmless from and against any claims, actions, losses, expenses,
liabilities, damages and costs, including reasonable attorneys' fees, arising
out of or relating to infringement by the HLR Software, the Software
Documentation, or any portion thereof, of any patent, copyright, trademark,
trade secret, or other intellectual property rights of any other party.
4
<PAGE> 5
8.2 Indemnification Procedures. In the event that QUALCOMM
desires to make a claim for indemnification in accordance with Section 8.1
above, QUALCOMM shall (a) provide written notification of any claim for which
indemnity is sought within (30) days after becoming aware of such claim; (b)
cooperate in the defense of such claim, with each party bearing its respective
costs of such cooperation; and (c) receive the prior written approval of Coral
of any settlement or offer of settlement made to the party seeking
indemnification, which approval shall not be unreasonably withheld, and, if
approved, Coral shall pay the amount of such settlement.
8.3 Limitation of Liability. IN NO EVENT SHALL CORAL BE LIABLE OR
RESPONSIBLE FOR ANY DAMAGES UNDER THE FOREGOING INDEMNIFICATION IN EXCESS OF
THE LICENSE FEES PAID TO CORAL UNDER THIS AGREEMENT.
9. DISCLAIMER OF INDIRECT DAMAGES.
Neither party shall be liable to the other party hereto or to any other company
or entity for any incidental, consequential, or any other indirect loss or
damage, including without limitation loss of profits, arising out of this
Agreement or any obligation resulting herefrom or the use of any intellectual
property received hereunder, whether in an action for or arising out of breach
of contract, tort, or any other cause of action.
10. NOTICES.
Any notice, demand, acknowledgment, or other communication made or given by
either party in accordance with this Agreement shall be in writing, and sent
via facsimile (with confirmation) or by registered or certified mail, return
receipt requested, or by courier service and addressed to the other party at
its address as set forth below (or any other address of which the other party
is notified in accordance with this Section):
If to Coral: Coral Systems, Inc.
1500 Kansas Avenue
Longmont, CO 80501
Attention: Eric Johnson
Fax: (303) 772-8230
With a copy to: Howard Kaushansky
If to QUALCOMM: QUALCOMM Incorporated
6455 Lusk Boulevard
San Diego, CA 92121-1617
Attention: Chief Operating Officer
5
<PAGE> 6
Fax: (619) 658-2500
With a copy to: Attention: Legal Department
Fax: (619) 658-2503
11. GENERAL PROVISIONS.
11.1 Governing Law. This Agreement and all disputes and related
issues shall be interpreted under and governed by the laws of the State of
California.
11.2 Arbitration. Any dispute, claim or controversy arising out of
or relating to this Agreement or the breach or validity hereof shall be settled
by arbitration in accordance with the arbitration rules of the American
Arbitration Association (the "AAA Rules"). For any such arbitration, there
shall be one (1) arbitrator, who shall be selected in accordance with the AAA
Rules. The arbitration shall be governed by California law. Judgment upon the
award rendered in any such arbitration shall be final and may be entered in any
court having jurisdiction thereof.
11.3 Force Majeure. Other than the obligation to pay money
hereunder, neither party shall be liable for the failure to perform any
obligation under this Agreement where such failure is due to fire, flood, labor
dispute, natural calamity, or acts of governments or if such causes are
otherwise beyond the reasonable control of such party.
11.4 Unenforceability. If any provision of this Agreement is
deemed by a court of competent jurisdiction to be unenforceable or contrary to
any applicable law or regulation, such provision shall be considered deleted
and the remainder of this Agreement shall continue in full force and effect.
In the event that the unenforceable provision is an essential element of the
agreement between the parties hereto, the parties shall promptly negotiate a
reasonable replacement provision consistent with such laws or regulations.
11.5 No Assignment. This Agreement is not assignable by either
party without the prior written consent of the other party, except that this
Agreement may be assigned to a controlled subsidiary of the assigning party,
provided that the assigning party guarantees performance by such controlled
subsidiary. An "assignment" includes any merger, consolidation, spin-off,
split-off, or sale of all or substantially all of the assets of a party hereto.
11.6 Attorneys' Fees. In the event that litigation is necessary to
interpret or enforce this Agreement, the most prevailing party, as determined
by the
6
<PAGE> 7
court, shall be entitled to recover, along with any award or judgment, its
fees and costs, including reasonable attorneys' fees.
11.7 Independent Contractor Relationship. The relationship between
the parties under this Agreement is that of independent contractors, and
neither party is an employee or agent of the other party. Neither party is
authorized or empowered to act as an agent for the other party, nor to transact
business, incur obligations or bill goods in the other party's name or for the
other party's account. Neither party shall in any way be bound by any acts,
representations, or conduct of the other party to any third party.
11.8 Hiring Restrictions. For a period of one (1) year after the
date of this Agreement, neither party shall be permitted to recruit or attempt
to hire or retain any employees or independent contractors engaged by the other
and may not, without the prior written consent of the other party, hire any
employee or independent contractor employed or retained by such other party,
until three months after such individual leaves the employ of or is no longer
retained by, such company.
11.9 Amendment; Non-Waiver. This Agreement may only be amended by
a writing executed by authorized representatives of both parties. The failure
or delay of any party to exercise any right or remedy hereunder shall not
constitute a waiver of such right or remedy, and the express waiver of any
right or remedy shall not constitute a waiver of any other or future right or
remedy.
11.10 Entire Agreement. This Agreement, together with all exhibits
attached hereto, which are incorporated herein by this reference, constitutes
the entire agreement between the parties and supersedes all prior negotiations,
representations and agreements between the parties with respect to the subject
matter hereof.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement as of the Effective Date.
QUALCOMM INCORPORATED
By: /s/ RICHARD P. SULPIZIO
--------------------------------
Richard P. Sulpizio
Chief Operating Officer
CORAL SYSTEMS, INC.
By: /s/ ERIC A JOHNSON
--------------------------------
Eric A. Johnson
President and CEO
8
<PAGE> 9
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
SOFTWARE DOCUMENTATION
<TABLE>
<S> <C>
CS93-HLR001 [ * ]
CS93-HLR002 [ * ]
CS93-HLR003 [ * ]
CS93-HLR004 [ * ]
CS93-HLR005 [ * ]
CS93-HLR006 [ * ]
CS93-HLR007 [ * ]
CS93-HLR008 [ * ]
CS93-HLR009 [ * ]
CS93-HLR010 [ * ]
CS93-HLR011 [ * ]
CS93-HLR012 [ * ]
CS93-HLR013 [ * ]
CS93-HLR014 [ * ]
CS93-HLR015 [ * ]
CS93-HLR016 [ * ]
CS93-HLR017 [ * ]
CS93-HLR018 [ * ]
CS93-HLR019 [ * ]
CS93-HLR020 [ * ]
CS93-HLR021 [ * ]
CS93-HLR022 [ * ]
CS93-HLR023 [ * ]
CS93-HLR024 [ * ]
CS93-HLR025 [ * ]
CS93-HLR026 [ * ]
CS93-HLR031 [ * ]
CS93-HLR032 [ * ]
CS93-HLR033 [ * ]
</TABLE>
9
<PAGE> 1
EXHIBIT 10.16
CERTAIN CONFIDENTIAL
TREATMENT CONTAINED IN
THIS DOCUMENT, MARKED BY
BRACKETS AND DENOTED BY AN
ASTERISK, HAS BEEN OMITTED
AND FILED SEPARATELY WITH
THE SECURITIES AND
EXCHANGE COMMISSION
PURSUANT TO 17 C.F.R.
SECTIONS 200.80(b)(4),
200.83 AND SECTION
230.406.
SOFTWARE LICENSE AGREEMENT
This Software License Agreement (the "Agreement") is entered into this
19th day of January, 1996 (the "Effective Date"), by and between DSC
Technologies Corporation, a Delaware corporation, with its principal place of
business at 1000 Coit Road, Plano, Texas 75075, and Coral Systems, Inc., a
Colorado corporation, with its principal place of business at 1500 Kansas
Avenue, Longmont, Colorado 80501 ("Coral"), with regard to the following facts:
RECITALS
WHEREAS, DSC has developed and is in the process of developing certain
applications for use in wireless telecommunications;
WHEREAS, Coral has developed certain software known as Home Location
Register software (the "HLR Software") and a Visitor Location Register
Simulator (the "VLR Software") which provides and simulates certain seamless
roaming capabilities for wireless telecommunications applications;
WHEREAS, in accordance with the terms of this Agreement, DSC desires
to obtain the rights to use and sublicense the source code of the HLR Software
and the VLR Software for further development and sublicensing to its end user
customers;
WHEREAS, Coral agrees to grant DSC such rights to such software and
associated documentation in accordance with the terms of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, DSC and Coral agree as follows:
1. DEFINITIONS.
The following capitalized terms shall have the meanings ascribed to
them below:
"Affiliate" means an entity controlled either directly or indirectly
by a party.
"Software" means the source code of the VLR Software and the HLR
Software applications owned and developed by Coral, in their present state
which are designed to (i) simulate certain industry standard network messages,
and (ii) provide seamless roaming capabilities in certain wireless
telecommunications systems in substantial compliance with Revision B of the
Standard, respectively. A listing of the files comprising the Software is
attached hereto as Exhibit A. The Software shall not include any third party
software, middleware, firmware or hardware applications, a listing of which
are attached hereto as Exhibit B.
<PAGE> 2
CONFIDENTIAL TREATMENT REQUESTED
"Software Documentation" means the documentation created by Coral for
the Software, as listed in Exhibit C attached hereto.
"Standard" means the Telecommunications Industry Association TR45.2
Committee's specifications entitled "Cellular Radio Telecommunications
Intersystems Operations."
2. GRANT OF LICENSE; DELIVERY
2.1 License to Software. Subject to the terms of this Agreement,
Coral hereby grants to DSC a non-exclusive, non-transferable,
non-sublicenseable, fully paid, royalty-free, perpetual and irrevocable
license to use, reproduce and sublicense the Software for its further
development and sublicensing the same to its end user customers. In the event
DSC licenses the source code of the Software in connection with a source code
license of any DSC software, DSC shall provide for reasonable restrictions on
the use of such source code to prevent the transfer or sublicensing of the same.
2.2 License for Documentation. Subject to the terms of this
Agreement, Coral hereby grants to DSC the non-exclusive, non-sublicenseable,
non-transferable, fully paid, perpetual and irrevocable license to copy, use,
adapt, translate, enhance and modify the Software Documentation and the
information contained therein, to create derivative works based thereon and to
distribute any such derivative works to any parties, which derivative works may
be substantially similar to the Software Documentation.
2.3 Delivery. Coral shall deliver to DSC a complete copy of the
Software and the Software Documentation on or before January 19, 1996.
3. FEES.
3.1 Software Fees. In consideration for the licenses granted to
DSC and the delivery of the Software and Software Documentation, DSC shall pay
to Coral the sum of [ * ] within
fifteen (15) days after DSC receives an electronic copy of the Software
containing all of the files in Exhibit A and an electronic copy of the Software
Documentation. In the event Coral possess any files relating to the Software
which are not included in Exhibit "A" Coral shall make reasonable efforts to
promptly deliver such files to DSC.
3.2 Consulting Fees. Coral shall provide consulting services to
DSC to support the Software as reasonably requested by DSC (the "Services") in
accordance with this Section 3.2. The Services shall be billed in accordance
with the rates provided in Exhibit D attached hereto for the calendar year of
1996. Coral shall use reasonable efforts to provide the Services to DSC to the
extent its resources are reasonably available. In the event DSC desires to
continue the Services beyond 1996, the parties shall negotiate a mutually
acceptable agreement to continue the Services prior to January 1, 1997. The
Services shall be made available to DSC during the hours of 9:00 am to 5:00 pm,
Monday through Friday, excluding Coral holidays. Services provided at times
other than the foregoing shall be subject to additional charge. Provided Coral
uses
2
<PAGE> 3
reasonable care in providing the Services, it shall have no liability for the
Services or DSC's reliance or use of the Services.
4. WARRANTIES.
4.1 Ownership. Coral represents and warrants to DSC that Coral
owns the Software and the Software Documentation and that it has the full right
and ability to grant the licenses granted in this Agreement. Further, Coral
represents and warrants to DSC that the Software and Software Documentation is
Coral's original work and has not been copied or derived from any work of any
third party.
4.2 No Infringement. Coral represents and warrants to DSC that
the Software and Software Documentation does not infringe any United States
patent, copyright, trade secret, or other intellectual property right of any
third party. Further, Coral represents and warrants to DSC that no claim or
action relating to the infringement of any United States patent, copyright,
trademark, or other intellectual property right has been made or is pending or,
to the best of Coral's knowledge, threatened against Coral with respect to the
Software or the Software Documentation.
4.3 Limitation of Warranties. Other than the warranties provided
in Sections 4.1 and 4.2, THE SOFTWARE AND SOFTWARE DOCUMENTATION IS PROVIDED
"AS IS", "WHERE IS" AND "WITH ALL FAULTS" AND CORAL MAKES NO WARRANTY OF ANY
KIND, WHETHER EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
5. OWNERSHIP.
5.1 Coral. The Software and the Software Documentation and all
patents, copyrights and other intellectual property rights contained or
embodied in any of the foregoing shall be and remain the property of Coral.
Except as expressly provided in this Agreement, nothing herein shall be
construed to transfer or assign to DSC any right, title or interest therein.
5.2 DSC. Notwithstanding any other provision of this Agreement,
any and all DSC Software (except for those portions of the source code of the
Software which are reproduced in substantially their original form in the DSC
Software); any permissible modifications, translations, adaptations and
enhancements of the Software or any DSC software; any and all permissible
derivative works created by DSC even though they may be based on, or
incorporate portions of, the Software and/or the Software Documentation; and
all patents, copyrights and other intellectual property rights contained or
embodied in any of the foregoing shall be and remain the property of DSC.
6. CONFIDENTIALITY.
DSC shall protect the Software and Software Documentation from
unauthorized use or disclosure to any third party with at least the same level
of effort as DSC has in effect with respect
3
<PAGE> 4
to its other proprietary computer programs or information, but in no event
shall DSC exercise less than reasonable care. All tangible materials
containing any Software or Software Documentation, other than DSC software
developed in accordance with Section 2.1 above, shall be marked as
"proprietary" or in any other manner which indicates its proprietary or
confidential nature and shall contain appropriate copyright notices, and DSC
shall not remove, obliterate, or alter such notices. Notwithstanding the
foregoing, DSC agrees that it will place on any DSC software which incorporates
portions of the original code of the Software an appropriate copyright notice
indicating Coral's rights in such Software.
7. INDEMNIFICATION.
7.1 Coral Indemnification. Coral agrees to indemnify, defend and
hold DSC harmless from and against any claims, actions, losses, expenses,
liabilities, damages and costs, including reasonable attorneys' fees, arising
out of or relating to infringement by the Software, the Software Documentation,
or any portion thereof, of any United States patent, copyright, trademark,
trade secret, or other intellectual property rights of any party.
7.2 Indemnification Procedures. In the event that DSC desires to
make a claim for indemnification in accordance with Section 7.1 above, DSC
shall (a) provide written notification of any claim for which indemnity is
sought within thirty (30) days after becoming aware of such claim; (b)
reasonably cooperate in the defense of such claim, with each party bearing its
respective costs of such cooperation; and (c) receive the prior written
approval of Coral of any settlement or offer of settlement made to the party
seeking indemnification, which approval shall not be unreasonably withheld,
and, if approved, Coral shall pay the amount of such settlement up to the
limitation provided below.
7.3 Licensee Remedies. If Coral reasonably believes that DSC's
use of the Software will infringe a United States copyright, trade secret or
other proprietary right, or a temporary or final injunction is obtained against
DSC's use of the Software or any portion thereof due to an infringement of a
United States copyright, trade secret or other proprietary right, DSC will
discontinue such use until such time that Coral, at its option and expense,
either (a) procures for DSC the right to continue using the Software, (b)
replaces or modifies the Software or such infringing portion so that it no
longer infringes, or if either of the foregoing are not reasonably commercially
viable, (c) refunds DSC the funds paid to Coral under this Agreement and
terminates DSC's license.
7.4 Exclusion of Liability. Coral shall have no liability to DSC
for any infringement action or claim that is based upon or arises out of the
use of the Software or any component thereof in combination with any other
system, equipment, software or any modification or enhancement to the Software,
in the event that, but for such use, modification or enhancement, the claim of
infringement would not arise.
4
<PAGE> 5
8. DISCLAIMER OF INDIRECT DAMAGES; LIMITATION OF LIABILITY.
8.1 Disclaimer or Indirect Damages. Neither party shall be liable
to the other party hereto or to any other company or entity for any incidental,
consequential, or any other indirect loss or damage, including without
limitation loss of profits, arising out of this Agreement or any obligation
resulting herefrom or the use of any intellectual property received hereunder,
whether in an action for or arising out of breach of contract, tort, or any
other cause of action.
8.2 Limitation of Liability. IN NO EVENT SHALL CORAL BE LIABLE OR
RESPONSIBLE FOR ANY DAMAGES OR LIABILITIES OF ANY KIND OR NATURE WHATSOEVER
UNDER THIS AGREEMENT IN EXCESS OF THE LICENSE FEES PAID TO CORAL UNDER THIS
AGREEMENT.
9. NOTICES.
Any notice, demand, acknowledgment, or other communication made or
given by either party in accordance with this Agreement shall be in writing,
and sent via facsimile (with confirmation) or by registered or certified mail,
return receipt requested, or by courier service and addressed to the other
party at its address as set forth above (or any other address of which the
other party is notified in accordance with this Section).
10. GENERAL PROVISIONS.
10.1 Governing Law; Venue. This Agreement and all disputes and
related issues shall be interpreted under and governed by the laws of the State
of California.
10.2 Force Majeure. Other than the obligation to pay money
hereunder, neither party shall be liable for the failure to perform any
obligation under this Agreement where such failure is due to fire, flood, labor
dispute, natural calamity, or acts of governments or if such causes are
otherwise beyond the reasonable control of such party.
10.3 Unenforceability. If any provision of this Agreement is
deemed by a court of competent jurisdiction to be unenforceable or contrary to
any applicable law or regulation, such provision shall be considered deleted
and the remainder of this Agreement shall continue in full force and effect.
In the event that the unenforceable provision is an essential element of the
agreement between the parties hereto, the parties shall promptly negotiate a
reasonable replacement provision consistent with such laws or regulations.
10.4 No Assignment. This Agreement is not assignable by either
party without the prior written consent of the other party, except that either
party may assign this agreement in connection with any merger, consolidation or
sale of all or substantially all of the assets of the
5
<PAGE> 6
assigning party hereto. DSC shall be permitted to assign this Agreement in
whole or in part to an Affiliate provided DSC shall remain liable for the
performance of the Affiliate hereunder.
10.5 Attorneys' Fees. In the event litigation is necessary to
interpret or enforce this Agreement, the most prevailing party, as determined
by the court, shall be entitled to recover, along with any award or judgment,
its fees and costs, including reasonable attorneys' fees.
10.6 Independent Contractor Relationship. The relationship between
the parties under this Agreement is that of independent contractors, and
neither party is an employee or agent of the other party. Neither party is
authorized or empowered to act as an agent for the other party, nor to transact
business, incur obligations or bill goods in the other party's name or for the
other party's account. Neither party shall in any way be bound by any acts,
representations, or conduct of the other party to any party.
10.7 Hiring Restrictions. Each party agrees that for the period of
two years from the execution of this Agreement, it shall not directly solicit
any then-current employee, individual as a consultant to, or individual working
as a contractor of the other party that contributes to the Software or Coral's
HLR software. This section shall not apply to or be breached by a party
advertising open positions, participating in job fairs and the like, or using
other forms of soliciting candidates for employment, even if responded to by an
employee, individual working as a consultant to, or individual working as a
contractor of the other provided the same is not directly specifically at a
given employee, individual working as a consultant to, or individual working as
a contractor of the other party.
10.8 Amendment; Non-Waiver. This Agreement may only be amended by
a writing executed by an authorized representative of both parties. The failure
or delay of any party to exercise any right or remedy hereunder shall not
constitute a waiver of such right or remedy, and the express waiver of any
right or remedy shall not constitute a waiver of any other of future right or
remedy.
10.9 Publicity. Neither party shall use the name of the other
party in any news release, public announcement, advertisement, or other form of
publicity with the prior, written consent of such other party.
10.10 Entire Agreement. Except with respect to any confidentiality
agreement between the parties this Agreement, together with all exhibits
attached hereto, which are incorporated herein by this reference, constitutes
the entire agreement between the parties and supersedes all prior negotiations,
representations and agreements between the parties with respect to the subject
hereof.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute this Agreement as of the Effective Date.
DSC TECHNOLOGIES CORPORATION
By: /s/ ALLEN ADAMS
-------------------------------
Allen Adams
Senior Vice President
CORAL SYSTEMS, INC.
By: /s/ ERIC A. JOHNSON
-------------------------------
Eric A. Johnson
President and CEO
7
<PAGE> 8
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
[ *
]
<PAGE> 9
CONFIDENTIAL TREATMENT REQUESTED
[ *
]
<PAGE> 10
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
[ *
]
<PAGE> 11
CONFIDENTIAL TREATMENT REQUESTED
[ *
]
<PAGE> 12
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
[ *
]
<PAGE> 13
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
[ *
]
<PAGE> 14
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
[ *
]
<PAGE> 15
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
[ *
]
<PAGE> 16
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
HARDWARE
[ * ]
[ * ]
SOFTWARE
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
[ * ]
<PAGE> 17
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
SOFTWARE DOCUMENTATION
CS93-HLR001 [ * ]
CS93-HLR002 [ * ]
CS93-HLR003 [ * ]
CS93-HLR004 [ * ]
CS93-HLR005 [ * ]
CS93-HLR006 [ * ]
CS93-HLR007 [ * ]
CS93-HLR008 [ * ]
CS93-HLR009 [ * ]
CS93-HLR010 [ * ]
CS93-HLR011 [ * ]
CS93-HLR012 [ * ]
CS93-HLR013 [ * ]
CS93-HLR014 [ * ]
CS93-HLR015 [ * ]
CS93-HLR016 [ * ]
CS93-HLR017 [ * ]
CS93-HLR018 [ * ]
CS93-HLR019 [ * ]
CS93-HLR020 [ * ]
CS93-HLR021 [ * ]
CS93-HLR022 [ * ]
CS93-HLR023 [ * ]
CS93-HLR024 [ * ]
CS93-HLR025 [ * ]
CS93-HLR026 [ * ]
CS93-HLR031 [ * ]
CS93-HLR032 [ * ]
8
<PAGE> 18
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D
All consulting services provided by Coral under the Agreement for the
calendar year 1996 shall be billed at the rate of [ * ] per person week or
portion thereof. Consulting fees shall be rounded upwards to the nearest
one-half day. DSC shall be responsible for reasonable travel and per diem
expenses associated with on site support and all other out of pocket costs and
expenses incurred by Coral in the providing of consulting services.
9
<PAGE> 1
EXHIBIT 10.17
CERTAIN CONFIDENTIAL
TREATMENT CONTAINED IN
THIS DOCUMENT, MARKED BY
BRACKETS AND DENOTED BY AN
ASTERISK, HAS BEEN OMITTED
AND FILED SEPARATELY WITH
THE SECURITIES AND
EXCHANGE COMMISSION
PURSUANT TO 17 C.F.R.
SECTIONS 200.80(b)(4),
200.83 AND SECTION
230.406.
JOINT DEVELOPMENT AND LICENSING AGREEMENT
This Agreement is entered into this 30th day of September, 1994 by
and between AirTouch Communications, Inc. (formerly known as PacTel
Corporation), a California corporation ("AirTouch") and Coral Systems, Inc., a
Colorado corporation ("Coral").
SECTION ONE
BACKGROUND
AirTouch is a provider of, among other things, cellular
telecommunications services in portions of the United States and owns various
equity interests in other providers of wireless telecommunications services
throughout the world. AirTouch is the owner of two software applications
relating to the detection of certain forms of fraud committed against providers
of wireless telecommunications services. Similarly, Coral Systems owns and has
developed computer software designed to detect certain forms of fraud
perpetrated against providers of wireless telecommunications services. The
parties desire to provide source code licenses to one another for their
respective fraud detection softwares and provide a mechanism for the joint
development of enhancements to these applications.
SECTION TWO
DEFINITIONS
2.1 AirTouch Applications. The two software applications owned by
AirTouch one of which is designed to detect certain forms of fraud perpetrated
against providers of wireless telecommunications services entitled the AirTouch
Fraud Profiler(TM) and the other interfaces Unix based applications to the
wireless fraud detection devise entitled PhonePrint(TM).
2.2 AirTouch Documentation. The documentation utilized in
conjunction with the AirTouch Applications.
2.3 AirTouch Enhancements. Enhancements to the Coral Applications
suggested and/or designed and paid for solely by AirTouch which are developed
in accordance with the provisions of Section 6 below.
<PAGE> 2
2.4 AirTouch Functional Specifications. The specifications of the
AirTouch Applications set forth in Exhibit "A" attached hereto and any future
version thereof provided by AirTouch to Coral.
2.5 AirTouch Markets. The following properties, markets and/or
companies which provide cellular telecommunications services to the general
public which are owned exclusively by AirTouch or in which AirTouch owns an
equity interest: San Diego, Los Angeles and Sacramento, California; Atlanta,
Georgia; the San Francisco Bay Area as owned by Bay Area Cellular Telephone
Company; and the current Michigan and Ohio markets.
2.6 Coral Applications. The software applications owned and/or
developed by Coral entitled FraudBuster(TM) version 2.0 which is designed to
detect certain forms of potentially fraudulent usage of a cellular
telecommunications system and, when developed, the PhonePrint Interface, as
defined below.
2.7 Coral Documentation. The documentation utilized in
conjunction with the Coral Applications which includes system and users guides.
2.8 Coral Enhancements. Changes or additions to the Coral
Applications that add functionality or substantially improve the performance of
the Coral Applications and which are not AirTouch or Joint Enhancements.
2.9 Coral Functional Specifications. The specifications of the
Coral Applications set forth in Exhibit "B" attached hereto and any future
versions thereof provided by Coral to AirTouch.
2.10 Error. A statement or condition in the Coral Applications or
the AirTouch Applications that is not in material conformity with the relevant
Functional Specifications.
2.11 Error Correction. A change to the AirTouch Applications or
the Coral Applications to conform to the relevant Functional Specifications in
all material respects.
2.12 Joint Enhancements. Enhancements to either the Coral
Applications or the AirTouch Applications determined collectively by AirTouch
and Coral for which AirTouch contributes a mutually agreed upon amount of the
development costs, calculated at Coral's then current standard rates, and
subject to the provisions of Section 6 below.
2
<PAGE> 3
2.13 Phone Print Interface. The interface between the FraudBuster
portion of the Coral Applications and the PhonePrint portion of the AirTouch
Applications developed by Coral in accordance with Section 9.4 below which
integrates and facilitates the reasonable and limited interoperability between
these two products.
SECTION THREE
GRANT OF LICENSE TO AIRTOUCH
3.1 Grant of License to AirTouch. Subject to the terms herein,
Coral hereby grants to AirTouch the non-exclusive, non-transferable, fully
paid, perpetual and irrevocable source code license to and for the Coral
Applications subject to the sublicensing restrictions provided in Section 4
below for the limited purpose of (a) use and reproduction of the Coral
Applications in AirTouch Markets (b) development of enhanced or modified
versions of the Coral Applications for use in AirTouch Markets, and (c)
sublicensing object code versions of the Coral Applications only as provided in
Section 4 below. The foregoing license specifically excludes any licenses to
the ancillary or third party software utilized by or in conjunction with the
Coral Applications, all of which must be purchased separately from Coral or the
manufacturers or distributors of the same.
3.2 Use of Name. Subject to the terms herein, Coral hereby grants
to AirTouch the non-exclusive and non-transferable right to use the name of
the Coral Applications in connection with any promotional, sales and marketing
materials it produces, provided AirTouch identifies such name as the trademark
of Coral. Additionally, AirTouch shall be permitted to sublicense the Coral
Applications or any derivative thereof under any name it chooses other than the
name of the Coral Applications. AirTouch accepts this license and agrees to
use it in accordance with the provisions of this Agreement.
3.3 Coral Documentation. Coral grants to AirTouch the
non-exclusive, non-transferable, fully paid, royalty free, perpetual and
irrevocable license to and for the Coral Documentation subject to the
sublicensing restrictions provided in Section 4 below to make such copies,
amendments, modifications or other uses which are necessary and appropriate in
connection with the exercise of the rights granted to AirTouch in this Section
3.
3.4 Delivery. Coral shall deliver to AirTouch complete electronic
copies of the Coral Applications and the Coral Documentation within 30 days of
the execution of this Agreement.
3
<PAGE> 4
CONFIDENTIAL TREATMENT REQUESTED
3.5 Ownership. The Coral Applications, the Coral Documentation
and all patents, copyrights and other intellectual property rights contained or
embodied in any of the forgoing shall be and remain the property of Coral
subject to the licenses granted to AirTouch herein.
3.6 Reservation of Rights. All rights not specifically granted to
AirTouch by this Agreement are reserved by Coral. Except as specifically
provided hereunder, Coral grants to AirTouch no rights to any intellectual
property in or to the Coral Applications or the Coral Documentation.
SECTION FOUR
SUBLICENSES GRANTED BY AIRTOUCH
4.1 Coral Applications Sublicense. AirTouch shall be permitted to
sublicense the Coral Applications or any derivative thereof or other
application incorporating any of the Coral Applications and the Coral
Documentation only to those entities providing cellular telecommunication
services in which AirTouch directly owns a 10% or greater equity interest. For
purposes of the section, AirTouch shall be deemed to have the requisite equity
interest in US WEST New Vector Group, regardless of the current phase of the
proposed merger.
4.2 Sublicense Limitations. Absent written authorization to the
contrary, AirTouch shall not be permitted to grant any sublicense of the Coral
Applications, or any part thereof, to be used in the providing of service
bureau work or remote computing services for or on behalf of any cellular
service provider other than AirTouch for AirTouch Markets.
4.3 Sublicense Royalty. In providing the sublicenses authorized
in this Section 4, AirTouch shall be permitted to determine the price and terms
under which the sublicense shall be granted. In connection with each
sublicense granted by AirTouch, AirTouch shall provide Coral with [*] of the
list price for the Coral Applications, as such may vary from time to time, as a
royalty for the sublicense rights provided to AirTouch in this Agreement. By
December 1st of each year, Coral shall provide AirTouch with the domestic and
international list prices for the Coral Applications for the next calendar
year. In the event Coral fails to provide the amended list prices, the list
prices from the previous year shall be applied. AirTouch shall provide the
requisite compensation provided in this Section 4.3 within 30 days of receipt
of payment from AirTouch's sublicensee.
4.4 Sublicense Acknowledgment. AirTouch shall submit to Coral an
acknowledgment for each license or sublicense installation, sale or other
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<PAGE> 5
deployment involving the Coral Applications, or any portion or derivative
thereof, with appropriate detail of the market, carrier, AirTouch equity
interest, size and license or sublicense terms prior to installation or
deployment of the same.
4.5 Audit. AirTouch shall keep accurate and complete records of
all copies made and sublicenses granted of the Coral Applications. Coral shall
be permitted, at its cost, to conduct a quarterly audit of those books and
records of AirTouch relating to Coral Application sublicenses to determine the
accuracy of the payments to Coral. In the event the audit reveals a 10% or
greater discrepancy in the amount that should have been paid to Coral, AirTouch
shall reimburse Coral the costs and expenses associated with such audit in
addition to paying all sums owing.
SECTION FIVE
GRANT OF LICENSE TO CORAL
5.1 Grant of AirTouch Applications License to Coral. Subject to
the terms herein, AirTouch hereby grants to Coral the non-exclusive,
non-transferable, fully paid, royalty free, perpetual and irrevocable source
code license to and for the AirTouch Applications to use, reproduce, and/or
modify the Air Touch Applications to develop enhanced or modified versions of
the Coral Applications for use by Coral in sublicensing object code versions to
third parties.
5.2 Use of Name. Subject to the terms herein, AirTouch hereby
grants to Coral the non-exclusive and non-transferable right to use the names
of the AirTouch Applications in connection with any promotional, sales and
marketing materials it produces, provided Coral identifies such name as the
trademark of AirTouch. Additionally, Coral shall be permitted to license and
sublicense the Coral Applications as modified by the incorporation of the
AirTouch Applications under any name it chooses. Coral accepts this license
and agrees to use it in accordance with the provisions of this Agreement.
5.3 AirTouch Documentation. AirTouch grants to Coral the
non-exclusive, non-transferable, fully paid, royalty free, perpetual and
irrevocable license to and for the AirTouch Documentation to make such copies,
amendments, modifications or other uses which are necessary and appropriate in
connection with the exercise of the rights granted to Coral in this Section 5.
5.4 Grant of DMX License to Coral. Subject to the terms herein,
AirTouch grants to Coral the non-exclusive, non-transferable, fully paid,
royalty
5
<PAGE> 6
free, perpetual and irrevocable license, in object or source code form as may
be received from time to time by AirTouch, to the Motorola DMX switch interface
format (the "DMX license"). Coral acknowledges that AirTouch is in the process
of attempting to obtain the foregoing license and may be unable to provide the
DMX license.
5.5 Delivery. AirTouch shall deliver to Coral complete electronic
copies of the AirTouch Applications and the AirTouch Documentation within 30
days of the execution of this Agreement.
5.6 Ownership. The AirTouch Applications and the AirTouch
Documentation and all patents, copyrights and other intellectual property right
contained or embodied in any of the foregoing shall be and remain the property
of AirTouch subject to the licenses granted to Coral herein.
5.7 Reservation of Rights. All rights not specifically granted to
Coral by this Agreement are reserved by AirTouch. Except as specifically
provided hereunder, AirTouch grants to Coral no rights to any intellectual
property in or to the AirTouch Applications or AirTouch Documentation.
SECTION SIX
APPLICATION ENHANCEMENTS
6.1 AirTouch Enhancements. In the event AirTouch desires Coral to
undertake the development of any AirTouch Enhancements it shall provide a
detailed description of such enhancement to Coral and provide reasonable
assistance to Coral should further definition be required. Prior to commencing
work on any AirTouch Enhancement, Coral shall submit to AirTouch a detailed
summary of the work necessary, the approximate cost and the approximate time
necessary to complete the AirTouch Enhancement. Coral shall have 45 days to
submit the foregoing proposal from the date AirTouch provides Coral with a
detailed written request for the AirTouch Enhancement. AirTouch shall have 45
days from the submission by Coral of the foregoing proposal to determine if it
desires Coral to undertake the development of the AirTouch Enhancement. In the
event AirTouch accepts the proposal or the parties negotiate a mutually
acceptable alternative, Coral shall undertake and complete the AirTouch
Enhancement. Coral reserves the right not to submit a proposal on any
AirTouch Enhancement. The parties shall act reasonably and in good faith in
their discussions regarding the development of AirTouch Enhancements. Nothing
in this Section or this Agreement shall prevent AirTouch from developing any
AirTouch Enhancement without the aid of Coral.
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CONFIDENTIAL TREATMENT REQUESTED
6.2 Joint Enhancements. Coral and AirTouch shall work together to
develop the enhancements to the Coral Applications, the AirTouch Applications
or any other application incorporating the code, ideas or concepts of any of
the above. In the event the parties identify a Joint Enhancement, they shall
collectively determine the detailed requirements for the same and Coral shall
subsequently provide AirTouch with an estimate of the time and cost necessary
for the development of the same. AirTouch shall have the option of paying
Coral for a mutually agreed upon amount of the actual development time
necessary to complete the Joint Enhancement calculated at Coral's then current
development rates. All Joint Enhancements shall be the joint property of
AirTouch and Coral. In the event AirTouch elects not to participate in the
development of the Joint Enhancement, Coral shall be permitted to develop the
same at its cost as a Coral Enhancement and AirTouch shall be provided the
opportunity to license the same under terms to be mutually agreed upon.
6.3 Title to AirTouch and Joint Enhancements. Title to all Joint
Enhancements developed by Coral shall be jointly held by AirTouch and Coral.
Coral shall turnover to AirTouch an electronic copy of the source code for the
AirTouch and Joint Enhancements upon completion of the project and provide
reasonable assistance to AirTouch in the use and incorporation of the AirTouch
or Joint Enhancement into the AirTouch network. Coral shall be permitted,
without royalty or other obligation, to incorporate any Joint Enhancement
developed by Coral into the Coral Applications [ * ] after the completion
of the Joint Enhancement. Nothing in this section or this Agreement shall
prevent or interfere with the ability of AirTouch or, after expiration of the
appropriate period above, Coral, to license any Joint Enhancement to any entity
either chooses. AirTouch shall be the exclusive owner of the AirTouch
Enhancements with the sole discretion to license Coral certain of the AirTouch
Enhancements under the terms hereof.
6.4 Enhancement Payments. All AirTouch or Joint Enhancements
developed by Coral shall be billed at Coral's then current standard rates which
is currently [ * ] per person week. Coral shall invoice AirTouch monthly for
work associated with any AirTouch or Joint Enhancements. AirTouch shall pay
all invoices within 60 days of receipt. AirTouch's liability for Coral
developed AirTouch or Joint Enhancements shall be for the actual person weeks,
or pro rata portion thereof, incurred by Coral multiplied by the appropriate
percentage contribution (as negotiated by the parties on a case by case basis)
plus all necessary and reasonable ancillary expenses, including travel and
accommodations.
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<PAGE> 8
CONFIDENTIAL TREATMENT REQUESTED
6.5 Coral Enhancements. Coral shall be permitted to develop any
feature, function or application similar or identical to any AirTouch or Joint
Enhancement at anytime, provided Coral develops the same independently of such
enhancement. All enhancements which are not AirTouch Enhancements or Joint
Enhancements shall be the sole property of Coral, subject, however, to
AirTouch's right to receive the same under Section 8.5 below. AirTouch
acknowledges that throughout the term of this Agreement, Coral shall be
developing and deploying Coral Enhancements to the Coral Applications.
SECTION SEVEN
PAYMENTS TO CORAL
7.1 License Payment. AirTouch shall pay to Coral [ *
] upon the turnover to AirTouch of any
electronic copy of (1) the source code for the FraudBuster portion of the Coral
Applications and (2) the Coral Documentation.
7.2 Maintenance Fees. Coral shall provide the maintenance and
support provided in Section 8 below in AirTouch Markets free of charge for the
first year following execution of this Agreement. Beginning on the second
anniversary of this Agreement, AirTouch shall pay Coral a minimum of [ * ]
per year for such maintenance and support for AirTouch Markets. AirTouch or
the appropriate sublicensee shall have the option of purchasing the support and
maintenance provided in Section 8 below for the authorized sublicensee, within
30 days of the earlier of the execution of a sublicense agreement for or the
installation of any portion of the Coral Applications, at the rate of [*] per
annum of the sublicense price, provided such price is determined in a good
faith, arm's length and market reflective transaction. Coral may adjust the
annual fee charged for support and maintenance annually by providing written
notice to AirTouch or the sublicensee at least 90 days prior to the anniversary
date of maintenance and support services. Notwithstanding the foregoing, Coral
may not raise the annual fee charged for support and maintenance by more than
[*] per year with a cap of [*] over the life of the Agreement. Once commenced,
maintenance and support shall automatically renew each year at the previous
year's fee, or if proper notice is given, at the amended fee, unless AirTouch
or the sublicensee provides Coral with 60 days prior written notice of its
election to terminate the same.
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SECTION EIGHT
CORAL'S SUPPORT OBLIGATIONS
8.1 Application Installation. Coral shall install the Coral
Applications in AirTouch Markets under a schedule to be determined by the
mutual agreement of the parties. AirTouch shall reimburse Coral for its actual
costs of installation, including travel, accommodations and actual personnel
costs, at no uplift. Coral shall provide the Coral Applications and AirTouch
shall provide all hardware, ancillary software, network connectivity and all
such other interfaces and items as may be necessary for the installations.
8.2 Support & Maintenance. Coral shall have primary responsibility
for the support and maintenance of the Coral Applications. The foregoing
support and maintenance shall be provided by telephone weekdays between 9:00
a.m. to 5:00 p.m. Mountain Time, excluding Coral holidays. Coral support
personnel may be reached during the foregoing hours at (303) 772-5800 or at
anytime via voice mail at the foregoing number plus the appropriate extension
or via electronic mail at [email protected] or at any other numbers or
addresses as may be provided to AirTouch from time to time. Reasonable efforts
will be made to return messages at the commencement of the next service day and
calls received during normal service hours will be attempted to be worked to
completion the same day.
8.3 Technical Training. Coral shall provide, at its own expense,
two one day seminars in Longmont, Colorado to provide technical training on the
operation and support of the Coral Applications. The dates and times of the
foregoing shall be at the mutual agreement of the parties. Additionally, Coral
shall provide, at its own expense, a one day technical training seminar in
Longmont, Colorado for all AirTouch Enhancements and Joint Enhancements and
Coral Enhancements which are purchased by AirTouch.
8.4 Error Correction. In the event an Error is discovered in the
Coral Applications, AirTouch shall immediately report the same to Coral in
writing of sufficient detail to diagnose the Error. Coral shall use its
reasonable best efforts to remedy all Errors in a time frame commensurate with
the severity of the Error. All such corrections shall be the sole
responsibility of Coral to remedy unless the cause of such Error is due to
incorrect or improper information, assistance, action or inaction provided by
AirTouch, in which case Coral shall use its best efforts to undertake the
correction and AirTouch shall be responsible for the cost of the same at
Coral's standard rates.
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<PAGE> 10
8.5 Upgrades. Coral shall provide to AirTouch, without charge,
all Coral Enhancements as are made generally available. Coral shall provide
source code and object code versions of all Coral Enhancements to AirTouch for
installation in AirTouch Markets and shall provide object code versions of the
same to authorized sublicensees. All Coral Enhancements to any entity or in
any form are not permitted to be licensed, sublicensed, transferred or
otherwise used by any entity not authorized to receive the same under this
Agreement.
SECTION NINE
ADDITIONAL OBLIGATIONS OF CORAL
9.1 Application Protection. Coral shall protect the AirTouch
Applications from unauthorized use, copying, modification, or distribution with
at least the same level of effort and security as it has in effect with respect
to its own proprietary computer programs. All copies of the AirTouch
Applications, the AirTouch Documentation and all derivative works thereof shall
be marked with Coral's or AirTouch's copyright and proprietary notice as
appropriate.
9.2 Reverse Engineering. Coral shall take reasonable steps to
ensure all sublicensees do not reverse assemble, reverse compile or reverse
engineer the AirTouch Applications. Coral shall obtain agreements from all
sublicensees who are given access to the AirTouch Applications or any
supporting documentation, that prohibit the unauthorized copying (except one
archival copy), modification, distribution, reverse engineering, reverse
assembly and reverse compiling of the AirTouch Applications. Coral shall use
all reasonable efforts to enforce the foregoing. Where the AirTouch
Applications are sublicensed for use in the European Community, Coral and
AirTouch shall comply with legislation implementing Article 6.1 (b) of the EC
Directive for the Legal Protection of Software (Directive 91/250) by way of
providing information on interoperability of the AirTouch Applications upon
request of Coral.
9.3 Use of Name. Coral shall obtain the written consent of
AirTouch prior to the use of the AirTouch name or the name of the AirTouch
Applications in any sales, marketing or promotional materials.
9.4 Interface. Coral shall use reasonable efforts to develop the
PhonePrint Interface in a timely fashion after delivery of the AirTouch
Applications to Coral. AirTouch shall provide information, assistance and
personnel as may be reasonably requested by Coral in furtherance of the
development of the PhonePrint Interface. Upon completion of such development,
Coral shall deliver to AirTouch electronic copies of the source code and any
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<PAGE> 11
documentation that Coral may have developed to and for the PhonePrint
Interface. The PhonePrint Interface shall be subject to the licensing and
sublicensing provisions of this Agreement by inclusion in the definition of the
Coral Applications.
9.5 Beta Functionality. Coral grants to AirTouch the right of
first refusal to test new applicable Coral Enhancements as such are ready for
beta installation. Coral shall provide AirTouch with a minimum of 45 days
prior written notice of the estimated date an applicable Coral Enhancement
shall be available for beta installation and testing. AirTouch shall have 15
days within which to notify Coral of its desire to test the same in a beta
installation in a mutually agreed upon AirTouch market. Upon receipt of the
foregoing notice from AirTouch, the parties shall work together to install and
test the beta version of the Coral Enhancement.
SECTION TEN
OBLIGATIONS OF AIRTOUCH
10.1 Application Protection. AirTouch shall protect the Coral
Applications and Coral Enhancements from unauthorized use, copying,
modification, or distribution with at least the same level of effort and
security as it has in effect with respect to its own proprietary computer
programs. All copies of the Coral Applications, the Coral Documentation, all
Coral Enhancements received or purchased by AirTouch, the documentation
produced by AirTouch and all derivative works thereof shall be marked with
Coral's or AirTouch's copyright and proprietary notice as appropriate.
10.2 Reverse Engineering. AirTouch shall take reasonable steps to
ensure all sublicensees do not reverse assemble, reverse compile or reverse
engineer the Coral Applications or any Coral Enhancements. AirTouch shall
obtain agreements from all employees, sublicensees who are given access to the
Coral Applications, or any supporting documentation, that prohibit the
unauthorized copying (except one archival copy), modification, distribution,
reverse engineering, reverse assembly and reverse compiling of the Coral
Applications or Coral Enhancement. AirTouch shall use all reasonable efforts
to enforce the foregoing. Where the Coral Applications is sublicensed for use
in the European Community, Coral and AirTouch shall comply with legislation
implementing Article 6.1 (b) of the EC Directive for the Legal Protection of
Software (Directive 91/250) by way of providing information on interoperability
of the Applications upon request of AirTouch.
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10.3 Use of Name. AirTouch shall obtain the written consent of
Coral prior to the use of the Coral name or the name of the Coral Applications
in any sales, marketing or promotional materials.
10.4 Error Correction. In the event an Error is discovered in the
AirTouch Applications, Coral shall immediately report the same to AirTouch in
writing of sufficient detail to diagnose the Error. AirTouch shall use its
reasonable best efforts to remedy all Errors in a time frame commensurate with
the severity of the Error. All such corrections shall be the sole
responsibility of AirTouch to remedy unless the cause of such Error is due to
incorrect or improper information, assistance, action or inaction provided by
Coral, in which case AirTouch shall use its best efforts to undertake the
correction and Coral shall be responsible for the cost of the same at
AirTouch's standard rates.
SECTION ELEVEN
PUBLICITY
11.1 Press Releases. Upon the execution of this Agreement, the
parties shall issue a joint press release announcing the execution of this
Agreement with appropriate supporting details. The text of the press release
shall be determined by the mutual agreement of the parties and may not be
released to the public until both parties have provided their written consent.
From time to time in the future, the parties may elect to issue additional
press releases announcing enhancements or successes of the Coral Applications
in detecting, preventing and/or the apprehension or arrest of fraudulent users
of the cellular telecommunications services provided by AirTouch. Such press
releases are subject to the prior written consent of both parties prior to
release to the public.
11.2 Reference Account. AirTouch shall act as a reference account
for Coral for the Coral Applications. Such activities shall include, without
limitation, the granting of permission to Coral to bring its potential
customers into markets utilizing the Coral Applications or portions thereof and
providing the endorsement set forth in Section 11.3 below. Such visits shall
be limited to a reasonable number per year and shall be conducted only upon
consultation with and the consent of AirTouch, which consent may not be
unreasonably withheld.
11.3 Endorsement. AirTouch shall provide the public endorsement
of the Coral Applications as is reasonably appropriate. Occasions in which the
endorsement shall be given shall include, without limitation, interviews, press
releases, reference sites visits, telephone inquiries by potential Coral
customers
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<PAGE> 13
and such other events and occasions in which it is reasonable to provide the
endorsement.
11.4 Trade Shows; Public Forums. The parties shall provide
reasonable support to one another in connection with respective efforts at
industry trade shows, speaking engagements and other public forums relating to
fraud detection in the wireless telecommunications industry. The foregoing
support shall include, without limitation, providing reasonable access to and
presence in booths and displays at relevant trade shows (including CTIA).
SECTION TWELVE
CORAL WARRANTIES
12.1 Ownership. Coral represents and warrants to AirTouch that it
owns the FraudBuster portion of the Coral Applications, with the exception of
all third party software applications and operating systems which are a part of
the same, and that it has the right and ability to grant the licenses granted
herein.
12.2 No Infringement. Coral represents and warrants that no claim
or action relating to the infringement of any copyright, trademark, or other
intellectual property right has been made or is pending against Coral with
respect to the Coral Applications (excluding the PhonePrint Interface) or the
Coral Documentation.
12.3 Compliance With Functional Specifications. Coral represents
and warrants that the Coral Applications (excluding the PhonePrint Interface)
shall comply in all material respects with the Coral Functional Specifications
and shall function on the computer equipment and with the operating systems
identified in the Coral Functional Specifications as such may be modified from
time to time.
12.4 Limitation of Warranties. Other than the warranties provided
in Sections 12.1, 12.2 and 12.3 above, CORAL MAKES NO OTHER WARRANTY OF ANY
KIND, WHETHER EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. AirTouch has been
provided the opportunity to evaluate the Coral Applications (excluding the
PhonePrint Interface) and is responsible for determining the suitability of
this application.
12.5 Limitation of Remedies. AirTouch's sole remedy against Coral
for breach of any warranty under this Agreement shall be to request Error
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Corrections and, if such Error Corrections are not effected so as to correct
the Error, to terminate this Agreement.
12.6 Limitation of Liability. IN NO EVENT SHALL AIRTOUCH BE
ENTITLED TO AND CORAL SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST
PROFITS) OR DAMAGES EXCEEDING THE AMOUNTS PAID IN CONNECTION WITH THE LICENSING
OF THE CORAL APPLICATION UNDER THIS AGREEMENT.
SECTION THIRTEEN
AIRTOUCH WARRANTIES
13.1 Ownership. AirTouch represents and warrants to Coral that it
owns the AirTouch Applications, with the exception of all third party software
applications and operating systems which are a part of the AirTouch
Applications, and that it has the right and ability to grant the licenses
granted herein.
13.2 No Infringement. AirTouch represents and warrants that no
claim or action relating to the infringement of any copyright, trademark, or
other intellectual property right has been made or is pending against AirTouch
with respect to the AirTouch Applications or the AirTouch Documentation.
13.3 Compliance With Functional Specifications. AirTouch
represents and warrants that the AirTouch Applications shall comply in all
material respects with the AirTouch Functional Specifications and shall
function on the computer equipment and with the operating systems identified in
the AirTouch Functional Specifications as such may be modified from time to
time.
13.4 Limitation of Warranties. Other than the warranties provided
in Sections 13.1, 13.2 and 13.3 above, AIRTOUCH MAKES NO OTHER WARRANTY OF ANY
KIND, WHETHER EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Coral has been provided
the opportunity to evaluate the AirTouch Applications and is responsible for
determining the suitability of the AirTouch Applications.
13.5 Limitation of Remedies. Coral's sole remedy against AirTouch
for breach of any warranty under this Agreement shall be to request Error
Corrections and, if such Error Corrections are not effected so as to correct
the Error, to terminate this Agreement.
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13.6 Limitation of Liability. IN NO EVENT SHALL CORAL BE ENTITLED
TO AND AIRTOUCH SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS) OR DAMAGES
EXCEEDING THE AMOUNTS PAID IN CONNECTION WITH THE LICENSING OF THE AIRTOUCH
APPLICATION UNDER THIS AGREEMENT.
SECTION FOURTEEN
TERM AND TERMINATION
14.1 Term. The initial term of this Agreement shall commence upon
the effective date above and shall continue for a period of five (5) years,
unless sooner terminated as provided below. This Agreement shall automatically
renew for additional terms of one (1) year each, unless and until either party
elects to terminate this Agreement upon the expiration of the then current term
by giving the other at least ninety (60) days prior written notice.
14.2 Termination. Either party may, by written notice, terminate
this Agreement with immediate effect if the other party has committed a
substantial breach of this Agreement, and has not rectified the same within a
time which shall be reasonable, taking into account previous technical and
other relevant conditions after receipt of a written request specifying the
breach from the other party. Additionally, either party may terminate this
Agreement by providing written notice to the other in the event the Technical
Review may not be successfully completed.
14.3 Support and Maintenance. Upon termination of this Agreement,
all obligations of Coral to provide support and maintenance, including
obligations under Section 8, shall cease.
14.4 No Impact On Granted Licenses. Termination of this Agreement
shall have no effect on sublicenses granted under this Agreement, including the
sublicenses granted by AirTouch, or the continued payments to Coral associated
with such sublicenses.
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SECTION FIFTEEN
CORAL INDEMNIFICATION
15.1 Coral Intellectual Property Indemnification. Coral agrees to
indemnify and hold AirTouch harmless from and against any claims and expenses,
including reasonable attorneys' fees, that the Coral Applications (excluding
the PhonePrint Interface) or the Coral Documentation infringes a copyright,
trademark, trade secret, or other intellectual property right of any other
party. The foregoing indemnification does not apply to any ancillary or third
party software which is not developed by Coral but is purchased by Coral or
AirTouch and incorporated into the Coral Applications.
15.2 Limitation of Indemnification. Notwithstanding the
foregoing, Coral shall have no obligation of indemnity with respect to claims
based on AirTouch Enhancements or the combination of the Coral Applications
with data, modifications or alterations made by AirTouch, or with equipment or
operating systems other than those identified in the Coral Functional
Specifications. Additionally, any indemnity liability of Coral under this
Section 15 shall be limited to, at Coral's option, the obtaining of the
necessary licenses and rights to use all necessary patents, copyrights and
other intellectual property rights in the Coral Applications, the modification
of the Coral Applications to provide for the avoidance of such infringement or
the return of the payments made to Coral in connection with the sale of the
Coral Applications. Coral shall have no liability whatsoever in addition to
the foregoing.
15.3 Coral Indemnification. Coral agrees to indemnify and hold
AirTouch harmless from and against any claims and expenses, including
reasonable attorneys' fees, based on or arising out of any statements, actions
or inactions made by Coral personnel. Further, Coral shall indemnify and hold
AirTouch harmless from and against any claims and expenses, including
reasonable attorneys' fees, that a Coral Enhancement infringes a copyright,
trademark, trade secret or other intellectual property right of any other
party.
15.4 Indemnification Procedures. In the event AirTouch desires to
make a claim under the foregoing indemnification provisions AirTouch must (a)
provide written notification of any claim for which indemnity is sought within
thirty (30) days of becoming aware of such claim; (b) cooperate in the defense
of any such claim, with each party bearing its respective costs of such
cooperation; and (c) receive the prior written approval from the party from
whom the indemnity is sought of any settlement or offer of settlement, which
approval shall not be unreasonably withheld.
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SECTION SIXTEEN
AIRTOUCH INDEMNIFICATION
16.1 AirTouch Intellectual Property Indemnification. AirTouch
agrees to indemnify and hold Coral harmless from and against any claims and
expenses, including reasonable attorneys' fees, that the AirTouch Applications
or the AirTouch Documentation infringes a copyright, trademark, trade secret,
or other intellectual property right of any other party. Notwithstanding the
foregoing, the foregoing indemnification does not apply to any ancillary or
third party software which is not developed by AirTouch but is purchased by
Coral or AirTouch and incorporated into the AirTouch Applications.
16.2 Limitation of Indemnification. Notwithstanding the
foregoing, AirTouch shall have no obligation of indemnity with respect to
claims based on Coral Enhancements or the combination of the AirTouch
Applications with data, modifications or alterations made by Coral, or with
equipment or operating systems other than those identified in the AirTouch
Functional Specifications. Additionally, any indemnity liability of AirTouch
under this Section 16 shall be limited to, at AirTouch's option, the obtaining
of the necessary licenses and rights to use all necessary patents, copyrights
and other intellectual property rights in the AirTouch Applications, the
modification of the AirTouch Applications to provide for the avoidance of such
infringement or the return of the payments made to AirTouch in connection with
the sale of the AirTouch Applications. AirTouch shall have no liability
whatsoever in addition to the foregoing.
16.3 AirTouch Indemnification. AirTouch agrees to indemnify and
hold Coral harmless from and against any claims and expenses, including
reasonable attorneys' fees, based on or arising out of any statements, actions
or inactions made by AirTouch personnel. Further, AirTouch shall indemnify and
hold Coral harmless from and against any claims and expenses, including
reasonable attorneys' fees, that an AirTouch Enhancement infringes a copyright,
trademark, trade secret or other intellectual property right of any other
party.
16.4 Indemnification Procedures. In the event Coral desires to
make a claim under the foregoing indemnification provisions Coral must (a)
provide written notification of any claim for which indemnity is sought within
thirty (30) days of becoming aware of such claim; (b) cooperate in the defense
of any such claim, with each party bearing its respective costs of such
cooperation; and (c) receive the prior written approval from the party from
whom the indemnity is sought of any settlement or offer of settlement, which
approval shall not be unreasonably withheld.
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SECTION SEVENTEEN
MISCELLANEOUS
17.1 Other Applications. The parties shall discuss with one
another prospective future software applications which are similar or
cooperative to or interface with the Coral Applications or AirTouch
Applications and consider entering into arrangements similar to that herein.
17.2 Governing Law; Venue. This Agreement and all disputes and
related issues shall be interpreted under the substantive and procedural laws
of California.
17.3 Information and Assistance. Throughout the term of this
Agreement, both parties shall provide the other with all reasonable
information, help and assistance necessary for the performance of each party's
obligations hereunder.
17.4 Export Controls. Unless an appropriate license, exemption,
or similar authorization has been duly obtained to the satisfaction of Coral or
AirTouch, as appropriate, either party shall not, nor shall either party
authorize or permit its employees, and/or agents to, export or re-export any
products or technology of the other to any country or entity specified as a
prohibited destination in applicable U.S. or local laws, regulations, and
ordinances, including the Regulations of the U.S. Department of Commerce
and/or other government agencies. Each party agrees to defend, indemnify, and
hold harmless the other from and against any claim, loss liability, expense, or
damage (including fines or legal fees) incurred by Coral or AirTouch, as
applicable, with respect to any export or reexport activities contrary to the
foregoing instructions.
17.5 Force Majeure. Other than the obligation to pay any money
hereunder, neither party shall be liable for the failure to perform any
obligation under this Agreement where such failure is due to fire, flood, labor
dispute, natural calamity, or acts of governments or if such causes are
otherwise beyond the reasonable control of such party.
17.6 Unenforceability. If any provision of this Agreement is
deemed by a court of competent jurisdiction to be unenforceable or contrary to
any applicable law or regulation, such provision shall be considered deleted
and the remainder of this Agreement shall continue in full force and effect.
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17.7 No Assignment. This Agreement is not assignable by either
party without the prior written consent of the other, except that this
Agreement may be assigned to a controlled subsidiary, or to a successor to all
or substantially all of the assets and business of the assigning party, and
further provided that the assigning party guarantees performance of such
controlled subsidiary or successor in interest.
17.8 Attorneys' Fees. In the event litigation is necessary to
interpret or enforce this Agreement, the most prevailing party shall be
entitled to recover, along with any award or judgment, its fees and costs,
including reasonable attorneys' fees.
17.9 Entire Agreement, Amendments, Etc. This Agreement,
constitutes the sole and exclusive understanding of the parties in respect of
the subject matter hereof. Other than any existing confidentiality agreements,
there are no understandings or agreements between Coral and AirTouch which are
not fully expressed or otherwise referred to in this Agreement and no statement
or agreement, oral or written, made prior to or at the signing hereof
including, but not limited to, any bid, tender, quotation, offer or proposal
that either party has submitted shall affect or modify the terms hereof or
otherwise be binding on the parties hereto. No modifications or amendments of
this Agreement shall be valid unless the same is agreed to in writing by the
parties hereto by their authorized representatives and specifically stating the
same as an amendment to this Agreement. The failure or delay of any party to
exercise any right or remedy hereunder shall not constitute a waiver of such
right or remedy and the express waiver of any right or remedy shall not
constitute a waiver of any other or future right or remedy.
AIRTOUCH COMMUNICATIONS, INC. CORAL SYSTEMS, INC.
By: /s/ [ILLEGIBLE] By: /s/ ERIC A. JOHNSON
----------------------------------- -----------------------------------
Title: Vice President Eric A. Johnson, President & CEO
--------------------------------
APPROVED FOR
EXECUTION
By: /s/ [ILLEGIBLE]
-----------------------------------
Attorney
10/3/94
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT "A"
AIRTOUCH SYSTEM FEATURES
FRAUD DETECTION
[ * ]
HISTORICAL PROFILING
[ * ]
PHONE PRINT INTERFACE
[ * ]
REPORTING
[ * ]
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CONFIDENTIAL TREATMENT REQUESTED
HARDWARE/SOFTWARE
[ * ]
[ * ]
21
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT "B"
CORAL FUNCTIONAL SPECIFICATIONS
Systems Features:
[ * ]
Call Pattern Analysis:
[ * ]
Called Party Analysis:
[ * ]
Time and Distance Analysis:
[ * ]
Credit Limit Analysis:
[ * ]
Security Features:
[ * ]
Network Features:
[ * ]
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CONFIDENTIAL TREATMENT REQUESTED
Administrative Functions:
[ * ]
Reporting Functions:
[ * ]
Hardware Platform: [ * ]
Operating System: [ * ]
Third Party Software: [ * ]
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT "C"
SCHEDULE OF INITIAL ENHANCEMENTS AND INSTALLATIONS
Phase 1: Coral shall install its FraudBuster version 2.1 in all
AirTouch markets [ * ] In addition to
the FraudBuster installations, Coral shall establish data feeds among all
installed markets within the given time frame with the San Diego connection
anticipated to be completed by [ * ] Throughout the installation, the
parties shall work together to determine the functional specifications of the
features identified in the AirTouch Profiler Feature List, attached to this
exhibit (the "List"), and to commence coding.
Phase 2: Coding of the features identified in the List with
Coral's delivery of a beta product for installation in the AirTouch [ *
] during [ * ] and with acceptance by AirTouch by [ *
] Coral shall have such reasonable time as may be necessary to remedy any
nonacceptable components of the beta product.
Phase 3: General availability of version 1.0 of the
FraudBuster/AirTouch Profiler incorporating all of the features on the List
during [ * ]
The foregoing timeframes are dependent upon the accuracy of the
AirTouch Functional Specifications and the usability and compatibility of the
source code of the AirTouch Applications, which shall be determined within two
weeks of execution of the Agreement. Upon completion of the functional
specifications for the features on the List, the parties shall determine the
reasonability of delivering some or all of the features in light of the
delivery timeframes provided above. The features included in the products to
be delivered shall be adjusted as reasonably necessary to provide for timely
product delivery, provided AirTouch shall have the discretion to determine
which features shall comprise the reasonable feature list to be delivered at
each delivery date. AirTouch shall provide Coral with such assistance and
personnel as my be reasonably necessary to accomplish these goals.
The following features of the List will be considered Joint
Enhancements under the Agreement, however, not subject to the [ * ]
exclusivity provisions of Section 6 above: (1) [ * ] (2)
[ * ] and (3) [ * ] The parties shall
24
<PAGE> 25
CONFIDENTIAL TREATMENT REQUESTED
negotiate their respective contributions to the development of these features
upon completion of the functional specifications for the same.
The following features of the List shall be considered AirTouch
Enhancements under the Agreement: (1) [ * ] and (2)[ * ]
[ * ]
The following features of the List shall be considered Coral
Enhancements under the Agreement: [ * ]
25
<PAGE> 26
CONFIDENTIAL TREATMENT REQUESTED
AIRTOUCH PROFILER FEATURE LIST
PHONEPRINT INTERFACE INCLUDING:
[ * ]
REPORTING
[ * ]
CASE MANAGEMENT
[ * ]
<PAGE> 27
CONFIDENTIAL TREATMENT REQUESTED
INTERFACES
[ * ]
USER INTERFACE FEATURES
[ * ]
ADMINISTRATIVE FEATURES
[ * ]
<PAGE> 28
CONFIDENTIAL TREATMENT REQUESTED
FIRST AMENDMENT AGREEMENT
This Agreement is entered into this 30th day of June, 1995 by
and between AirTouch Communications of California (formerly known as PacTel
Corporation), a California corporation ("AirTouch"), and Coral Systems, Inc., a
Delaware corporation ("Coral").
1. Recitals. The parties have executed a Joint Development
and License Agreement dated September 30, 1994 (the "License Agreement") which
provides for, among other things, the cross licensing of certain software
applications, the integration of certain portions of the software applications
provided by each party and the enhancement and deployment of such software
(collectively, the "Application"). As used herein, the Application refers to
software created by merging the AirTouch Applications and the Coral
Applications, as those terms are defined in the License Agreement. The parties
desire to supplement and modify certain terms of the License Agreement as
provided for below under the terms and conditions of this Agreement.
2. Application Integration. Coral shall undertake the
integration and development work necessary to accomplish the following
milestones relating to the Application:
a. Initial Delivery. Coral shall deliver to AirTouch
for installation into its L.A. market the Application operating with the
features identified in Exhibit "A" attached hereto (the "Initial Delivery").
b. Interim Delivery. Should AirTouch reach written
agreement to license the Application to one of its affiliates, to whom it is
permitted to sublicense the Application, between the execution date of this
Agreement and [ * ] Coral shall integrate the appropriate switch
interface software into the Initial Delivery software, at no charge, within six
(6) weeks of written notice by AirTouch of such license to its affiliate (the
"Interim Delivery"). From and after the 43rd day after AirTouch's written
notice, Coral shall owe AirTouch [ * ] per day for every day such Interim
Delivery is delayed.
c. Final Delivery. Coral shall deliver to AirTouch
by [ * ] the Application operating with the features identified in
Exhibit "C" attached hereto (the "Final Delivery"). From and after the 15th
day of [ * ] Coral shall owe AirTouch [ * ] per day for every day
such Final Delivery is delayed.
<PAGE> 29
CONFIDENTIAL TREATMENT REQUESTED
The foregoing delivery date for the Interim and Final
Deliveries shall be extended on a day-for-day basis for each day AirTouch fails
to provide to Coral any information, personnel or facilities necessary to
develop or deliver the Interim or Final Deliveries.
The development and integration work associated with the
delivery of the Initial Delivery, Interim Delivery and the Final Delivery shall
collectively be referred to as the "Development Work".
3. Development Compensation. In addition to all compensation
provided or to be provided to Coral in and under the License Agreement,
AirTouch shall pay to Coral the sum of [ * ] in consideration of the
Development Work which shall be paid to Coral in the following amounts and upon
satisfaction of the identified milestones: [ * ] within fifteen days of the
execution of this Agreement; [ * ] within fifteen days of the delivery of the
Initial Delivery; [ * ] within fifteen days of the delivery of the Interim
Delivery; and [ * ] within fifteen days of the delivery of the Final Delivery
(collectively, the "Development Compensation"). AirTouch shall have no
responsibility to pay for or reimburse Coral for any travel or accommodation
expenses associated with travel by Coral personnel which may be necessary to
accomplish the Development Work. All other travel and associated expenses
shall be reimbursed to Coral by AirTouch, if applicable, as provided for in the
License Agreement. In consideration of the Development Compensation provided
for herein, Coral hereby releases and waives any obligation of AirTouch under
Coral invoice numbers 930042 and 930047, which shall be satisfied in full upon
payment of the Development Compensation herein.
4. Enhancement License. In partial consideration of the
Development Work undertaken by Coral, AirTouch provides to Coral the
non-exclusive, non-transferable, fully paid, royalty free, perpetual and
irrevocable source code license to and for the Reporting Features and Case
Management Features as described in Exhibit "D" to the License Agreement and as
further described in Exhibit "D" attached hereto, as such may be amended,
enhanced or modified from time to time by AirTouch or another entity on behalf
of AirTouch (the "Source Code"), for Coral's use, modification, licensing and
sublicensing under any terms and conditions as it shall desire or determine.
AirTouch shall deliver to Coral the Source Code within 10 days of the delivery
of the Initial Delivery by Coral. AirTouch shall provide Coral with electronic
copies of the Source Code. AirTouch hereby provides to Coral the warranties
and indemnifications for the Source Code identical to those provided for the
2
<PAGE> 30
AirTouch Applications (as defined in the License Agreement) in the License
Agreement.
5. Cooperation; Timing. The parties shall cooperate with one
another and provide such assistance, information and personnel as may be
reasonably requested by the other to facilitate the Development Work.
6. Construction With License Agreement. The parties reaffirm
the License Agreement which, except as modified herein, shall remain in full
force and effect. This Agreement modifies and supplements the License
Agreement and shall govern in the event of a conflict between the provisions of
this Agreement and the License Agreement.
7. Miscellaneous. This Agreement and the License Agreement
constitute the entire agreement between the parties regarding the subject of
this Agreement and the License Agreement and all other writings, discussions,
representations and agreements concerning the subject matter of this Agreement
and the License Agreement shall be merged into a superseded by this Agreement
and the License Agreement. The failure or delay of either party to enforce at
any time any provision of this Agreement shall not constitute a waiver of such
party's right thereafter to enforce each and every provision of this Agreement
and the express waiver of any right in one occurrence hereunder by either party
shall not constitute a waiver of such party's right to enforce such right in
another occurrence in the future. This Agreement shall be governed by the laws
of the State of California and may only be amended by a writing signed by
authorized representatives of the parties. In the event litigation is
necessary to interpret or enforce this Agreement, the prevailing party, as
determined by a court of competent jurisdiction, shall be entitled to recover,
in addition to any award or judgment, its costs and expenses, including
reasonable attorneys' fees.
AirTouch Communications Coral Systems, Inc.
of California
By: /s/ MICHAEL SEULLIN By: /s/ ERIC A JOHNSON
---------------------------- -------------------------------
Michael Seullin for
Name: Don Winters Name: Eric A. Johnson
Title: DIR, CORPORATE TECHNOLOGY Title:
-------------------------- -----------------------------
Director of Corporate Technology President & CEO
REVIEWED BY /s/ ASP/AM
----------
AIRTOUCH COMMUNICATIONS
LEGAL DEPARTMENT 6/30/95
3
<PAGE> 31
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A - INITIAL DELIVERY
I. PhonePrint Interface
[
*
]
II. Reports
[
*
]
III.Interfaces
[ * ]
4
<PAGE> 32
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B - INTERIM DELIVERY
I. Network Features
[ * ]
5
<PAGE> 33
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C - FINAL DELIVERY
I. System Features
[
*
]
II. Call Pattern Analysis (All over 3 comparative periods)
[
*
]
III.Called Party Analysis
[ * ]
IV. Time and Distances Analysis
[ * ]
V. Credit Limit Analysis
[ * ]
VI. Security Features
[
*
]
VII.Network Features
[
*
]
6
<PAGE> 34
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D - CASE MANAGER
I. Interface with Decision Support Systems (DSS) for Customer Information
II. Manual Case Assignment
III. Actions Log
IV. Reporting
[
*
]
V. Customer Letters
[
*
]
VI. System Administration
7
<PAGE> 1
EXHIBIT 10.18
CONFIDENTIAL CERTAIN CONFIDENTIAL
TREATMENT CONTAINED IN
THIS DOCUMENT, MARKED BY
BRACKETS AND DENOTED BY AN
ASTERISK, HAS BEEN OMITTED
AND FILED SEPARATELY WITH
THE EXCHANGE COMMISSION
PURSUANT TO 17 C.F.R.
SECTIONS 200.80(b)(4),
200.83 and SECTION
230.406.
PATENT LICENSE AGREEMENT
THIS PATENT LICENSE AGREEMENT (the "Agreement") is made and entered
into this 21st day of December, 1995 between AirTouch Communications, Inc., a
Delaware corporation, formerly known as AirTouch Communications of California,
a California corporation (hereinafter "AirTouch"), and Coral Systems, Inc., a
Delaware corporation, (hereinafter referred to as "Licensee").
RECITALS
WHEREAS, Licensee is engaged in the business of making and/or selling
goods used to prevent wireless telecommunications fraud, and desires to obtain
from AirTouch certain limited rights to the Licensed Patent (defined below)
upon the terms and conditions set forth in this Agreement, and
WHEREAS, AirTouch has certain technical expertise in wireless
telecommunications fraud, including fraud prevention, and desires to grant to
Licensee certain limited rights to the Licensed Patent upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions below, the parties agree as follows:
AGREEMENT
I. DEFINITIONS
A. Affiliate. An "affiliate" of any person or entity is any
entity controlling, controlled by, or under common control with such person or
entity. For purposes of this Agreement, "controlling, controlled by, or under
common control" means, in the case of a corporation, ownership of greater than
50% of the outstanding voting stock, and in the case of a partnership,
ownership of greater than 50% of the general partner interest in either capital
accounts or profits.
B. Effective Date. The "Effective Date" shall be the date first
stated above.
C. Licensed Patent. The "Licensed Patent" licensed hereunder and
referred to herein shall consist of United States patent number 5,420,910 to
Rudokas, et al., entitled METHOD AND APPARATUS FOR FRAUD CONTROL IN CELLULAR
TELEPHONE SYSTEMS UTILIZING RF SIGNATURE COMPARISON, and all United States
divisional and continuation applications and all foreign filings based upon
1
<PAGE> 2
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
the specification contained in U.S. patent no. 5,420,910 or serial no.
08/389,348, but not continuations in part applications. AirTouch has one
divisional application, which is serial no. 08/389,348, entitled METHOD AND
APPARATUS FOR FRAUD CONTROL IN CELLULAR TELEPHONE SYSTEMS. A copy of both
items is attached as Exhibit A.
D. Products. The "Product(s)" shall mean the Licensee developed,
licensed, or otherwise acquired equipment and products which incorporate the
subject matter as claimed in the Licensed Patent and are marketed and
distributed by Licensee through any of its distribution channels. The Products
are listed in Exhibit B.
E. Net Sales Revenue. The "Net Sales Revenue" from any
Product(s) shall mean the actual revenues collected by Licensee from the sale
of such Product(s) in the United States minus all costs of shipment and refunds
but not minus any taxes.
II. LICENSE GRANT
A. Grant. AirTouch grants to Licensee a world-wide,
royalty-bearing, non-exclusive, license of limited transferability for the term
of this Agreement to make, have made, sell, use, replicate, copy, and
incorporate the subject matter as claimed in the Licensed patent and to
manufacture, have manufactured, distribute, and sell Products which incorporate
the subject matter as claimed in the Licensed Patent, subject to the conditions
and restrictions in this Agreement.
1. AirTouch has the option to terminate the above
license grant prior to the expiration of the term of this Agreement if Licensee
fails to remit the Earned Royalties amounts set forth in Section X.C. below.
B. Limitation On Rights Granted. Licensee shall only have the
rights to the Licensed Patent as are specified according to the terms and
conditions contained in this Agreement.
III. PRODUCT PURCHASE BY AIRTOUCH
A. Discount To AirTouch. In recognition of the significant
expenditure of resources by AirTouch, both financially and otherwise, in the
development of the Licensed Patent, Licensee shall sell Products to AirTouch or
any of its Affiliates at prices equal to the least of: (i) [ * ] off the
then-current retail price, (ii) [ * ] (as set forth
below), or (iii) prices consistent with then-current pricing practices.
2
<PAGE> 3
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
B. [ * .] Licensee agrees that, during the term
of this Agreement, [
*
] with
respect to the sale of any updates, developments, enhancements, or
modifications to Products ("Product Improvements") are not or will not be [
* ] after the effective
date of this Agreement, to any other customer of Licensee or quoted by Licensee
to any such prospective customer, after the Effective Date hereof, when such
customer is thereby granted such terms. If Licensee, during the term of this
Agreement, [
*
] Licensee shall promptly notify AirTouch of such arrangement, and
the [
*
]
IV. OWNERSHIP OF THE LICENSED PATENT
A. Ownership By AirTouch. By operation of and performance under
this Agreement, Licensee acquires only the right to the Licensed Patent as
specified herein and does not acquire any right of ownership in or to the
Licensed Patent. All rights, title, and interest in the Licensed Patent and
updates, developments, enhancements, or modifications thereto made by AirTouch
or its Affiliates shall at all times remain with AirTouch.
B. Ownership By Licensee. All rights, title, and interest in any
updates, developments, enhancements, or modifications made to the Licensed
Patent which may be developed by Licensee for use in connection with the
Licensed Patent ("Developments") shall at all times remain with Licensee.
Licensee agrees that it will promptly notify AirTouch of, and communicate full
information in writing covering, any such Developments. Licensee shall grant
AirTouch, under mutually agreeable terms, a perpetual, nonexclusive license to
make, have made, sell, and use the Developments for AirTouch and its
Affiliates.
V. PRODUCT MARKETING
A. AirTouch's Trademarks. AirTouch has adopted and owns certain
trade names, logos, trademarks and service marks used in identifying and
marketing AirTouch technology, products and services ("Trademarks"). Licensee
recognizes and consents for all purposes that all Trademarks, whether or not
registered, constitute the exclusive property of AirTouch and cannot be used by
Licensee except as specified in this Agreement, nor shall Licensee use any
confusingly similar Trademarks. Licensee may use the following statement in
the marketing of Products: "Incorporating AirTouch's
3
<PAGE> 4
CONFIDENTIAL
patented technology." Licensee must affix the following statement to all
Products: "Pat. No. 5,420,910 and Pat. Pend." Nothing contained in this
Agreement shall be construed as conferring any additional rights upon Licensee
to use in advertising, publicity, or other promotional activities any
Trademark, other than that specifically set forth above, unless the prior
express written permission of AirTouch has been obtained.
B. Publicity. The parties shall mutually plan and agree upon the
contents, form, and manner of publicity of, and shall not respond to inquiries
from members of the public media if such inquiries concern, the contents of
this Agreement and the details of the transactions contemplated by this
Agreement. In no event shall the parties act unilaterally under the foregoing
unless otherwise required to by law.
VI. REPRESENTATIONS AND WARRANTIES OF AIRTOUCH
A. AirTouch hereby represents and warrants to Licensee as
follows:
1. That it has the full and exclusive right and power to
enter into and perform according to the terms of this Agreement, and that it
has the exclusive right to grant to Licensee each of the rights herein granted
to Licensee.
2. Other than as indicated in paragraph A.4. below, that
no other person or organization or entity has or will have any right, title, or
interest in or to all or any portion of the Licensed Patent which would in any
way curtail or impair any of the rights granted to Licensee herein, and that it
has not heretofore done or permitted to be done, and will not hereafter do or
authorize or permit to be done, any act or thing which is or may be in any way
inconsistent with or which may in any way curtail or impair any right herein
granted to Licensee.
3. That it now owns or controls or will, at all times
material hereto, own or control all right, title, and interest in and to the
Licensed Patent free from any encumbrances which would in any way curtail or
impair any of the rights granted to Licensee herein.
4. That it is not the subject of any claim, action, or
proceeding involving the Licensed Patent, except AirTouch is aware of U.S.
patent number 5,329,591 to Magrill, entitled TRANSMITTER IDENTIFICATION AND
VALIDATION SYSTEM AND METHOD.
B. Nothing in this Agreement shall be construed as a warranty or
representation by AirTouch as to the validity or scope of any patent right or
that anything derived or substantially derived from the Licensed Patent is or
will be free from infringement of patents or intellectual property rights of
third persons. Furthermore,
4
<PAGE> 5
CONFIDENTIAL
nothing in this Agreement shall be construed as a requirement that AirTouch
file any patent or copyright application, secure any patent or copyright, or
maintain any patent or copyright in force or as an obligation, on AirTouch's
part, to bring or prosecute actions or suits against third parties for
infringement.
AIRTOUCH MAKES NO, AND HEREBY DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF DESIGN, MERCHANTABILITY, OR
FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE OF DEALING, USAGE,
OR TRADE WITH REGARD TO THE PERFORMANCE OF THE LICENSED PATENT PROVIDED TO
LICENSEE HEREUNDER. AIRTOUCH DOES NOT MAKE AND EXPRESSLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY TO ANY END USER OR THIRD PARTY (INCLUDING WITHOUT
LIMITATION DEALERS, DISTRIBUTORS AND ORIGINAL EQUIPMENT MANUFACTURERS) WITH
RESPECT TO THE LICENSED PATENT, INCLUDING WITHOUT LIMITATION THE IMPLIED
WARRANTIES OF DESIGN, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
LICENSEE SHALL NOT HAVE THE RIGHT NOR CLAIM TO HAVE THE RIGHT TO MAKE OR PASS
THROUGH ANY SUCH WARRANTY OR REPRESENTATION ON BEHALF OF AIRTOUCH TO ANY SUCH
END USER OR THIRD PARTY.
THE EXISTENCE OF MORE THAN ONE CLAIM, SUIT, OR PROCEEDING SHALL NOT EXPAND OR
ENLARGE THE LIMITATION OF AIRTOUCH'S LIABILITY UNDER THIS AGREEMENT, WHICH
(INCLUSIVE OF PROFESSIONAL FEES AND COSTS) SHALL BE NO GREATER THAN THE
AGGREGATE AMOUNT OF PAYMENTS ACTUALLY MADE BY LICENSEE TO AIRTOUCH PURSUANT TO
SECTION X BELOW. LICENSEE FURTHER AGREES THAT AIRTOUCH SHALL NOT BE LIABLE FOR
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES INCURRED BY LICENSEE OR
ANY OF ITS AFFILIATES OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR
TORT OR BASED ON A WARRANTY, BASED UPON THE USE OF THE LICENSED PATENT BY
LICENSEE OR THE DISTRIBUTION, MARKETING, AND LICENSING OF PRODUCTS
INCORPORATING THE LICENSED PATENT, EVEN IF AIRTOUCH HAS BEEN NOTIFIED OF THE
POSSIBILITIES OF SUCH DAMAGES. THE PARTIES HEREBY ACKNOWLEDGE THAT THE OTHER
PORTIONS OF THIS AGREEMENT HAVE BEEN MADE IN RELIANCE UPON INCLUSION OF THE
FOREGOING PROVISIONS.
5
<PAGE> 6
CONFIDENTIAL
VII. REPRESENTATION AND WARRANTIES OF LICENSEE
A. Licensee hereby represents and warrants to AirTouch as
follows:
1. That Licensee shall not use, replicate, copy, sell,
or otherwise distribute the Licensed Patent except pursuant to the terms of
this Agreement; provided, however, that nothing contained herein shall be
construed or intended to prevent or limit Licensee from making or entering into
any agreements with other persons, organizations, or entities with respect to
activities and/or products that are like or similar to those that are the
subject of or contemplated by this Agreement.
2. That it will not export any of the Licensed Patent,
or any Product incorporating any subject matter as claimed in the Licensed
Patent, without first obtaining all required U.S. Government export licenses.
In that connection, Licensee represents that it is knowledgeable about U.S.
Government export licensing requirements or that will become so prior to
engaging, directly or indirectly, in any export transaction involving the
Licensed Patent.
3. That unless expressly agreed otherwise, it
specifically acknowledges that AirTouch is not obligated to provide support,
education, maintenance, or the like to Licensee or problem-solving, support,
maintenance, documentation or the like to Licensee's dealers, other resellers,
or end users. Licensee further acknowledges that it is responsible for the
supervision, management, and control of the distribution and use of Products
incorporating the subject matter as claimed in the Licensed Patent.
4. That it has the full and exclusive right and power to
enter into and perform according to the terms of this Agreement and that by
entering into this Agreement, Licensee does not cause a breach of any other
contract to which it is a party.
5. That if the Licensed Patent is used in any fashion,
directly or indirectly, in connection with government contracting or
subcontracting, including, without limitation, Licensee's performance of any
government contracts or subcontracts, then Licensee shall ensure (by means of
an appropriate term in the contract with such government entity) that: (i) the
Licensed Patent shall not constitute deliverables under any government contract
or subcontract, and (ii) no government entity shall acquire, under the terms of
any government contract or subcontract, or any applicable government
contracting laws, rules or regulations, any rights of any nature in the
Licensed Patent.
VIII. LICENSEE'S INDEMNITY
A. Licensee hereby agrees to indemnify AirTouch from those
damages finally awarded against AirTouch, or settlement payments made to a
third person by AirTouch
6
<PAGE> 7
CONFIDENTIAL
with the consent of Licensee (which consent shall not be unreasonably
withheld), and save and hold AirTouch harmless form any and all claims or
losses (collectively, the "AirTouch Damages") arising out of or in connection
with or by reason of or resulting from a breach of any of the warranties,
representations, or agreements made by Licensee herein or for any tort or
contract claim, including without limitation, personal injury, wrongful death,
or product liability claims, arising in connection with Licensee's use of the
Licensed Patent and/or Licensee's manufacture, use, and/or sale of Products.
2. AirTouch shall promptly notify Licensee of any third
person action to which the indemnity relates and Licensee shall have the right,
at its own expense, to control the defense or settlement thereof with counsel
of its choice, at Licensee's expense. AirTouch shall provide Licensee with
reasonable information, authority, and assistance necessary to perform under
this indemnity. Reasonable out-of-pocket expenses incurred by AirTouch for
such assistance will be promptly reimbursed by Licensee.
IX. LEGAL ACTION TO PROTECT THE LICENSED PATENT
A. AirTouch Controls. Licensee shall, at the request and expense
of AirTouch, do such acts or things as AirTouch reasonably requires for the
purpose of obtaining, maintaining, enforcing, and preserving AirTouch's rights
in the Licensed Patent; provided, however, that Licensee agrees that only
AirTouch has the right to bring any infringement action or take any other legal
action to enforce its rights. In the event that any unlawful use or copying of
Licensed Patent, infringement of AirTouch's rights in the Licensed Patent, or
infringement or registration or attempted registration by a third party of the
patents, copyrights, or other proprietary rights of AirTouch comes to the
attention of Licensee, Licensee shall immediately inform AirTouch in writing,
stating the full facts of the infringement or registration or attempted
registration known to it, including the identity of the suspected infringer or
registrant, the place of the asserted infringement or registration and evidence
thereof. Licensee agrees to cooperate fully with AirTouch (at AirTouch's
reasonable expense, excluding salaries of Licensee's personnel) if AirTouch
sues to enjoin such infringements or to oppose or invalidate any such
registration. In determining whether to bring an infringement action, AirTouch
agrees to seek an opinion of its patent counsel regarding whether an
infringement has occurred and to inform Licensee the results (but not the
analysis) of such opinion. Such disclosure shall constitute confidential
information and shall not be disclosed to third parties by Licensee. If
Licensee disagrees with AirTouch's conclusion, then it may set a mutually
convenient time for a meeting among AirTouch personnel and its patent counsel
and Licensee's personnel and its patent counsel, in which Licensee and/or its
patent counsel may present their position. AirTouch agrees to re- evaluate its
conclusion in light of information provided by Licensee and/or its patent
counsel and inform Licensee of its final result. Licensee shall not have any
further appeal rights to AirTouch.
7
<PAGE> 8
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
X. ROYALTIES
A. Royalty Rate. In consideration of the license grant made to
Licensee hereunder, Licensee agrees to pay to AirTouch the following royalties
("Earned Royalties"):
1. For the term of this Agreement, Licensee shall pay AirTouch
monthly royalty payments of [ * ] of the Net Sales Revenues received by Licensee
on proceeds actually collected by Licensee from the sale of Products, less
revenues attributable to the sale of Products to AirTouch and its Affiliates,
subject to the remainder of this Section X.
B. Royalties After Termination Or Expiration. Earned Royalties
shall be due in accordance with Section X.A. above in the event that any
revenues are received by Licensee, during or within 1 year after the expiration
or termination of this Agreement, from the distribution or sale of any Licensee
developed, licensed, or otherwise acquired equipment if, subsequent to such
distribution or sale, the endorser or other applicable third party receives any
portion of the Licensed Patent from Licensee for use in connection with such
equipment. Licensee hereby agrees to promptly notify AirTouch of such
distribution or sale of the Licensed Patent and to promptly remit the
applicable Earned Royalty amount due. Licensee also agrees to credit
AirTouch's account with Earned Royalties at the time invoicing of a Product
occurs.
C. Minimum Royalties. The minimum royalty payments for each year
of this Agreement shall be as follows:
1. for the first year following the Effective Date,
Earned Royalties of at least [ * ] of which
[ * ] must be paid to AirTouch on or before [ *
] and
2. for each successive year after the first year
following the Effective Date, Earned Royalties of at least [ *
] per year to a maximum of [
* ] per year.
If Licensee has not made payments of Earned Royalties under Section X.A.
meeting the above minimums for each of the periods indicated, then within 30
days following the end of the relevant payment period, Licensee shall pay
AirTouch the difference between the minimum Earned Royalties stated above and
the amounts actually paid under Section X.A. for the relevant year.
D. Adjustment. Commencing with the fifth license granted by
AirTouch under the Licensed Patent and continuing thereafter, Licensee may
request and the parties shall negotiate an adjustment to the Royalty Rate
and/or Minimum Royalties to compensate for
8
<PAGE> 9
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
reasonable market dilution, if any, associated with AirTouch's granting of five
or more licenses under the Licensed Patent. Licensee may request such
renegotiation only once per additional license.
XI. PAYMENT SCHEDULE
A. Monthly Statements. Within 30 days after the end of each
period with respect to which Licensee owes AirTouch any Earned Royalties,
Licensee shall furnish AirTouch with a statement, together with payment for any
amount due to AirTouch. The royalty statement shall be based upon sales of
Products during the calendar month then ended, and shall contain information
sufficient to discern how the royalty payment, if any, was computed.
B. Late Fee. A finance-charge of the lesser of [*] per month or
the maximum rate permissible by law will be charged on all amounts past due.
Payment of royalties and of all payment obligations will survive expiration or
termination of this Agreement.
C. Taxes. The Minimum Royalties and any late fee due to AirTouch
hereunder is exclusive of, and Licensee shall pay, any sales, use, property,
license, value added, excise, royalty withholding or similar federal, state or
local tax that may be imposed upon or with respect to the Licensed Patent,
exclusive of taxes based on AirTouch's net income. Licensee shall indemnify
and hold AirTouch harmless against any liability therefor. Licensee shall
timely secure and deliver to AirTouch all documents, receipts and governmental
approvals relating to the payment of any such taxes by Licensee.
XII. AUDITS
A. Licensee To Keep Records. Licensee agrees to keep all proper
records and books of account and all proper entries therein relating to the
manufacture and sale of Products.
B. Audits By AirTouch. AirTouch may cause an audit to be made of
the applicable records once per calendar year in order to verify statements
rendered hereunder. Any such audit shall be conducted only by a certified
public accountant (other than on a contingency fee basis) and shall be
conducted during regular business hours at Licensee's offices upon five days
prior notice to Licensee and in such a manner as not to interfere with
Licensee's normal business activities.
C. Cost Of Audits. AirTouch shall bear the expense of any such
audit unless such audit reveals that Earned Royalties paid by Licensee under
Section X for any month are less than 95% of what should have been paid by
Licensee for such month, in which
9
<PAGE> 10
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
event the costs of such audit shall be borne entirely by Licensee, in addition
to and without limitation of any right or remedy AirTouch may have. Prompt
payment or any amount found due and owing to AirTouch under this Section,
including audit fees and expenses due to AirTouch, shall be made by Licensee
within thirty days of notice to Licensee by AirTouch.
XIII. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION
A. Term. This Agreement shall terminate upon the expiration of
the last United States patent included in the definition of Licensed Patent
stated above, unless earlier terminated by agreement of the parties or
terminated by either party in accordance with the provisions of this Agreement.
B. Pre-Existing Orders And Inventory. Upon the expiration or
termination of this Agreement, Licensee shall have the right to complete
pre-existing orders for Products and to continue to see or otherwise dispose of
Products in Licensee's inventory on the date of such termination or expiration,
and Licensee shall have the right to continue to manufacture replacement parts
for Products to the extent necessary to support Products at the then existing
royalty rates. Except for those specific purposes set forth in this paragraph,
Licensee shall cease all use of the Licensed Patent upon the expiration or
termination of this Agreement.
C. Payment Of Earned Royalties. Any and all sales or other
dispositions of Products made under the provisions of this Section XIII shall
be subject to the Earned Royalties obligations specified in Section X above.
D. Return Of AirTouch Property. Upon any expiration or
termination of this Agreement, Licensee's right to possess and use any of the
proprietary information of AirTouch shall terminate and Licensee shall promptly
deliver to AirTouch all such proprietary information and copies thereof in its
possession or under its control. Each party shall reasonably assist the other
in effecting an orderly termination of the business affairs contemplated
hereunder.
E. Licensee's Termination Right. Licensee, at its option, may
terminate this Agreement upon at least 60 days' written notice to AirTouch,
provided that on or before the date the termination becomes effective, Licensee
shall have paid AirTouch a minimum amount of Earned Royalties of [
* ] in the calendar year which Licensee sends the
notice to AirTouch.
10
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CONFIDENTIAL
XIV. FORCE MAJEURE
Neither party shall be liable to the other for its failure to perform any of
its obligations under this Agreement, except for payment obligations, during
any period in which such performance is delayed because of or rendered
impractical or impossible due to circumstances, other than financial, beyond
its reasonable control, which shall include, without limitation, fire, flood,
earthquake or other casualty; labor disputes; inability to procure supplies or
power; war or other violence; or law, order, regulation, ordinance or
requirement of any governmental agency; provided that the party experiencing
the delay promptly notifies the other of the delay and the reason(s) therefor.
XV. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of the State of California as applied to agreements executed in California by
California residents.
XVI. NOTICES AND REQUESTS
All notices and requests in connection with this Agreement shall be deemed
given as of the day they are received, whether by confirmed telecopy,
messenger, delivery service, or in the U.S. mails, postage prepaid, certified
or registered, return receipt requested, and addressed as follows:
AirTouch:
AirTouch Communications, Inc.
1340 Treat Boulevard, Suite 500
Walnut Creek, CA 94596
Attn: Mike Scullin
Phone: (510) 988-4421
Fax: (510) 988-4487
with a cc to:
AirTouch Communications, Inc.
Legal Department
One California Street, 21st Floor
San Francisco, CA 94111
Attn: Intellectual Property Counsel
Phone: (415) 658-5121
Fax: (415) 658-2287
11
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CONFIDENTIAL
Licensee:
Coral Systems, Inc.
1500 Kansas Avenue, Suite 2E
Longmont, CO 80501P
Attn: Howard Kaushansky, Esq.
Phone: (303) 772-5800
Fax: (303) 772-8230
or to such other address as the party to receive the notice or request so
designates by written notice to the other.
XVII. CONFIDENTIALITY
The parties agree, both during the term of this Agreement and for a period of 5
years after expiration or termination of this Agreement and of all licenses
granted hereunder to hold in confidence information which is confidential to
the other as described more fully in the Nondisclosure Agreement by and between
the parties dated October 1, 1993. The parties agree further that, except as
specifically set forth in this Section XVII, any exchange of proprietary
information between the parties in connection with this Agreement shall be made
pursuant to the terms of such Nondisclosure Agreement.
XVIII. ASSIGNMENT AND BINDING EFFECT
A. No Assignment. This Agreement may not be assigned,
transferred or encumbered in whole or in part by Licensee without the written
consent of AirTouch, which consent shall not be unreasonably withheld.
B. Agreement Binding on Successors. Subject to the limitations
stated in this Agreement, this Agreement will inure to the benefit of and be
binding upon the parties, their successors, administrators, heirs, and
permitted assigns.
XIX. INDEPENDENT CONTRACTORS
This Agreement is intended solely as a license agreement, and no partnership,
joint venture, agency, or other form of agreement or relationship is intended.
XX. ENTIRE AGREEMENT AND MODIFICATIONS
The parties acknowledge that they have read this Agreement and understand it,
and they agree to be bound by all its terms and conditions. They further agree
that this Agreement and attachments constitute the entire, final, complete and
exclusive agreement between
12
<PAGE> 13
CONFIDENTIAL
the parties with respect to the subject matter hereof and merges all prior and
contemporaneous oral and written communications. This Agreement shall not be
modified except by a written agreement signed on behalf of AirTouch and
Licensee by their duly authorized representatives.
XXI. SEVERABILITY AND WAIVER
In the event any provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain in full
force and effect to the extent that the intent of the parties is still
effectuated by the remaining provisions. If the parties' intent cannot be
effectuated by the remaining provisions, then this Agreement shall
automatically terminate. Any waiver (express or implied) by either party of
any default or breach of this Agreement shall not constitute a waiver of any
other or subsequent default or breach.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
AirTouch Communications, Inc. Coral Systems, Inc.
By: /s/ DON WINTERS By: /s/ ERIC A JOHNSON
----------------------------- --------------------------------
Name: Don Winters Name: Eric A. Johnson
---------------------------- -------------------------------
Title: Managing Director Title: President and CEO
Corporate Technology ------------------------------
---------------------------
13
<PAGE> 1
EXHIBIT 11.1
CORAL SYSTEMS, INC.
STATEMENT RE: COMPUTATION OF PRO FORMA NET LOSS
PER COMMON SHARE (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Weighted average number of common
shares outstanding 3,261,224 3,885,393
Weighted average number of shares of
preferred stock assumed converted to
common stock at the time of issuance 2,909,642 3,792,936
Common and common equivalent shares
issued during the twelve month period
prior to the filing of the Company's
proposed initial public offering
calculated using the treasury stock
method. 926,613 418,111
------------ ------------
Pro forma weighted average number of
common shares outstanding 7,097,479 8,096,440
============ ============
Net loss $ (3,390,900) $ (741,700)
============ ============
Pro forma net loss per common share
before extraordinary item $ (0.12)
Pro forma net loss per common
share $ (0.48) $ (0.09)
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 1,022,500 3,373,500
<SECURITIES> 0 0
<RECEIVABLES> 1,119,300 2,524,200
<ALLOWANCES> 0 75,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,291,100 6,150,700
<PP&E> 914,000 1,827,000
<DEPRECIATION> (288,200) (562,700)
<TOTAL-ASSETS> 2,958,000 7,454,100
<CURRENT-LIABILITIES> 2,199,400 3,317,300
<BONDS> 145,800 313,400
4,265 3,235
0 0
<COMMON> 4,083 5,908
<OTHER-SE> 129,252 3,429,257
<TOTAL-LIABILITY-AND-EQUITY> 2,958,000 7,454,100
<SALES> 3,265,100 6,444,000
<TOTAL-REVENUES> 3,889,800 6,852,400
<CGS> 1,264,300 888,700
<TOTAL-COSTS> 1,909,000 1,473,500
<OTHER-EXPENSES> 5,371,700 6,363,900
<LOSS-PROVISION> 0 101,900
<INTEREST-EXPENSE> 103,856 135,383
<INCOME-PRETAX> (3,390,900) (985,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,390,900) (985,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 243,300
<CHANGES> 0 0
<NET-INCOME> (3,390,900) (741,700)
<EPS-PRIMARY> (.48) (.09)
<EPS-DILUTED> 0 0
</TABLE>
