<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1998
REGISTRATION NO. 333-49767
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------
SCC COMMUNICATIONS CORP.
(Exact name of Registrant as specified in its charter)
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DELAWARE 7374 84-0796285
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
6285 LOOKOUT ROAD
BOULDER, COLORADO 80301
(303) 581-5600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
MR. GEORGE K. HEINRICHS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SCC COMMUNICATIONS CORP.
6285 LOOKOUT ROAD
BOULDER, COLORADO 80301
(303) 581-5600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
Copies to:
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JEREMY W. MAKARECHIAN, ESQ. MARK L. JOHNSON, ESQ.
BROBECK, PHLEGER & HARRISON LLP FOLEY, HOAG & ELIOT LLP
1125 SEVENTEENTH STREET ONE POST OFFICE SQUARE
SUITE 2525 BOSTON, MASSACHUSETTS 02109
DENVER, COLORADO 80202 (617) 832-1000
(303) 293-0760
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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=========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- -------------------------------------------------------------------------------------------------------------------------
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Common Stock, $.001 par value 3,795,000 shares $15.00 $56,925,000 $16,793(3)
=========================================================================================================================
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(1) Includes 495,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(3) Previously paid on April 9, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 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 MAY 21, 1998
SCC LOGO
3,300,000 SHARES
COMMON STOCK
------------------------------
Of the 3,300,000 shares of Common Stock offered hereby, 2,100,000 shares
are being sold by SCC Communications Corp. ("SCC" or the "Company"), and
1,200,000 shares are being sold by the Selling Stockholders. See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders. Prior to this offering, there has
been no public market for the Common Stock of the Company. See "Underwriting"
for information relating to the method of determining the initial public
offering price. It is currently estimated that the initial public offering price
will be between $13.00 and $15.00 per share. Application has been made to have
the Common Stock quoted on the Nasdaq National Market under the proposed symbol
"SCCX."
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE 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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============================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1) SELLING STOCKHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
Per Share....................... $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------------
Total(2)........................ $ $ $ $
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(1) Before deducting expenses payable by the Company estimated at $800,000.
(2) The Company and certain Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an additional 495,000 shares of Common Stock
solely to cover over-allotments, if any. See "Underwriting." If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ and $ , respectively.
------------------------------
The Common Stock is offered by the Underwriters as stated 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 such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS HAMBRECHT & QUIST
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
Diagram consisting of four boxes encircled in text (starting at top, moving
clockwise):
WIRELESS ILECS-CLECS WIRELINE PCS-CELLULAR
Tag line above Diagram:
9-1-1 is an Essential Part of the Operational Support Systems Market
Upper left box text:
Planning & Engineering
Decision support
Network design and optimization
Product planning and development
Upper right box text:
Service Provisioning
Inventory management
Provisionary/assignment
Service activation
Service order processing
[With 9-1-1 Database Management logo]
Lower left box text:
Operations
HR/payroll/financial
Network management
Repair/craft interface
Security
Workforce management
[With 9-1-1 Network Management logo]
Lower right box text:
Customer Care & Billing
Billing
Customer service and support
Marketing and sales
Pricing/rating
SCC logo below diagram
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET FOR THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE> 4
Inside Panel:
SCC Solution Set
SCC provides 9-1-1 OSS services to ILECs, CLECs and wireless carriers throughout
North America. SCC focuses on developing innovative and automated solutions to
provide customers with a comprehensive system for managing large amounts of
dynamic subscriber information.
NDSC Services
Through its NDSC, SCC offers a comprehensive, cost-effective solution to the
9-1-1 service provisioning needs of ILECs, CLECs and wireless carriers by
enabling them to outsource virtually all aspects of the operations of their
9-1-1 data management. Services include system activation, routine data
administration, event transaction processing and performance management, with a
high level of security and survivability.
Enhanced Public Safety Services
SCC offers enhancements to its 9-1-1 OSS services that provide additional
features and functionality. Services currently include 9-1-1Net, Private Switch
ALI and 9-1-1Connect. In addition, SCC expects to introduce Subscriber ALI and
Emergency Warning & Evacuation System by late 1998.
License Products
SCC offers 9-1-1 OSS software to customers that elect to manage their own 9-1-1
data records rather than outsourcing such operations. SCC also provides custom
software development services to customers with specific or local requirements
through its engineering department. The engineering department develops,
customizes and enhances the software using a structured approach to perform
requirements analysis, software development and quality assurance.
Commercial Services
SCC is developing new products and services such as dynamic call routing for
multi-location call centers for both telecommunication carriers and others and
improved address information for the billing, ordering and provisioning
departments of telecommunication carriers.
[SCC logo Above Map]
Tag Line Above Map:
Providing 9-1-1 OSS Services Throughout North America...
Continued Tag Line Below Map:
and Leveraging Our Infrastructure and Expertise Beyond 9-1-1...
[Map of United States Communications Network]
Text Underneath Map:
This map is an artistic impression of SCC's contracted network and processing
elements
Customer Names Below Map:
o
Ameritech AT&T Wireless Bell Canada Nextel 360 Communications Time Warner
Telecom US WEST Communications Vanguard Cellular WorldCom, Inc. ...and
others
SCC Strategy -- Key Elements
Maintain and extend leadership in wireline 9-1-1 data management market
Capitalize on emerging wireless carrier opportunities
Maintain and extend leadership position in National Clearinghouse Services
Provide additional services to telecommunications carriers
Develop applications for new commercial products
Expand international operations
<PAGE> 5
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 UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES 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.
UNTIL , 1998 (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.
------------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 4
Risk Factors................................................ 7
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 30
Management.................................................. 41
Certain Transactions........................................ 47
Principal and Selling Stockholders.......................... 48
Description of Capital Stock................................ 51
Shares Eligible for Future Sale............................. 53
Underwriting................................................ 55
Legal Matters............................................... 57
Experts..................................................... 57
Additional Information...................................... 57
Glossary of Terms........................................... 58
Index to Financial Statements............................... F-1
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------------------------------
9-1-1 Extended Architecture, 9-1-1NRC, 9-1-1XA, 9-1-1 National Reference
Center, 9-1-1 Net and 9-1-1 Connect are trademarks of the Company. This
Prospectus contains other product names, trade names and trademarks of the
Company and of other organizations.
3
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include those discussed under
"Risk Factors," as well as those discussed elsewhere in this Prospectus. Certain
terms used herein are defined under the heading "Glossary of Terms."
THE COMPANY
SCC is the leading provider of 9-1-1 operations support systems ("OSS")
services to incumbent local exchange carriers ("ILECs"), competitive local
exchange carriers ("CLECs") and wireless carriers in the United States. The
Company has redefined the U.S. market for 9-1-1 OSS by creating the first and
largest 9-1-1 service bureau, the SCC National Data Services Center ("NDSC"),
with over 70 million subscriber data records under management throughout North
America. The Company manages the data that enable a 9-1-1 call to be routed to
the appropriate public safety agency along with accurate and timely information
about the caller's identification and location. Through SCC's NDSC, the Company
offers a comprehensive, cost-effective solution to the 9-1-1 service
provisioning needs of ILECs, CLECs and wireless carriers by enabling them to
outsource virtually all aspects of the operations of their 9-1-1 data management
services, including system activation, routine data administration, event
transaction processing and performance management, with a high level of security
and survivability. In addition, the Company licenses its 9-1-1 OSS software to
carriers that wish to manage the delivery of 9-1-1 data management services
in-house. Representative carriers using SCC's 9-1-1 OSS solution include
Ameritech, AT&T Wireless Services, BellSouth, MCI, Sprint PCS and Worldcom
Network SVCS.
Today, 9-1-1 is a fundamental element of local exchange service and
carriers' OSS infrastructure. 9-1-1 service involves the routing of emergency
calls to the appropriate public safety answering point ("PSAP") responsible for
dispatching police, fire and other emergency services. When a caller dials
9-1-1, information about the caller's location, telephone number and the
jurisdictionally appropriate PSAP must be quickly accessed from carriers'
network and mission-critical data servers. Thus, delivery of 9-1-1 service
presents a difficult OSS challenge for carriers because it requires the
coordination of data from multiple sources, the review and processing of the
data, the resolution of data errors and conflicts, and the insertion of the data
into network and mission-critical data servers. ILECs, CLECs and wireless
carriers require a 9-1-1 solution that addresses these OSS challenges and cost
effectively provides a high degree of data integrity and reliability, allows
them to comply with regulatory mandates, and addresses their need to provide
additional value-added services. ILECs are seeking to reduce the significant
capital expenditures associated with supporting rapidly evolving 9-1-1
infrastructure and upgrading their 9-1-1 data management and network control
services to meet PSAP requirements and technological advancements. CLECs and
wireless carriers, many of which are relatively small and new to the markets in
which they are now competing, are seeking to increase their own subscriber bases
while minimizing their investment in OSS technology infrastructure and
personnel, as well as the relationships with PSAPs necessary to provide 9-1-1
service. Carriers with these requirements may choose to develop their own
proprietary solutions, to license the 9-1-1 software and manage the delivery of
9-1-1 service themselves, or to outsource their 9-1-1 OSS needs.
Through SCC's NDSC, the Company provides the data management services that
ILECs, CLECs and wireless carriers need to deliver 9-1-1 calls to the
appropriate PSAP, along with critical information such as caller location and
call-back number that PSAPs need to respond effectively to emergencies. Complex
data screening and preparation are completed to initialize properly the
underlying systems necessary for 9-1-1 call routing and information display for
the call taker. SCC's NDSC frequently receives and processes electronic
transmissions from ILECs, CLECs and wireless carriers detailing subscriber and
coverage updates and public safety jurisdiction boundary changes from PSAPs.
Records identified as potentially having problems are automatically separated
for manual review and analysis by SCC data integrity analysts. Using the updated
4
<PAGE> 7
information, SCC's 9-1-1 OSS then provides the information to route the 9-1-1
call and transmit essential information to the emergency service provider.
The Company's objective is to be the leading national provider of 9-1-1 OSS
and other complementary services to ILECs, CLECs and wireless carriers. SCC
focuses on developing innovative and automated solutions to provide customers
with a comprehensive system for managing large amounts of dynamic subscriber
information. Key elements of the Company's strategy are to: (i) maintain and
extend its leadership position in the 9-1-1 wireline data management market;
(ii) capitalize on emerging wireless carrier opportunities; (iii) maintain and
extend its leadership position in national clearinghouse services; (iv) provide
additional services to telecommunications carriers; (v) develop applications for
new commercial products; and (vi) expand international operations.
The Company was incorporated in July 1979 in the State of Colorado under
the name of Systems Concepts of Colorado, Inc., and was reincorporated in
September 1993 in the State of Delaware under the name SCC Communications Corp.
The Company's principal executive offices are located at 6285 Lookout Road,
Boulder, Colorado 80301. Its telephone number is (303)581-5600.
THE OFFERING
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Common Stock Offered by the Company................ 2,100,000 shares
Common Stock Offered by the Selling Stockholders... 1,200,000 shares
Common Stock to be Outstanding after the 10,442,853 shares(1)
Offering.........................................
Use of Proceeds.................................... For repayment of certain indebtedness, working
capital and other general corporate purposes,
and possible acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol............. SCCX
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(1) Based on shares outstanding as of April 30, 1998. Includes 6,383,723 shares
of Common Stock to be issued upon conversion of convertible preferred stock
and exercise of a warrant concurrently with the closing of the offering made
hereby. Excludes 1,114,046 shares of Common Stock issuable upon exercise of
stock options outstanding as of April 30, 1998 at a weighted average
exercise price of $3.11 per share, and 286,078 shares of Common Stock
reserved for grant of future options as of April 30, 1998, under the
Company's 1990 Stock Option Plan. On the effective date of the Registration
Statement of which this Prospectus is a part, an additional 500,000 share
reserve will be created under the Company's 1998 Stock Incentive Plan. See
"Management -- Benefit Plans -- 1998 Stock Incentive Plan."
5
<PAGE> 8
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ---------------
1995 1996 1997 1997 1998
------- ------- ------- ------ ------
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STATEMENT OF OPERATIONS DATA:
Revenue......................................... $ 7,413 $14,802 $27,072 $5,132 $7,902
Costs and expenses.............................. 6,727 13,329 23,738 4,639 6,940
Other expense, net.............................. 368 527 879 150 301
Income from continuing operations before income
taxes......................................... 318 946 2,455 343 661
Provision for income taxes...................... 16 9 172 24 46
Net income from continuing operations........... 302 937 2,283 319 615
Loss from discontinued operations, net of tax
and disposal of discontinued division......... (1,746) (562) (2,908) (253) --
Net income (loss)............................... (1,444) 375 (625) 66 615
Net income (loss) from continuing operations per
share(1):
Basic......................................... $ (0.02) $ 0.15 $ 0.83 $ 0.07 $ 0.20
Diluted....................................... $ (0.02) $ 0.11 $ 0.26 $ 0.04 $ 0.07
Net income (loss) per share(1):
Basic......................................... $ (1.07) $ (0.17) $ (0.74) $(0.07) $ 0.20
Diluted....................................... $ (1.07) $ 0.05 $ (0.07) $ 0.01 $ 0.07
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MARCH 31, 1998
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 1,177 $ 1,177 $23,109
Working capital......................................... (3,331) (3,331) 19,051
Total assets............................................ 20,828 20,828 42,760
Long-term debt.......................................... 9,642 9,642 6,998
Total stockholders' equity (deficit).................... (13,985) 2,310 27,336
</TABLE>
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(1) See Note 2 of Notes to Financial Statements for an explanation of the
determination of shares used in computing net income (loss) from continuing
operations per share.
(2) Reflects the conversion of convertible preferred stock into an aggregate of
6,188,575 shares of Common Stock and the exercise of an outstanding warrant
to acquire 195,148 shares of Common Stock. See Note 4 of Notes to Financial
Statements.
(3) Reflects the conversion of convertible preferred stock into an aggregate of
6,188,575 shares of Common Stock, the exercise of an outstanding warrant to
acquire 195,148 shares of Common Stock, the sale of 2,100,000 shares of
Common Stock by the Company and the application of the estimated net
proceeds therefrom (assuming an initial public offering price of $14.00).
See "Use of Proceeds," "Capitalization" and Note 4 of Notes to Financial
Statements.
------------------------------
Except as otherwise indicated herein, all information presented in this
Prospectus (i) gives effect to a 1-for-3 reverse stock split, (ii) reflects the
conversion of all outstanding shares of the Company's mandatorily redeemable,
convertible preferred stock, par value $.001 (the "Convertible Preferred
Stock"), into an aggregate of 6,188,575 shares of Common Stock and the exercise
of an outstanding warrant to acquire 195,148 shares of Common Stock, (iii) gives
effect to the filing of an Amended and Restated Certificate of Incorporation
upon the closing of this offering to, among other things, create a new class of
undesignated preferred stock and (iv) assumes no exercise of the Underwriters'
over-allotment option.
6
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing shares of the Common Stock offered
hereby. This Prospectus contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed below as well as that discussed elsewhere in this Prospectus.
SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company has experienced fluctuations in its quarterly operating results
and anticipates that such fluctuations will continue and could intensify.
Fluctuations in operating results may result in volatility in the price of the
Company's Common Stock. Although the Company was profitable in seven of its last
eight quarters, there can be no assurance that the Company's profitability will
continue in the future or, if the Company is profitable, that its levels of
profitability will not vary significantly between quarters.
The Company experienced a net loss of approximately $625,000 in 1997 as a
result of losses from discontinued operations of approximately $876,000 and
losses on the disposal of such operations of approximately $2.0 million. The
Company's operating results may fluctuate as a result of many factors, including
the length of the sales cycle for new or existing customers, the size, timing or
duration of significant customer contracts, fluctuations in the number of
subscriber records under management, timing of new service offerings, demand by
license customers for new development services, customer acceptance of service
offerings, ability of the Company to hire, train and retain qualified personnel,
increased competition, changes in operating expenses, changes in the Company's
strategy, the financial performance of the Company's customers, changes in
telecommunications legislation and regulations that may affect the competitive
environment for the Company's services, and general economic factors. The
Company's contracts for data management services generally include a
non-recurring initial fee, and therefore, the Company may recognize
significantly increased revenue for a short period of time upon commencing
services for a new customer.
The Company's expense levels are based in significant part on its
expectations regarding future revenue. The Company's revenue is difficult to
forecast because the market for the Company's services is evolving rapidly and
the length of the Company's sales cycle, the size and timing of significant
customer contracts and license fees and the timing of recognition of
non-recurring initial fees vary substantially among customers. Accordingly, the
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected shortfall in revenue. Any significant shortfall could therefore
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company hired a significant number
of employees in 1996, 1997 and the first quarter of 1998, and expects to
continue hiring additional employees during the remainder of 1998. The Company
expects that this increase will affect the Company's operating margins for the
short term. There can be no assurance that the Company can continue to report
operating profits, and failure to do so could have a material adverse effect on
the Company's business, financial condition and results of operations.
Based on all of the foregoing, the Company believes that future revenue,
expenses and operating results are likely to vary significantly from quarter to
quarter. As a result, quarter-to-quarter comparisons of operating results are
not necessarily meaningful or indicative of future performance. Furthermore, it
is possible that in some future quarter the Company's operating results will be
below the expectations of public market analysts or investors. In such event, or
in the event that adverse conditions prevail, or are perceived to prevail, with
respect to the Company's business or generally, the market price of the
Company's Common Stock would likely be materially adversely affected. See
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
7
<PAGE> 10
LENGTHY SALES CYCLE
Potential customers of the Company typically commit significant resources
to the technical evaluation of the Company's services and products and the
Company typically spends substantial time, effort and money providing education
regarding the Company's 9-1-1 OSS solution. The evaluation process often results
in an extensive and lengthy sales cycle, typically ranging between six months
and two years, making it difficult for the Company to forecast the timing and
magnitude of sales contracts. Delays associated with customers' internal
approval and contracting procedures, procurement practices, and testing and
acceptance processes are common. For example, customers' budgetary constraints
and internal acceptance reviews may cause potential customers to delay or forego
a purchase. The delay or failure to complete one or more large contracts could
have a material adverse effect on the Company's business, financial condition
and results of operations and cause the Company's operating results to vary
significantly from quarter to quarter. See "-- Significant Fluctuations in
Quarterly Results of Operations" and "Business -- Sales and Marketing."
RELIANCE ON SIGNIFICANT CUSTOMERS
The Company historically has depended on, and expects to continue to depend
on, large contracts from a limited number of significant customers. During the
year ended December 31, 1996, the Company recognized approximately 82% of its
total revenue from continuing operations from Ameritech and U.S. WEST, each of
which accounted for greater than 10% of the Company's revenue in such year.
During the year ended December 31, 1997, the Company recognized approximately
81% of its total revenue from continuing operations from Ameritech, BellSouth
Inc. and U.S. WEST, each of which accounted for greater than 10% of the
Company's revenue in such year. The Company believes that these customers will
continue to represent a substantial portion of the Company's total revenue in
the future. Certain of the Company's contracts with these customers allow them
to cancel their contracts with the Company in the event of changes in
regulatory, legal, labor or business conditions. The Company's contracts with
these customers expire between 2004 and 2005. The loss of any of these customers
would have a material adverse effect on the Company's business, financial
condition and results of operations. None of the Company's major customers has
any obligation to purchase additional products or additional services beyond
those currently contemplated by their existing contracts. Consequently, the
failure by the Company to develop relationships with significant new customers
could have a material adverse effect on the rate of growth in the Company's
revenue, if any. If the Company fails to monitor and maintain adequately the
quality and expand the breadth of its services and products, advance its
technology or continue to price its services and products competitively, one or
more of its major customers may select alternative providers or seek to develop
services and products internally. See "Business -- Customers."
RATE OF ADOPTION BY PUBLIC SAFETY ANSWERING POINTS
A growing percentage of the Company's revenue is derived from the
management of 9-1-1 data records for wireless carriers. Recognizing the public
safety need for improved wireless 9-1-1 service, the Federal Communications
Commission (the "FCC") issued Report & Order 94-102 (the "Order") on June 12,
1996, a directive that mandated the adoption of 9-1-1 technology by wireless
carriers in two phases. Phase I required wireless carriers to provide to
requesting PSAPs at the time of a 9-1-1 call, the caller's telephone number and
location of the receiving cell site. Wireless carriers had to comply with Phase
I mandates by the later of April 1, 1998, or six months after the PSAP request.
Phase II requires wireless carriers to locate a 9-1-1 caller to within 125
meters, subject to FCC guidelines. Wireless carriers must comply with Phase II
mandates for requesting PSAPs by October 1, 2001. The Company believes that the
technological challenges confronting wireless carriers attempting to comply with
the Order will encourage them to outsource their 9-1-1 services. If many
wireless carriers decide not to outsource such services, the Company's business,
financial condition and results of operations could be materially and adversely
affected. If PSAPs delay demanding services complying with the Order from
wireless carriers, the Company would experience a delay in receiving revenue
under its current wireless contracts that, because the Company has already
incurred costs in expectation of such revenue, could have a material adverse
effect on the Company's business, financial condition and results of operations.
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DEPENDENCE ON NEW PRODUCTS AND SERVICES; RAPID TECHNOLOGICAL CHANGE
The market for the Company's services is characterized by rapid
technological change, frequent new product or service introductions, evolving
industry standards and changing customer needs. The Company currently intends to
begin offering in late 1998 both its Subscriber ALI product, which will allow
subscribers to enter personal information into their 9-1-1 records, and its
Emergency Warning and Evacuation System, which will allow PSAPs to call all
numbers in a given area and warn of imminent danger. The introduction of
products and services embodying new technologies and the emergence of new
industry and technology standards can render existing products and services
obsolete and unmarketable in short periods of time. The Company expects other
vendors regularly to introduce new products and services, as well as
enhancements to their existing products and services, that will compete with the
services and products offered by the Company. As a result, the life cycles of
the Company's services and products are difficult to estimate. The Company
believes that its future success will depend in large part on its ability to
maintain and enhance its current service and product offerings, to develop and
introduce regularly new services and products that will keep pace with
technological advances and satisfy evolving customer requirements, and to
achieve acceptable levels of sales of its new services and products through its
current customers that resell the Company's solutions to their subscribers.
However, there can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction or marketing of such new services and products or that its new
services and products will adequately meet the requirements of the marketplace
and achieve market acceptance. Announcements of currently planned or other new
service and product offerings by the Company or its competitors may cause
customers to defer the purchase of existing Company services and products. The
Company's inability to develop on a timely basis new services or products, or
the failure of such new services or products to achieve market acceptance, could
have a material adverse effect on the Company's business, financial condition
and results of operations. The development of new, technologically advanced
products and services is a complex and uncertain process requiring high levels
of innovation, as well as the accurate anticipation of technological and market
trends. There can be no assurance that the Company will successfully develop,
introduce or manage the transition to new services and products. Furthermore,
services and products such as those offered by the Company may contain
undetected or unresolved errors when they are first introduced or as new
versions are released. There can be no assurance that, despite extensive testing
by the Company, errors will not be found in new services and products after
commencement of commercial availability, resulting in delay in or loss of market
acceptance and sales, diversion of development resources, injury to the
Company's reputation or increased service and warranty costs, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Significant delays in meeting deadlines for announced
service or product introductions or performance problems with such products or
upgrades could result in an undermining of customer confidence in the Company's
services and products, which would materially adversely affect its customer
relationships as well.
In addition, the Company plans to introduce transaction-based services and
software products to industries different from those the Company has
traditionally supported. There can be no assurance that the Company will be
successful in developing and marketing these new services and products or that
its current or new services and products will adequately meet the demands of its
new markets. Because it is generally not possible to predict the time required
and costs involved in reaching certain research, development and engineering
objectives related to entering new markets, actual development costs could
exceed budgeted amounts and estimated development schedules could require
extensions. Furthermore, there can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these services and products. If the Company is
unable to develop and introduce new services and products to these new markets
in a timely manner, or if a new release of a product or service to such new
markets does not achieve market acceptance, the Company's business, financial
condition and results of operations could be materially adversely affected.
DEPENDENCE ON A SINGLE SERVICE OFFERING; SUSTAINABILITY OF GROWTH
The Company currently derives substantially all of its revenue from the
provision of its 9-1-1 OSS solution to ILECs, CLECs and wireless carriers.
Accordingly, the Company is susceptible to adverse trends
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affecting this market segment, such as government regulation, technological
obsolescence and the entry of new competition. The Company expects that this
market will continue to account for substantially all of its revenue in the near
future. As a result, the Company's future success will depend on its ability to
continue to sell its 9-1-1 OSS solution to ILECs, CLECs and wireless carriers,
maintain and increase its market share by providing other value-added services
to the market, and successfully adapt its technology and services to other
related markets. There can be no assurance that markets for the Company's
existing services and products will continue to expand or that the Company will
be successful in its efforts to penetrate new markets. See
"Business -- Strategy."
FIXED PRICE CONTRACTS AND OTHER PROJECT RISKS
During 1997, approximately 75% of the Company's revenue was generated on a
fixed price per subscriber basis. The Company generally enters into contracts
with a ten-year term for wireline data management services and with a
two-to-five-year term for wireless data management services for which the
Company generally receives a fixed monthly fee based upon the number of
subscribers and upon the services selected by the customer. Therefore, the
Company's failure to estimate accurately the resources required for a fixed
price per subscriber contract could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
The Company provides 9-1-1 OSS services that are critical to the public's
perception of its customers. The Company's failure to meet a customer's
expectations in the performance of its services could damage the Company's
reputation and adversely affect its ability to attract new business, and may
have a material adverse effect upon its business, financial condition and
results of operations. The Company has undertaken, and in the future may
undertake, projects in which the Company guarantees performance based upon
defined operating specifications. Unsatisfactory performance may result in
client dissatisfaction and a reduction in payment to, or payment of damages by,
SCC, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Because the Company's services and products are utilized by its customers
to provide critical 9-1-1 services, the provision of services and licensing of
software by the Company may entail the risk of product liability and related
claims. The Company's agreements with its customers typically require the
Company to indemnify its customers for the Company's own acts of negligence. The
Company currently has product liability insurance that, subject to liability
limitations and customary exclusions, covers claims resulting from the failure
of the Company's services or products to perform the function or serve the
purpose intended. To the extent that any claims are not covered by such
insurance, the Company's business, financial condition and results of operations
may be materially and adversely affected by a successful product liability
claim.
EMERGING TELECOMMUNICATIONS MARKET AND NEW CARRIERS; REGULATORY UNCERTAINTY
The Company provides its 9-1-1 OSS solution to telecommunications carriers
in the wireline and wireless markets. Although these markets have experienced
significant growth and have been characterized by increased deregulation and
competition in recent years, there can be no assurance that such trends will
continue at similar rates or that the Company will be able to market and sell
effectively its products and services in such markets. In addition, many of the
new entrants in the telecommunications market are companies that lack
significant financial and other resources. To cultivate relationships with such
new market entrants, the Company may be required to offer alternative pricing
arrangements, which may provide for deferred payments. However, there can be no
assurance that the Company will be able to develop such relationships or that
new carriers that become customers of the Company will gain market acceptance
for their telecommunications services. If the Company permits customers that do
not have adequate financial resources to pay the Company for its services on a
deferred basis, the Company ultimately may be unable to collect payments for
such services. Because the Company historically has depended on a limited number
of long-term customer relationships, the failure of the Company to develop
relationships with, make sales to, or collect payments from new
telecommunications carriers, or the failure of the Company's customers to
compete effectively in the telecommunications market, could have a material
adverse effect on the Company's business,
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financial condition and results of operations. In addition, the
telecommunications industry is experiencing substantial consolidations and
changes that are unpredictable, and any such consolidation or change could have
a material adverse effect on the Company's business, financial condition and
results of operations.
9-1-1 services generally are funded by a locally imposed fee per subscriber
per month. A portion of this tax is paid to the local carrier providing the
9-1-1 services. The Company generally receives a monthly fee per subscriber from
its customers for management of 9-1-1 data records, allowing the carrier to
match its fixed revenue stream for 9-1-1 services with a fixed cost for record
management. Changes by local governments in the funding mechanism for 9-1-1
services or the parties responsible for the provision of such services could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The market for the Company's services and products has been influenced by
the adoption of regulations under the Telecommunications Act of 1996 (the "1996
Act"), the new duties imposed on ILECs by the 1996 Act to open the local
telephone markets to competition, and the new requirements imposed on wireless
carriers by the Order. Therefore, any changes to such legal requirements, the
adoption of new regulations by federal or state regulatory authorities under the
1996 Act or any legal challenges to the 1996 Act could have a material adverse
effect upon the market for the Company's services and products. Although the
1996 Act was designed to expand competition in the telecommunications industry,
the realization of the objectives of the 1996 Act is subject to many
uncertainties, including judicial and administrative proceedings designed to
define rights and obligations pursuant to the 1996 Act, actions or inactions by
ILECs and other carriers that affect the pace at which changes contemplated by
the 1996 Act occur, resolution of questions concerning which parties will
finance such changes, and other regulatory, economic and political factors.
The Company is aware of certain litigation challenging the validity of the
1996 Act and the local telephone competition rules adopted by the FCC to
implement the 1996 Act. The U.S. Eighth Circuit Court of Appeals has invalidated
the pricing methodology and unbundling requirements adopted by the FCC while
upholding a portion of the FCC's local competition rules, and both the U.S.
federal government and ILECs have filed petitions for review with the U.S.
Supreme Court. In a recent decision, a U.S. District Court in Texas declared
unconstitutional the provisions of the 1996 Act requiring the Regional Bell
Operating Companies (the "RBOCs") to comply with certain conditions, including
local number portability ("LNP"), in order to receive regulatory approval to
enter long distance markets. The U.S. Department of Justice, representing the
FCC, has appealed this decision. Such litigation may serve to delay
implementation of the 1996 Act, which could adversely affect demand for the
Company's services and products. Any delays in the deadlines imposed by the 1996
Act, the FCC or the Order, or any invalidation, repeal or modification in the
requirements imposed by the 1996 Act, the FCC or the Order, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, customers may require, or the Company otherwise
may deem it necessary or advisable, that the Company modify its services and
products to address actual or anticipated changes in the regulatory environment.
Any other delays in implementation of the 1996 Act, or other regulatory changes,
could materially adversely affect the Company's business, financial condition
and results of operations.
RISK OF SYSTEM FAILURES
The Company's operations are dependent upon its ability to maintain its
computer and telecommunications equipment and systems in effective working
order, and to protect its systems against damage from fire, natural disaster,
power loss, telecommunications failure or similar events. Although all of the
Company's mission-critical systems and equipment are designed with built-in
redundancy and security, there can be no assurance that a fire, natural
disaster, power loss, telecommunications failure or similar event would not
result in an interruption of the Company's services. Any damage, failure or
delay that causes interruptions in the Company's operations could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, any future addition or expansion of the
Company's facilities to increase capacity could increase the Company's exposure
to damage from fire, natural disaster, power loss, telecommunications failure or
similar events. There can be no assurance that the Company's property and
business interruption insurance will be adequate to compensate the Company for
any losses that may occur in the event
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of a system failure or that such insurance will continue to be available to the
Company at all or, if available, that it will be available on commercially
reasonable terms. See "Business -- Products and Services."
MANAGEMENT OF CHANGE
The Company has expanded its operations rapidly over the past several
years, placing significant demands on its administrative, operational and
financial personnel and systems. Additional expansion by the Company may further
strain its management, operational, financial reporting, and other systems and
resources. There can be no assurance that the Company's systems, resources,
procedures, controls and existing space will be adequate to support such
expansion of the Company's operations. The Company's future operating results
will depend substantially on the ability of its officers and key employees to
manage changing business conditions and to implement and improve its management,
operational, financial control and other reporting systems. In addition, the
Company's future operating results depend on its ability to attract, train and
retain qualified consulting, technical, sales, financial, marketing and
management personnel. Failure to hire, train or retain qualified personnel
necessary to keep pace with the Company's development of products and services
could have a material adverse effect on the Company's business, financial
condition and results of operations. Continued expansion will require the
Company's management to: enhance management information and reporting systems;
standardize implementation methodologies of SCC's NDSC; further develop its
infrastructure; and continue to maintain customer satisfaction. If the Company
is unable to respond to and manage changing business conditions, the quality of
the Company's products and services, its ability to retain key personnel and its
business, financial condition and results of operation could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Management."
HIGHLY COMPETITIVE MARKET; COMPETITION
The market for 9-1-1 OSS solutions is intensely competitive and the Company
expects competition to increase in the future. The Company believes that the
principal competitive factors affecting the market for 9-1-1 OSS services
include flexibility, reliability, manageability, technical features, wireless
support, performance, ease of use, price, scope of product offerings, and
customer service and support. Although the Company believes that its solution
competes favorably with respect to such factors, there can be no assurance that
the Company can maintain its competitive position against current and potential
competitors, especially those with significantly greater financial, marketing,
support service, technical and other competitive resources.
The Company's principal competitors generally fall within one of three
categories: internal development departments of major carriers or consulting
firms that support such departments; relatively smaller companies that offer
applications with limited scope; and larger companies that are either in the
process of entering the Company's market or have the potential to develop
products and services that compete with the Company's service offerings.
A number of companies currently market or have under development software
products and services to provide 9-1-1 administration. The Company competes with
a few smaller companies, including XYPoint Corporation, for the provision of
9-1-1 data management services to wireless carriers, although the Company
expects more significant competition in the future. Mergers or consolidations
among these competitors or acquisitions of these companies by larger competitors
would make them more formidable competitors to the Company. There can be no
assurance that the Company's current and potential competitors will not develop
products and services that may be more effective than the Company's current or
future 9-1-1 solutions or that the Company's technologies and offerings will not
be rendered obsolete by such developments.
Finally, there are a number of companies that market and sell various
products and services to telecommunications carriers, such as billing software
and advanced telecommunications equipment, that have been broadly adopted by the
Company's customers and potential customers. In addition, vendors of
telecommunications software and hardware in the future may enhance their
products to include functionality that is currently provided by the Company's
solutions. The widespread inclusion of the functionality of the Company's
service offerings as standard features of other telecommunications software or
hardware could
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render the Company's services obsolete and unmarketable, particularly if the
quality of such functionality were comparable to that of the Company's services.
Furthermore, even if the 9-1-1 functionality provided as standard features by
telecommunications software or networking hardware is more limited than that of
the Company's services, there can be no assurance that a significant number of
customers would not elect to accept more limited functionality in lieu of
purchasing additional products or services. For example, Lucent Technologies
offers carriers software systems with functionality similar to the Company's
services. Many of these larger companies have longer operating histories,
greater name recognition, access to larger customer bases and significantly
greater financial, technical and marketing resources than the Company. As a
result, they 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 and services, than the Company. If these
companies were to introduce products or services that effectively compete with
the Company's service offerings, they could be in a position to substantially
lower the price of their 9-1-1 products and services or to bundle such products
and services with their other product and service offerings.
For the foregoing reasons, there can be no assurance that the Company will
be able to compete successfully against its current and future competitors.
Increased competition may result in price reductions, reduced gross margins and
loss of market share, any of which could materially and adversely affect the
Company's business, financial condition and results of operations. See
"Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in large part on the continued service
of its key management, sales, product development and operational personnel,
including George Heinrichs, President and Chief Executive Officer, John Sims,
Chief Operating Officer, and Nancy Hamilton, Chief Financial Officer, and on the
Company's ability to continue to attract, motivate and retain highly qualified
employees, including technical, managerial and sales and marketing personnel.
Additionally, the Company expects to continue to expand the number of employees
engaged in sales, marketing and product development. However, competition in the
recruitment of highly qualified personnel in the software and telecommunications
services industry is intense and has become particularly significant in the
Denver metropolitan area. The inability to hire and retain qualified personnel
or the loss of the services of key personnel could have a material adverse
effect upon the Company's current business, development efforts and future
business prospects. If such personnel do not remain active in the Company's
business, the Company's operations could be materially adversely affected. The
Company currently maintains a key person life insurance policy only with respect
to Mr. Heinrichs. The Company is the named beneficiary of this $1,000,000
policy. See "Business -- Employees" and "Management."
DEPENDENCE ON PROPRIETARY RIGHTS
The Company's success and its ability to compete depends significantly upon
its proprietary rights. The Company relies primarily on a combination of
copyright, trademark and trade secret laws, as well as confidentiality
procedures and contractual restrictions to establish and protect its proprietary
rights. There can be no assurance that such measures will be adequate to protect
the Company's proprietary rights. Further, the Company may be subject to
additional risks as it enters into transactions in foreign countries where
intellectual property laws are not well developed or are difficult to enforce.
Legal protections of the Company's proprietary rights may be ineffective in such
countries. Litigation to defend and enforce the Company's intellectual property
rights could result in substantial costs and diversion of resources, and could
have a material adverse effect on the Company's business, financial condition
and results of operations, regardless of the final outcome of such litigation.
Despite the Company's efforts to safeguard and maintain its proprietary rights,
there can be no assurance that the Company will be successful in doing so or
that the steps taken by the Company in this regard will be adequate to deter
misappropriation or independent third-party development of the Company's
technology, or to prevent an unauthorized third party from copying or otherwise
obtaining and using the Company's technology. There also can be no assurance
that others will not independently develop similar technologies or duplicate any
technology developed by the Company. Any such events could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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As the number of entrants to the Company's markets increases and the
functionality of the Company's services and products increases and overlaps with
the products and services of other companies, the Company may become subject to
claims of infringement or misappropriation of the intellectual property rights
of others. In certain of its customer agreements, the Company agrees to
indemnify its customers for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third parties. In certain
limited instances, the amount of such indemnities may be greater than the
revenue the Company may have received from the customer. There can be no
assurance that third parties will not assert infringement or misappropriation
claims against the Company in the future with respect to current or future
product or service offerings. Any claims or litigation, with or without merit,
could be time consuming, result in costly litigation or require the Company to
enter into royalty or licensing arrangements. Such royalty or licensing
arrangements, if required, may not be available on terms acceptable to the
Company, if at all, and could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
Although substantially all of the Company's revenue is generated from sales
to customers in the United States, the Company has generated revenue in Canada
and intends to enter additional international markets, which will require
significant management attention and financial resources. International sales
are subject to a variety of risks, including difficulties in establishing and
managing international distribution channels, and in translating products and
related materials into foreign languages. International operations are also
subject to difficulties in collecting accounts receivable, staffing, managing
personnel and enforcing intellectual property rights. Other factors that can
adversely affect international operations include fluctuations in the value of
foreign currencies and currency exchange rates, changes in import/export duties
and quotas, introduction of tariff or non-tariff barriers and economic or
political changes in international markets. There can be no assurance that these
factors will not have a material adverse effect on the Company's future
international sales and, consequently, on the Company's business, financial
condition and results of operations. Furthermore, any inability to obtain
foreign regulatory approvals on a timely basis could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Strategy."
RISKS RELATING TO POTENTIAL ACQUISITIONS
As part of its overall strategy, the Company regularly evaluates
opportunities to enter into strategic acquisitions, including potential business
combinations and significant investments in complementary companies, assets,
products and technologies, although the Company has no present arrangements,
commitments or agreements with respect to any acquisition. Acquisitions involve
a number of operating risks that could materially adversely affect the Company's
business, financial condition and results of operations, including the diversion
of management's attention to assimilate the operations, products and personnel
of the acquired companies, the amortization of acquired intangible assets, and
the potential loss of key employees of the acquired companies. Furthermore,
acquisitions may involve businesses in which the Company lacks experience.
Because management has limited experience in acquisitions and the Company has no
experience in integrating acquired companies or technologies into its
operations, there can be no assurance that the Company will be able to manage
one or more acquisitions successfully, or that the Company will be able to
integrate the operations, products or personnel gained through any such
acquisitions without a material adverse effect on the Company's business,
financial condition and results of operations. See "Use of Proceeds."
YEAR 2000 CAPABILITY
Many currently installed computer and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish twenty-first century dates from
twentieth century dates. As a result, in less than two years, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance.
The Company believes that the purchasing patterns of customers and
potential customers may be significantly affected by Year 2000 issues. Many
companies are expending significant resources to correct or
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patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase services such as
those offered by the Company. Additionally, Year 2000 issues could cause a
significant number of companies, including current customers of the Company, to
re-evaluate their current system needs, and as a result, consider switching to
other systems or suppliers. This could have a material adverse effect on the
Company's business, financial condition and results of operations.
Certain of the Company's current contracts with its customers require that
the Company warrant Year 2000 capability by a certain date. Any failure to
achieve Year 2000 compliance by such date could have a material adverse effect
on the Company's business, financial condition and results of operations.
Although the Company is designing its services and products to be Year 2000
capable and tests third-party software that is incorporated with the Company's
services and products, there can be no assurance that the Company's services and
products, particularly when such products and services incorporate third-party
software, will contain all necessary date code changes in time. The Company
expects to incur approximately $125,000 in costs in 1998 in making its services
and products Year 2000 compliant. Any additional unanticipated expenses could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company utilizes off-the-shelf and custom software developed internally
and by third parties. To the extent that such software and systems do not comply
with Year 2000 requirements, there can be no assurance that potential systems
interruptions or the cost necessary to update such software will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
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
Company's Common Stock will develop or be sustained after the offering. The
initial offering price will be determined by negotiation among the Company and
the Underwriters based upon several factors. See "Underwriting" for a discussion
of the method of determining the initial public offering price. The trading
price of the Company's Common Stock could be subject to wide fluctuations in
response to variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts, and other events or factors. In
addition, the stock market has experienced volatility that has particularly
affected the market prices of equity securities of many high technology
companies and that often has been unrelated to the operating performance of such
companies. These broad market fluctuations may materially adversely affect the
market price of the Company's Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of Common Stock in this offering will experience immediate
and substantial dilution in the net tangible book value per share of their
Common Stock. At an assumed initial public offering price of $14.00 per share
and after deducting estimated offering expenses payable by the Company and
estimated underwriting discounts and commissions, investors in this offering
will incur dilution of $11.28 per share. See "Dilution."
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. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act of
1933, as amended (the "Securities Act"), and lock-up agreements under which the
holders of such shares have agreed not to sell or otherwise dispose of any of
their shares for a period of 180 days after the date of this Prospectus without
the prior written consent of the BancAmerica Robertson Stephens. However,
BancAmerica Robertson Stephens, in its sole discretion and at any time without
notice, may release all or any portion of the securities subject to lock-up
agreements. When determining whether or not to release shares from the lock-up
agreements, BancAmerica Robertson Stephens may consider, among other factors,
the holder's reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time. As a result of
these restrictions, based on shares outstanding and options granted as of April
9, 1998, assuming no options are exercised between April 9, 1998 and the date of
this Prospectus, the following shares
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of Common Stock will be eligible for future sale: on the date of this
Prospectus, 3,361,469 shares (including the 3,300,000 shares offered hereby)
will be eligible for sale; an additional 6,774,435 shares will be eligible for
sale 180 days after the date of this Prospectus. In addition, the Company
intends to register on a registration statement on Form S-8, approximately 90
days following the effective date of this offering, a total of 1,901,055 shares
of Common Stock subject to outstanding options or reserved for issuance under
the 1998 Stock Incentive Plan. Upon expiration of the lock-up agreements
referred to above, holders of approximately 6,383,723 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."
CONTROL BY EXISTING STOCKHOLDERS; EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Following the completion of this offering, members of the Board of
Directors and the executive officers of the Company, together with members of
their families and entities that may be deemed affiliates of or related to such
persons or entities, will beneficially own approximately 52.7% of the
outstanding shares of Common Stock of the Company. Accordingly, these
stockholders will be able to elect all members of the Company's Board of
Directors and determine the outcome of corporate actions requiring stockholder
approval, such as mergers and acquisitions. This level of ownership by such
persons and entities may have a significant effect in delaying, deferring or
preventing a change in control of the Company and may adversely affect the
voting and other rights of other holders of Common Stock. Certain provisions of
the Company's Amended and Restated Certificate of Incorporation, Amended and
Restated Bylaws, Delaware law and equity incentive plans also may discourage
certain transactions involving a change in control of the Company. This level of
ownership by such persons and entities, when combined with the ability of the
Board of Directors to issue "blank check" preferred stock without further
stockholder approval, may have the effect of delaying, deferring or preventing a
change in control of the Company. See "Management -- Directors and Executive
Officers," "Certain Transactions," "Principal and Selling Stockholders" and
"Description of Capital Stock."
MANAGEMENT'S DISCRETION OVER PROCEEDS OF THE OFFERING
The primary purposes of this offering are to create a public market for the
Common Stock, to facilitate future access by the Company to public equity
markets and to obtain additional equity capital. As of the date of this
Prospectus, the Company has no specific plans as to the use of the net proceeds
from this offering, other than to pay $4,610,000 of outstanding bank
indebtedness and a related prepayment premium; accordingly, the Company's
management will have broad discretion as to the application of such net
proceeds. Pending any such uses, the Company plans to invest the net proceeds in
short-term, investment grade, interest-bearing securities. See "Use of
Proceeds."
NO DIVIDENDS
The Company has not paid any cash or other dividends on its Common Stock,
nor does it expect to pay dividends in the foreseeable future. See "Dividend
Policy."
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS
The completion of the offering made by this Prospectus will provide
significant benefits to the current stockholders of the Company, including
certain of its Directors and officers. The net proceeds to the Selling
Stockholders from the sale of the 1,200,000 shares of Common Stock offered by
them hereby, assuming an initial public offering price of $14.00 and after
deducting estimated underwriting discounts and commissions, are estimated to be
approximately $15.6 million. The Company will not receive any of the proceeds
from the sale of shares by the Selling Stockholders. The completion of this
offering will also create a public market for the Common Stock and thereby is
expected to increase the market value of the investment by current stockholders
in the Company. Upon the closing of this offering at the assumed initial public
offering price of $14.00, the difference between the aggregate purchase price
paid or payable by the Company's named executive officers for shares of Common
Stock held by them or subject to options held by them and the aggregate market
value of such shares will be approximately $11.1 million. See "Dilution."
16
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,100,000 shares of
Common Stock offered by the Company hereby, assuming an initial public offering
price of $14.00 and after deducting estimated expenses payable in connection
with this offering and estimated underwriting discounts and commissions, are
estimated to be approximately $26,542,000 ($30,643,000 if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders. The
principal purposes of this offering are to create a public market for the
Company's Common Stock, to facilitate future access by the Company to public
equity markets and to increase the Company's equity capital.
The Company intends to use $4.6 million of the proceeds to pay outstanding
bank indebtedness and a related prepayment premium. Of this amount, $4.0 million
will be used to prepay outstanding indebtedness and to pay a prepayment premium
of $160,000, pursuant to the Company's loan agreement with a bank. Such
indebtedness currently bears interest at the rate of 11% per annum and requires
principal payments of $250,000 beginning on March 31, 2001 and each subsequent
quarter end through December 31, 2002. Thereafter, principal payments of
$500,000 are due on March 31, 2003 and each subsequent quarter end, with the
final payment becoming due on November 30, 2003. Additionally, the Company
intends to use a portion of the proceeds to repay $450,000 outstanding under its
line of credit. Borrowings under the line of credit bear interest at prime rate
plus 1% (9.5% at April 30, 1998) and are due on April 15, 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company expects to use its remaining net proceeds (estimated to be
approximately $21.9 million) for product development and general corporate
purposes, including working capital. A portion of the net proceeds also may be
used for the acquisition of businesses, products and technologies that are
complementary to those of the Company. While the Company regularly evaluates
opportunities to enter into strategic acquisitions, including potential business
combinations and investments in complementary companies, assets, products and
technologies, the Company has no present arrangements, commitments or agreements
with respect to any acquisition. Pending such uses, the Company intends to
invest the net proceeds from this offering in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock and
does not anticipate paying cash dividends within the foreseeable future. Certain
covenants contained in the Company's line of credit agreement and a loan
agreement restrict the payment of any dividends without the lender's prior
consent. Payments of future dividends, if any, will be at the discretion of the
Company's Board of Directors, subject to the restrictions discussed above, after
taking into account various factors, including the Company's financial
condition, operating results, cash needs and expansion plans. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998: (i) on an actual basis; (ii) on a pro forma basis giving effect
to the conversion of all outstanding shares of Convertible Preferred Stock and
the exercise of an outstanding warrant to purchase shares of Common Stock, all
upon the closing of this offering; and (iii) on a pro forma basis, as further
adjusted to reflect the receipt of the estimated net proceeds from the sale of
2,100,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $14.00 and the application of the net proceeds
therefrom as described under "Use of Proceeds." This table should be read in
conjunction with the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt............................................ $ 9,642 $ 9,642 $ 6,998
======== ======== ========
Mandatorily redeemable, convertible preferred stock
(Series A, B, C, D, E and F), $.001 par value; 6,188,575
shares authorized; 6,188,575 shares issued and
outstanding, actual; none issued or outstanding, pro
forma or pro forma as adjusted.......................... 14,774 -- --
Putable common stock warrant.............................. 1,521 -- --
Stockholders' equity (deficit):
Preferred stock, $.001 par value; 15,000,000 shares
authorized; none issued or outstanding............... -- -- --
Common stock, $.001 par value; 30,000,000 shares
authorized; 1,958,284 shares outstanding, actual;
8,342,007 shares outstanding, pro forma; 10,442,007
shares outstanding, pro forma as adjusted(1)......... 2 8 10
Additional paid-in capital.............................. 453 16,742 43,282
Treasury stock, 36,250 shares, at cost.................. (3) (3) (3)
Stock subscriptions receivable.......................... (99) (99) (99)
Accumulated deficit..................................... (14,338) (14,338) (15,854)
-------- -------- --------
Total stockholders' equity (deficit)............ (13,985) 2,310 27,336
-------- -------- --------
Total capitalization............................ $ 11,952 $ 11,952 $ 34,334
======== ======== ========
</TABLE>
- ------------
(1) Excludes 1,116,126 shares of Common Stock issuable upon exercise of stock
options outstanding as of March 31, 1998 at a weighted average exercise
price of $3.13 per share, and 117,442 shares of Common Stock reserved for
grant of future options as of March 31, 1998, under the 1990 Stock Option
Plan. From April 1, 1998 to April 30, 1998, the Company issued 846 shares of
Common Stock upon the exercise of outstanding options and granted options to
purchase 3,333 shares of Common Stock pursuant to the 1990 Stock Option
Plan. In addition, the number of shares reserved for issuance under the 1990
Stock Option Plan was increased by 166,667 shares effective April 7, 1998.
On the effective date of the Registration Statement of which this Prospectus
is a part, an additional 500,000 share reserve will be created under the
Company's 1998 Stock Incentive Plan. See "Management -- Benefit
Plans -- 1998 Stock Incentive Plan."
18
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company at March 31, 1998 was
approximately $1,854,000, or $0.22 per share. Pro forma net tangible book value
per share represents the total amount of the Company's tangible assets less
total liabilities, divided by the number of shares of Common Stock outstanding
after giving effect to the conversion of all outstanding Convertible Preferred
Stock and the exercise of an outstanding warrant. After giving effect to the
sale of 2,100,000 shares of Common Stock offered hereby by the Company at an
assumed initial public offering price of $14.00 per share and after deducting
estimated offering expenses payable by the Company and estimated underwriting
discounts and commissions, the Company's pro forma net tangible book value at
March 31, 1998, would have been $28,396,000, or $2.72 per share. This represents
an immediate dilution of $11.28 per share to new investors purchasing shares of
Common Stock in this offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 14.00
Pro forma net tangible book value per share as of March
31, 1998............................................... $ 0.22
Increase per share attributable to new investors.......... 2.50
--------
Pro forma net tangible book value per share after the
offering.................................................. 2.72
--------
Net tangible book value dilution per share to new
investors................................................. $ 11.28
========
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and to be paid by new investors at an assumed initial
public offering price of $14.00 per share (before deducting estimated
underwriting discounts and commissions and other expenses of this offering):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).... 8,342,007 79.9% $12,932,000 30.5% $ 1.55
New investors(1)............ 2,100,000 20.1 29,400,000 69.5 $14.00
---------- ----- ----------- -----
Total............. 10,442,007 100.0% $42,332,000 100.0%
========== ===== =========== =====
</TABLE>
- ------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares held by the existing stockholders to 7,142,007 or approximately 68.4%
of the total number of shares of Common Stock outstanding after this
offering, and will increase the number of shares to be purchased by new
investors to 3,300,000 or approximately 31.6% of the total number of shares
of Common Stock outstanding after the offering. See "Principal and Selling
Stockholders."
The foregoing tables assume no exercise of outstanding options. As of March
31, 1998, there were outstanding stock options to purchase an aggregate of
1,116,126 additional shares of Common Stock at a weighted average exercise price
of $3.13 per share. To the extent that these options are exercised, there will
be further dilution to new investors. See "Management -- Benefit Plans -- 1998
Stock Incentive Plan" and Note 5 of Notes to Financial Statements.
19
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to and
should be read in conjunction with the Company's Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The statement of
operations data for the years ended December 31, 1995, 1996 and 1997 and the
balance sheet data at December 31, 1996 and 1997 are derived from, and are
qualified by reference to, the audited Financial Statements and Notes included
elsewhere in this Prospectus. The statement of operations data for the years
ended December 31, 1994 and 1993 and the balance sheet data at December 31,
1993, 1994 and 1995 are derived from audited financial statements not included
in this Prospectus. The data presented as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 are derived from unaudited Financial
Statements included elsewhere in this Prospectus. In the opinion of management,
these unaudited Financial Statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the data for such
periods. The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the full year or
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------ ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Data management services......................... $ -- $ 170 $ 3,531 $13,165 $24,005 $ 4,861 $ 7,533
Licenses and implementation services............. 4,799 1,830 3,882 1,637 3,067 271 369
------ ------- ------- ------- ------- ------- -------
Total revenue.............................. 4,799 2,000 7,413 14,802 27,072 5,132 7,902
Costs and expenses:
Cost of data management services................. -- 1,137 2,840 7,996 15,378 3,123 4,798
Cost of licenses and implementation services..... 2,148 789 1,041 596 1,283 98 153
Sales and marketing.............................. 1,080 1,262 2,016 3,204 3,850 933 843
General and administrative....................... 439 227 830 1,533 3,227 485 1,146
------ ------- ------- ------- ------- ------- -------
Total costs and expenses................... 3,667 3,415 6,727 13,329 23,738 4,639 6,940
------ ------- ------- ------- ------- ------- -------
Income (loss) from operations...................... 1,132 (1,415) 686 1,473 3,334 493 962
Other expenses, net................................ 8 10 368 527 879 150 301
------ ------- ------- ------- ------- ------- -------
Income (loss) from continuing operations before
income taxes..................................... 1,124 (1,425) 318 946 2,455 343 661
Provision for income taxes......................... 298 53 16 9 172 24 46
------ ------- ------- ------- ------- ------- -------
Net income (loss) from continuing operations....... 826 (1,478) 302 937 2,283 319 615
Income (loss) from operations of discontinued
division, net of tax............................. 103 (1,956) (1,746) (562) (876) (253) --
Loss from disposal of discontinued division........ -- -- -- -- (2,032) -- --
------ ------- ------- ------- ------- ------- -------
Net income (loss).................................. $ 929 $(3,434) $(1,444) $ 375 $ (625) $ 66 $ 615
====== ======= ======= ======= ======= ======= =======
PER SHARE DATA(1):
Net income (loss) from continuing operations per
share:
Basic............................................ $ 0.68 $ (1.36) $ (0.02) $ 0.15 $ 0.83 $ .07 $ .20
====== ======= ======= ======= ======= ======= =======
Diluted.......................................... $ 0.15 $ (1.36) $ (0.02) $ 0.11 $ 0.26 $ .04 $ .07
====== ======= ======= ======= ======= ======= =======
Net income (loss) per share:
Basic............................................ $ 0.78 $ (3.02) $ (1.07) $ (0.17) $ (0.74) $ (0.07) $ 0.20
====== ======= ======= ======= ======= ======= =======
Diluted.......................................... $ 0.16 $ (3.02) $ (1.07) $ 0.05 $ (0.07) $ 0.01 $ 0.07
====== ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 1,139 $ 721 $ 1,004 $ 32 $ 2,503 $ 1,177
Working capital (deficit).............................. (3,729) (7,468) (8,135) (7,345) (3,970) (3,331)
Total assets........................................... 6,150 6,422 11,755 18,482 18,606 20,828
Long-term debt......................................... 230 494 1,934 3,318 6,891 9,642
Total stockholders' deficit(2)......................... (2,547) (5,845) (4,614) (13,068) (14,367) (13,985)
</TABLE>
- ------------
(1) See Note 2 of Notes to Financial Statements for an explanation of the
determination of the shares used in computing net income (loss) per share.
(2) The Company has never declared or paid dividends on any of its capital
stock.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus.
OVERVIEW
SCC is the leading provider of 9-1-1 OSS services to ILECs, CLECs and
wireless carriers in the United States. The Company manages the data that enable
a 9-1-1 call to be routed to the appropriate public safety agency with accurate
and timely information about the caller's identification and location. The
Company was incorporated in July 1979 in the State of Colorado under the name
Systems Concepts of Colorado, Inc. and was reincorporated in September 1993 in
the State of Delaware under the name SCC Communications Corp. Prior to 1995,
substantially all of the Company's revenue was derived from the sale of software
licenses and related implementation services to ILECs and public safety
agencies. During 1994, the Company began investing in infrastructure to provide
its 9-1-1 OSS solution to telephone operating companies seeking to outsource
such operations. The Company signed its first 9-1-1 data management services
contract in August 1994 and added to the number of records under management
during 1995, 1996 and 1997. The Company began to recognize revenue from wireless
carriers in the third quarter of 1997, and a growing percentage of the Company's
revenue has been derived from the management of 9-1-1 data records for wireless
carriers.
SCC's data management services revenue is derived from contracts with
ILECs, CLECs and wireless carriers pursuant to which the Company provides an
outsourcing solution for its customers' 9-1-1 data management. Revenue included
in data management services generally includes a non-recurring initial fee for
the design and implementation of the 9-1-1 OSS, conversion of the customer's
data to the Company's systems, hiring and training of personnel, and other costs
required to prepare for the processing of customer data. Non-recurring fees are
recognized on the percentage-of-completion method over the period required to
perform the tasks necessary to prepare for the processing of customer data. The
Company also generally receives a monthly service fee based on the number of
subscriber records under management, which is recognized in the period in which
the services are rendered. Data management services revenue also may include
revenue from enhanced products and services, which are recognized in the period
to which the services are performed. Related costs are expensed as they are
incurred. Data management services revenue comprised 48%, 89% and 89% of the
Company's total revenue in the years ended December 31, 1995, 1996 and 1997,
respectively, and 95% in the three months ended March 31, 1998.
SCC's licenses and implementation services revenue is derived from
contracts with ILECs pursuant to which the Company provides a 9-1-1 software
license or related products and services such as implementation, training,
software enhancements and interfaces to its customers' systems. Licenses and
implementation services revenue is recognized using the percentage-of-completion
method. The related costs include third-party licenses, direct labor and related
expenses, and are expensed as incurred. Subsequent to system installation, the
Company provides its customers with maintenance services that are recognized
ratably over the related contract period on a straight-line basis. The Company's
licenses and implementation services revenue is derived from a limited number of
customers and consequently the concentration of customers can result in
quarterly fluctuations based on the timing of the signing of new contracts and
completion of existing contracts. Margins on such contracts also may fluctuate
based on the elements included in the contract. Licenses and implementation
services revenue comprised 52%, 11% and 11% of the Company's total revenue in
the years ended December 31, 1995, 1996 and 1997, respectively, and 5% in the
three months ended March 31, 1998.
During the year ended December 31, 1996, the Company recognized
approximately 82% of total revenue from continuing operations from Ameritech and
U.S. WEST, each of which accounted for greater than 10% of
21
<PAGE> 24
the Company's total revenue in such periods. During the year ended December 31,
1997, the Company recognized approximately 81% of total revenue from Ameritech,
BellSouth Inc. and U.S. WEST, each of which accounted for greater than 10% of
the Company's total revenue in such periods. During the three months ended March
31, 1998, the Company recognized approximately 92% of total revenue from four
customers, each of which accounted for greater than 10% of the Company's total
revenue in such periods. See "Risk Factors -- Reliance on Significant
Customers."
As of December 31, 1997, the Company had net operating loss carryforwards
of $9.6 million available to offset future net income for U.S. federal income
tax purposes. Thus, the Company's income tax provision for past fiscal years
consisted of alternative minimum taxes, state income taxes in states where the
Company has not had net operating loss carryforwards to offset net income, and
foreign taxes. There is no assurance that the Company's existing net operating
loss carryforwards will be offset by future taxable income or will not be
restricted in the future due to transactions entered into by the Company or
changes in tax legislation.
In June 1997, the Company sold the net assets of its Premise Products
Division. The sale of the Company's Premise Products Division resulted in a net
loss from the sale of $2.0 million. Net losses from operations of this division
totaled $1.7 million, $562,000 and $876,000 in 1995, 1996 and 1997,
respectively, and are presented in the Company's financial statements as loss
from operations of discontinued division.
Historically, substantially all of the Company's revenue has been generated
from sales to customers in the United States. However, the Company has generated
revenue in Canada and intends to enter additional international markets, which
may require significant management attention and financial resources.
International sales are subject to a variety of risks. See "Risk
Factors -- Risks Associated with International Sales."
The Company's quarterly and annual operating results have varied
significantly in the past. The variation in operating results will likely
continue and may intensify. Although the Company was profitable in seven of its
last eight quarters, there can be no assurance that the Company's profitability
will continue in the future or, if the Company is profitable, that its levels of
profitability will not vary significantly between quarters. Accordingly, the
Company believes that period to period comparisons of results of operations are
not necessarily meaningful and should not be relied upon as indications of
future performance. The Company's operating results may fluctuate as a result of
many factors, including the length of the sales cycles for new or existing
customers, the size, timing or duration of significant customer contracts,
fluctuations in number of subscriber records under management, timing or
duration of service offerings, ability of the Company to hire, train and retain
qualified personnel, increased competition, changes in operating expenses,
changes in Company strategy, the financial performance of the Company's
customers, changes in telecommunications legislation and regulations that may
affect the competitive environment for the Company's services, and general
economic factors. The Company's contracts for 9-1-1 OSS services generally
include a non-recurring initial fee, and therefore, the Company may recognize
significantly increased revenue for a short period of time upon commencing
services for a new customer.
The Company's expense levels are based in significant part on its
expectations regarding future revenue. The Company's revenue is difficult to
forecast because the market for the Company's 9-1-1 OSS services is rapidly
evolving. In addition, the Company's sales cycle and the size and timing of
significant customer contracts, license fees and non-recurring initial fees vary
substantially among customers depending on the level of service provided.
Accordingly, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenue. Any significant shortfall
could therefore have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company hired
additional employees in 1996, 1997 and the three months ended March 31, 1998,
and expects to continue hiring additional employees during 1998. The Company
expects that this increase will affect the Company's operating margins for the
short term. There can be no assurance that the Company can continue to report
operating profits, and failure to do so is likely to have a material adverse
effect on the Company's financial results. See "Risk Factors -- Significant
Fluctuations in Quarterly Results of Operations" and "-- Management of Change."
22
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data of the
Company expressed as a percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Data management services................. 47.6% 88.9% 88.7% 94.7% 95.3%
Licenses and implementation services..... 52.4 11.1 11.3 5.3 4.7
----- ----- ----- ----- -----
Total revenue.................... 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of data management services......... 38.3 54.0 56.8 60.8 60.7
Cost of licenses and implementation
services.............................. 14.0 4.0 4.7 1.9 1.9
Sales and marketing...................... 27.2 21.6 14.2 18.2 10.7
General and administrative............... 11.2 10.4 11.9 9.5 14.5
----- ----- ----- ----- -----
Total costs and expenses......... 90.7 90.0 87.6 90.4 87.8
----- ----- ----- ----- -----
Income from operations..................... 9.3 10.0 12.4 9.6 12.2
Other expenses, net........................ 5.0 3.6 3.2 2.9 3.8
----- ----- ----- ----- -----
Net income from continuing operations
before income taxes...................... 4.3 6.4 9.2 6.7 8.4
Provision for income taxes................. 0.2 -- 0.6 0.5 0.6
----- ----- ----- ----- -----
Net income from continuing operations...... 4.1 6.4 8.6 6.2 7.8
Loss from operations of discontinued
division, net of tax..................... (23.6) (3.8) (3.2) (4.9) --
Loss from disposal of discontinued
division................................. -- -- (7.5) -- --
----- ----- ----- ----- -----
Net income (loss).......................... (19.5)% 2.6% (2.1)% 1.3% 7.8%
===== ===== ===== ===== =====
Cost of data management services as a
percent of data management services
revenue.................................. 80.4% 60.7% 64.1% 64.2% 63.7%
===== ===== ===== ===== =====
Cost of licenses and implementation
services as a percent of licenses and
implementation services revenue.......... 26.8% 36.4% 41.8% 36.2% 41.5%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenue
Total Revenue. Total revenue increased 54%, from $5.1 million in the first
quarter of 1997 to $7.9 million in the first quarter of 1998.
Data Management Services Revenue. Revenues from data management services
increased 55%, from $4.9 million in the first quarter of 1997 to $7.5 million in
the first quarter of 1998, representing approximately 95% of total revenue in
both periods. The increase resulted primarily from (i) non-recurring and monthly
fees from wireless customers in the first quarter of 1998, as the Company did
not begin to earn revenue from wireless customers until the third quarter of
1997, (ii) increased monthly fees from wireline customers, as the Company had
not completed the transition of records for a major customer in the first
quarter of 1997, and (iii) non-recurring fees from enhanced services provided in
the first quarter of 1998.
Licenses and Implementation Services. Revenue from licenses and
implementation services increased 36%, from $271,000 in the first quarter of
1997 to $369,000 in the first quarter of 1998, as the Company earned revenue in
1998 related to a contract that was not in place in the first quarter of 1997.
23
<PAGE> 26
Costs and Expenses
Cost of Data Management Services. Cost of data management services consists
primarily of labor and costs of interconnection with customers' systems and the
Company's infrastructure. Cost of data management services increased 54%, from
$3.1 million in the first quarter of 1997 to $4.8 million in the first quarter
of 1998, representing 61% and 64% of total revenue and data management services
revenue, respectively, in both periods. The dollar increase was due to the
addition of personnel and expansion of facilities to accommodate growth in the
Company's wireless and wireline operations.
Cost of Licenses and Implementation Services. Cost of licenses and
implementation services consists primarily of labor, license fees for third
party software and related expenses. Cost of licenses and implementation
services increased 56%, from $98,000 in the first quarter of 1997 to $153,000 in
the first quarter of 1998, representing 2% of total revenue in both periods and
36% and 42% of licenses and implementation services revenue in the first quarter
of 1997 and the first quarter of 1998, respectively. The increase in dollars and
as a percent of licenses and implementation services revenue was due to work
performed on a contract in the first quarter of 1998 which contained higher cost
elements, including third-party software, than contracts in process in the first
quarter of 1997.
Sales and Marketing. Sales and marketing expenses consist primarily of
expenses related to salaries and commissions, travel, trade shows and sales
collateral. Sales and marketing expenses decreased 10%, from $933,000 in the
first quarter of 1997 to $843,000 in the first quarter of 1998, representing 18%
and 11% of total revenue in the first quarter of 1997 and the first quarter of
1998, respectively. The decrease was primarily due to decreased commissions and
bonuses in the first quarter of 1998 caused by a change in the structure of the
incentive plans and a bonus paid to an individual in the first quarter of 1997,
as well as the transfer of a vice president to a general and administrative
position. These decreases were offset by increased headcount and public
relations costs.
General and Administrative. General and administrative expenses consist
primarily of expenses related to the Company's information systems, finance,
human resources, legal, executive and financial planning departments. General
and administrative expenses increased 136%, from $485,000 in the first quarter
of 1997 to $1.1 million in the first quarter of 1998, representing 10% and 15%
of total revenue in the first quarter of 1997 and the first quarter of 1998,
respectively. The dollar increase was due to (i) the reassignment of certain
continuing resources, infrastructure and related general and administrative
expenses applicable to continuing operations, (ii) addition of personnel and
computer equipment in the accounting, information systems and human resources
departments to support the Company's growth and (iii) increased executive
bonuses due to increased profitability in the first quarter of 1998.
Other Expenses, Net. Net other expenses consist primarily of interest
expense from the Company's borrowings and leases for capital equipment, offset
by interest income earned on the Company's cash balances. Other expenses
increased 101%, from $150,000 in the first quarter of 1997 to $301,000 in the
first quarter of 1998, representing 3% and 4% of total revenue in the first
quarter of 1997 and the first quarter of 1998, respectively. The dollar increase
was primarily due to interest related to the 4.0 million loan from a bank that
was outstanding in the first quarter of 1998, which was partially offset by
decreased interest expense resulting from a lower balance outstanding on the
Company's line of credit in the first quarter of 1998.
Provision for income taxes. The Company's income tax provision increased
from $24,000 in the first quarter of 1997 to $46,000 in the first quarter of
1998 due to increased income generated in states where the Company did not have
net operating loss carryforwards available to offset net income.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue
Total Revenue. Total revenue increased 83%, from $14.8 million in 1996 to
$27.1 million in 1997.
Data Management Services Revenue. Revenue from data management services
increased 82%, from $13.2 million in 1996 to $24.0 million in 1997, representing
approximately 89% of total revenue in both years. This increase resulted from an
increase in non-recurring and monthly fees from existing customers, increased
24
<PAGE> 27
sales of new services to existing customers, and the realization of
non-recurring and monthly fees from both wireline and wireless customers.
Licenses and Implementation Services Revenue. Revenue from licenses and
implementation services increased 87%, from $1.6 million in 1996 to $3.1 million
in 1997. The increase resulted from the addition of a new contract in 1997.
Costs and Expenses
Cost of Data Management Services. Cost of data management services
increased 92%, from $8.0 million in 1996 to $15.4 million in 1997, representing
54% and 57%, respectively, of total revenue and 61% and 64%, respectively, of
data management services revenue. The increase as a percentage of total revenue
and data management services revenue resulted from the addition of employees and
other resources in early 1997 in anticipation of wireless contracts, although
the Company did not begin recognizing revenue from such contracts until the
third quarter of 1997.
Cost of Licenses and Implementation Services. Cost of licenses and
implementation services increased 115%, from $596,000 in 1996 to $1.3 million in
1997, representing 4% and 5%, respectively, of total revenue and 36% and 42%,
respectively, of licenses and implementation services revenue. The increase as a
percentage of associated revenue was due to the inclusion of higher cost
elements, including third-party software, in contracts performed in 1997.
Sales and Marketing. Sales and marketing expenses increased 20%, from $3.2
million in 1996 to $3.9 million in 1997, representing 22% and 14%, respectively,
of total revenue. The increase in dollar amount was primarily due to increases
in salaries, recruiting, relocation and travel costs caused by an increase in
the sales force and increased marketing activities in 1997. The remaining
increase was due to the reassignment of marketing resources and related expenses
to the Company's continuing operations.
General and Administrative. General and administrative expenses increased
111%, from $1.5 million in 1996 to $3.2 million in 1997, representing 10% and
12%, respectively, of total revenue. Approximately $1.0 million of the increase
is related to the reassignment of certain continuing resources, infrastructure
and related general and administrative expenses applicable to the Company's
continuing operations. The remaining dollar and percentage increases resulted
primarily from increased costs necessary to develop and maintain the internal
and customer support information systems, increased depreciation expense in
1997, increased executive bonuses paid and accrued in 1997, and expansion of the
Company's facilities to accommodate the Company's growth.
Other Expenses, Net. Other expenses increased 67%, from $527,000 in 1996 to
$879,000 in 1997, representing 4% and 3% of total revenue in 1996 and 1997,
respectively. The increase in dollar amount resulted from an increase in
interest expense caused by an increase in capital leases, a higher average
balance outstanding on the Company's line of credit in 1997, and interest
expense related to a $4.0 million borrowing in November 1997. This increase was
partially offset by an increase in interest income recognized, as the Company's
average cash balance increased in 1997.
Provision for Income Taxes. The Company's income tax provision increased
from $9,000 in 1996 to $172,000 in 1997. This increase was due to a foreign
income tax refund received in 1996. In addition, the Company's state income tax
provision increased in 1997, as the Company generated more income in states in
which the Company did not have net operating loss carryforwards available to
offset net income.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue
Total Revenue. Total revenue increased 100%, from $7.4 million in 1995 to
$14.8 million in 1996.
Data Management Services Revenue. Revenue from data management services
increased 273%, from $3.5 million in 1995 to $13.2 million in 1996, representing
48% and 89%, respectively, of total revenue. The
25
<PAGE> 28
increase in dollar amount resulted from increased revenue from non-recurring and
monthly fees in 1996 from both existing and new wireline customers.
Licenses and Implementation Services Revenue. Revenue from licenses and
implementation services decreased 58%, from $3.9 million in 1995 to $1.6 million
in 1996, representing 52% and 11%, respectively, of total revenue. The decrease
resulted from the implementation of a large project in 1995 without a comparable
amount of new business in 1996.
Costs and Expenses
Cost of Data Management Services. Cost of data management services
increased 182%, from $2.8 million in 1995 to $8.0 million in 1996, representing
38% and 54%, respectively, of total revenue and 80% and 61%, respectively, of
data management services revenue. Cost of data management services was greater
as a percentage of the related revenue in 1995 because the Company was building
the infrastructure for its data management services business, including hiring
and training employees, building the network infrastructure, preparing
facilities and converting data to the Company's systems. Cost of data management
services was higher as a percentage of total revenue in 1996 due to the
increased percentage of data management services revenue.
Cost of Licenses and Implementation Services. Cost of licenses and
implementation services decreased 43%, from $1.0 million in 1995 to $596,000 in
1996, representing 14% and 4%, respectively, of total revenue and 27% and 36%,
respectively, of licenses and implementation services revenue. The increase as a
percentage of associated revenue was due to the inclusion of higher cost
elements, including third-party software, on contracts in 1996.
Sales and Marketing. Sales and marketing expenses increased 59%, from $2.0
million in 1995 to $3.2 million in 1996, representing 27% and 22%, respectively,
of total revenue. The increase in dollar amount was primarily due to increased
salary, travel and related facilities costs caused by an increase in the sales
force, increased sales commissions and bonuses due to increased revenue, and
increased costs for trade shows. The remaining increase was due to an increase
in certain marketing expenses from the growth of continuing operations of the
Company.
General and Administrative. General and administrative expenses increased
85%, from $830,000 in 1995 to $1.5 million in 1996, representing 11% and 10%,
respectively, of total revenue. This increase in dollar amount was primarily due
to salaries, travel and other costs related to the hiring of management and
other personnel in anticipation of growth in 1996. The increase was partially
offset by decreased relocation, bad debt and consulting expenses.
Other Expenses, Net. Net other expenses increased 43%, from $368,000 in
1995 to $527,000 in 1996, representing 5% and 4%, respectively, of total
revenue. The increase in dollar amount was due to an increase in interest
expense primarily related to additional capital leases for equipment required to
operate the Company's data management services business. This increase was
partially offset by a decrease in interest expense caused by the conversion to
equity and repayment of certain notes payable in 1996.
Provision for Income Taxes. The income tax provision decreased 44%, from
$16,000 in 1995 to $9,000 in 1996. This decrease was primarily due to a foreign
income tax refund received in 1996, offset by additional income generated in
1996 in states in which the Company did not have net operating loss
carryforwards available to offset net income.
26
<PAGE> 29
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth quarterly results of operations data in
dollars and as a percentage of total revenue for each of the nine quarters in
the period ended March 31, 1998. This quarterly information is unaudited, has
been prepared on the same basis as the annual financial statements and, in the
opinion of the Company's management, reflects all normal recurring adjustments
necessary for a fair presentation of the information for the periods presented,
when read in conjunction with the Company's Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. Operating results for any
quarter are not necessarily indicative of results for any future period. See
"Risk Factors -- Significant Fluctuations in Quarterly Operating Results of
Operations."
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Data management services..... $2,253 $3,241 $3,573 $4,098 $4,861 $ 5,241 $6,394 $7,509 $7,533
Licenses and implementation
services................... 567 596 238 236 271 536 834 1,426 369
------ ------ ------ ------ ------ ------- ------ ------ ------
Total revenue.......... 2,820 3,837 3,811 4,334 5,132 5,777 7,228 8,935 7,902
Costs and expenses:
Cost of data management
services................... 1,435 1,732 2,236 2,593 3,123 3,434 4,174 4,647 4,798
Cost of licenses and
implementation services.... 258 207 120 11 98 254 457 474 153
Sales and marketing.......... 539 949 752 964 933 1,067 901 949 843
General and administrative... 309 370 419 435 485 525 930 1,287 1,146
------ ------ ------ ------ ------ ------- ------ ------ ------
Total costs and
expenses............. 2,541 3,258 3,527 4,003 4,639 5,280 6,462 7,357 6,940
------ ------ ------ ------ ------ ------- ------ ------ ------
Income from operations......... 279 579 284 331 493 497 766 1,578 962
Other expenses, net............ 102 112 150 163 150 208 193 328 301
------ ------ ------ ------ ------ ------- ------ ------ ------
Income from continuing
operations before income
taxes........................ 177 467 134 168 343 289 573 1,250 661
Provision for income taxes..... 12 34 (53) 16 24 20 40 88 46
------ ------ ------ ------ ------ ------- ------ ------ ------
Net income from continuing
operations................... 165 433 187 152 319 269 533 1,162 615
Loss from operations of
discontinued division, net of
tax.......................... (30) (366) (39) (127) (253) (623) -- -- --
Loss from disposal of
discontinued division........ -- -- -- -- -- (2,032) -- -- --
------ ------ ------ ------ ------ ------- ------ ------ ------
Net income (loss).............. $ 135 $ 67 $ 148 $ 25 $ 66 $(2,386) $ 533 $1,162 $ 615
====== ====== ====== ====== ====== ======= ====== ====== ======
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue:
Data management services..... 79.9% 84.5% 93.8% 94.6% 94.7% 90.7% 88.5% 84.0% 95.3%
License and implementation
services................... 20.1 15.5 6.2 5.4 5.3 9.3 11.5 16.0 4.7
------ ------ ------ ------ ------ ------- ------ ------ ------
Total revenue.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of data management
services................... 50.9 45.1 58.7 59.8 60.9 59.4 57.7 52.0 60.7
Cost of licenses and
implementation services.... 9.1 5.4 3.1 0.3 1.9 4.4 6.3 5.3 1.9
Sales and marketing.......... 19.1 24.7 19.7 22.2 18.2 18.5 12.5 10.6 10.7
General and administrative... 11.0 9.7 11.0 10.0 9.4 9.1 12.9 14.4 14.5
------ ------ ------ ------ ------ ------- ------ ------ ------
Total costs and
expenses............. 90.1 84.9 92.5 92.3 90.4 91.4 89.4 82.3 87.8
------ ------ ------ ------ ------ ------- ------ ------ ------
Income from operations......... 9.9 15.1 7.5 7.7 9.6 8.6 10.6 17.7 12.2
Other expenses, net............ 3.6 2.9 3.9 3.8 2.9 3.6 2.7 3.7 3.8
------ ------ ------ ------ ------ ------- ------ ------ ------
Income from continuing
operations before income
taxes........................ 6.3 12.2 3.6 3.9 6.7 5.0 7.9 14.0 8.4
Provision for income taxes..... 0.4 0.9 (1.4) 0.4 0.5 0.3 0.6 1.0 0.6
------ ------ ------ ------ ------ ------- ------ ------ ------
Net income from continuing
operations................... 5.9 11.3 5.0 3.5 6.2 4.7 7.3 13.0 7.8
Loss from operations of
discontinued division, net of
tax.......................... (1.1) (9.5) (1.0) (2.9) (4.9) (10.8) -- -- --
Loss from disposal of
discontinued division........ -- -- -- -- -- (35.2) -- -- --
------ ------ ------ ------ ------ ------- ------ ------ ------
Net income (loss).............. 4.8% 1.8% 4.0% 0.6% 1.3% (41.3)% 7.3% 13.0% 7.8%
====== ====== ====== ====== ====== ======= ====== ====== ======
Cost of data management
services as a percent of data
management services
revenue...................... 63.7% 53.4% 62.6% 63.3% 64.2% 65.5% 65.3% 61.9% 63.7%
====== ====== ====== ====== ====== ======= ====== ====== ======
Cost of licenses and
implementation services as a
percent of licenses and
implementation services
revenue...................... 45.5% 34.7% 50.4% 4.7% 36.2% 47.4% 54.8% 33.2% 41.5%
====== ====== ====== ====== ====== ======= ====== ====== ======
</TABLE>
27
<PAGE> 30
\LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company has funded its operations through cash
provided by operations, supplemented by equity and debt financing and leases on
capital equipment. As of March 31, 1998, the Company had $1.2 million in cash
and cash equivalents and $2.9 million in net accounts receivable. In 1996, the
Company generated cash from financing activities through the issuance of shares
of Convertible Preferred Stock for $4.0 million. In addition, the Company
borrowed $4.0 million in 1997 from a bank. The loan bears interest at 11%
through May 31, 1999, and at 12% thereafter through maturity. Principal payments
of $250,000 are due beginning on March 31, 2001, and will be payable at each
subsequent quarter end through December 31, 2002. Principal payments of $500,000
are due on March 31, 2003 and at each subsequent quarter end, with the final
payment due November 30, 2003. The Company may prepay the loan after June 30,
1998; however, a prepayment premium will be due equal to 4% of the amount
outstanding if prepaid between June 30, 1998 and November 30, 1998, 3% if
prepaid between December 1, 1998 and November 30, 1999 and 2% if prepaid between
December 1, 1999 and November 30, 2000. The loan is secured by a first priority
security interest in substantially all of the Company's assets. As of the date
of this Prospectus, the Company was in compliance with all covenants related to
this debt. The Company intends to use a portion of the proceeds from this
offering to prepay the $4.0 million of borrowings and to pay a prepayment
premium of $160,000.
The Company used cash in 1996 and 1997 of $2.4 million and $2.6 million,
respectively, for the purchase of capital assets, primarily for use in the
delivery of its data management services. The Company also paid $2.5 million and
$3.6 million in 1996 and 1997, respectively, toward its lease obligations for
capital equipment.
The Company has a line of credit with a bank equal to the lesser of 75% of
qualifying accounts receivable or $2.0 million available to meet operating
needs. Amounts borrowed under the line of credit bear interest at prime rate
plus 1% (9.5% at April 30, 1998) and are due April 15, 1999. The Company intends
to renew this line of credit. The credit line is collateralized by certain
assets of the Company. As of March 31, 1998, $450,000 was outstanding on the
line of credit. During 1996 and 1997, the Company had net borrowings under its
bank notes and line of credit of $623,000 and $2.8 million, respectively. The
Company intends to use a portion of the proceeds from this offering to repay the
$450,000 outstanding under its line of credit.
The Company is designing its services and products to be Year 2000 capable
and tests third-party software that is incorporated with the Company's services
and products. There can be no assurance, however, that the Company's services
and products, particularly when such services and products incorporate third-
party software, will contain all necessary date code changes in time. The
Company expects to incur approximately $125,000 in costs in 1998 in making its
services and products Year 2000 compliant. Any additional unanticipated expenses
could have an adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Year 2000 Capability."
The Company believes that the remaining net proceeds from this offering,
together with cash generated from operations, will be sufficient to fund its
anticipated working needs, capital expenditures and any potential future
acquisitions for the foreseeable future. Changes in the Company's plans or other
events affecting the Company's operations may result in accelerated or
unexpected expenditures that would affect the Company's cash requirements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." This statement, effective for fiscal years beginning
after December 15, 1997, would require the Company to report components of
comprehensive income in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is defined by
Concepts Statement No. 6, "Elements of Financial Statements," as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. The Company adopted SFAS 130 in
28
<PAGE> 31
the first quarter of 1998, however, the Company did not have any transactions
which would require additional disclosure under SFAS 130.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information." This statement, effective for financial statements for
periods beginning after December 15, 1997, requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Generally, financial information is required to be reported
on the basis that it is used internally for evaluation of segment performance
and deciding how to allocate resources to segments. The adoption of SFAS 131 is
not expected to have a material impact on the Company's financial statements.
29
<PAGE> 32
BUSINESS
THE COMPANY
SCC Communications Corp. ("SCC" or the "Company") is the leading provider
of 9-1-1 operations support systems ("OSS") services to incumbent local exchange
carriers ("ILECs"), competitive local exchange carriers ("CLECs") and wireless
carriers in the United States. The Company has redefined the U.S. market for
9-1-1 OSS by creating the first and largest 9-1-1 service bureau, the SCC
National Data Services Center ("NDSC"), with over 70 million subscriber data
records under management throughout North America. The Company manages the data
that enable a 9-1-1 call to be routed to the appropriate public safety agency
with accurate and timely information about the caller's identification and
location. Through SCC's NDSC, the Company offers a comprehensive, cost-effective
solution to the 9-1-1 service provisioning needs of ILECs, CLECs and wireless
carriers by enabling them to outsource virtually all aspects of the operations
of their 9-1-1 data management services, including system activation, routine
data administration, event transaction processing and performance management,
with a high level of security and survivability. In addition, the Company
licenses its 9-1-1 OSS software to carriers that wish to manage the delivery of
9-1-1 data management services in-house. Representative carriers using SCC's
solution include Ameritech, AT&T Wireless Services, BellSouth, MCI, Sprint PCS
and Worldcom Network SVCS.
ILECs, CLECs and wireless carriers require a 9-1-1 solution that cost
effectively provides a high degree of data integrity and reliability, allows
them to comply with regulatory mandates, and addresses their need to provide
additional value-added services. Through SCC's NDSC, the Company provides the
data management services that ILECs, CLECs and wireless carriers need to deliver
9-1-1 calls to the appropriate PSAP, along with critical information such as the
caller's location and call-back number that PSAPs need to respond effectively to
emergencies. Complex data screening and preparation are completed to initialize
properly the underlying systems necessary for 9-1-1 call routing and information
display for the call taker. SCC's NDSC frequently receives and processes
electronic transmissions from ILECs, CLECs and wireless carriers detailing
subscriber and coverage updates and public safety jurisdiction boundary changes
from PSAPs. Records identified as potentially having problems are automatically
separated for manual review and analysis by SCC data integrity analysts. Using
the updated information, SCC's 9-1-1 OSS then provides the information to route
the 9-1-1 call and transmit essential information to the emergency service
provider.
INDUSTRY BACKGROUND
Historically, telecommunications carriers in the United States operated in
a highly regulated environment, with both local and long distance service
providers operating as monopolies. The U.S. telecommunications market opened to
competition with the 1984 breakup of AT&T into seven independent Regional Bell
Operating Companies ("RBOCs"). In the early 1990's, the RBOCs and other ILECs,
anticipating regulatory changes that would introduce competition in their local
exchange markets, began restructuring their service models to provide increased
operating efficiencies and new revenue opportunities. Competitive pressures on
the ILECs intensified with the passage of the Telecommunications Act of 1996
(the "1996 Act"), which allowed CLECs, long distance carriers and wireless
carriers to enter local exchange markets. In addition, the regulatory mandates
of the 1996 Act required each carrier to modify its technical infrastructure to
allow for fair and equal access by other carriers. ILECs, CLECs and wireless
carriers began to seek competitive advantages by differentiating their service
offerings, improving service quality, decreasing time to market, introducing new
services and increasing cost efficiencies. To gain these advantages, carriers
streamlined their business practices, in part by updating technological
infrastructure.
Previously, carriers operated effectively using closed and proprietary
systems to provision and manage their networks. In order to deliver services
demanded by an increasingly competitive market, service providers today require
more advanced service provisioning, operations, customer care and billing, and
planning and engineering systems. These systems that collectively constitute a
carrier's OSS directly support the routine processes and procedures of a
carrier's telecommunications operating infrastructure. Historically, carriers'
OSS have typically been "legacy" mainframe-based systems that in many cases
utilized incompatible and inflexible software and technologies. These OSS were
further strained by the many incremental changes that
30
<PAGE> 33
had been made in order to accommodate new technologies, such as new advanced
switching capabilities, and the proliferation of value-added services, such as
greater consumer choice in mix of services. Recent improvements in OSS, however,
have allowed carriers to offer more advanced services by incorporating new
technologies to improve the reliability of existing infrastructure and to comply
with the regulatory requirements of the 1996 Act. For example, next-generation
customer care and billing systems, which interact with multiple carriers'
systems across the increasingly complex telecommunications network environment,
collect and process customer usage data and generate invoices, enhance the
billing collection process, and provide information regarding customer behavior.
9-1-1, another essential OSS service, similarly requires close coordination of
data and network elements, because changes in customer service information
usually affect the data needed for 9-1-1 services.
9-1-1 service involves the routing of emergency calls to the appropriate
public safety answering point ("PSAP") responsible for dispatching police, fire
and other emergency services. Most jurisdictions in the United States now
provide enhanced 9-1-1 services ("Enhanced 9-1-1 or E9-1-1"), which also provide
the caller's telephone number and location to the call taker at the PSAP. When a
caller dials 9-1-1, information about the caller's location, telephone number
and the jurisdictionally appropriate PSAP must be quickly accessed from
carriers' network and mission-critical data servers. Carriers need current,
accurate information about their subscribers in order to facilitate a prompt
response to a 9-1-1 call. Each service order received by a carrier and each
change in PSAP jurisdiction, including expansion to accommodate new addresses,
may affect the information required for the proper handling of a 9-1-1 call.
Thus, delivery of 9-1-1 service presents a difficult OSS challenge for carriers
because it requires the coordination of data from multiple sources, the review
and processing of the data, the resolution of data errors and conflicts and the
insertion of the data into network and mission-critical data servers.
Today, 9-1-1 is a fundamental element of local exchange service and
carriers' OSS infrastructure. According to the National Emergency Number
Association, more than 85% of the current wireline telephone subscribers in the
United States are covered by some type of 9-1-1 service and 95% of that coverage
is E9-1-1 service. The provisioning of 9-1-1 services presents even greater
challenges for wireless carriers, since the mobility of wireless callers makes
the callers' locations difficult to determine. The Cellular Telephone
Information Association estimates that approximately 83,000 9-1-1 calls are made
each day from wireless phones, representing approximately 25% of all 9-1-1
calls. The Company believes that approximately 25% of wireless callers cannot
identify their locations. Most of the existing wireless infrastructure requires
modification to enhance the location data so that wireless calls can be
accurately routed to the appropriate PSAP. Recognizing the public safety need
for improved wireless 9-1-1 services, the Federal Communications Commission (the
"FCC") issued Report & Order 94-102 (the "Order") on June 12, 1996, a directive
that mandated the adoption of 9-1-1 technology by wireless carriers in two
phases. Phase I required wireless carriers to provide to requesting PSAPs at the
time of a 9-1-1 call, the caller's telephone number and location of the
receiving cell site. Wireless carriers had to comply with Phase I mandates by
the later of April 1, 1998, or six months after the PSAP request. Phase II
requires wireless carriers to locate a 9-1-1 caller to within 125 meters,
subject to FCC guidelines. Wireless carriers must comply with Phase II mandates
for requesting PSAPs by October 1, 2001. The FCC wireless mandates, the wireless
industry's desire to continue to improve emergency services and increasing
pressure from public safety agencies have rapidly accelerated the demand for
E9-1-1 wireless services.
ILECs, CLECs and wireless carriers require a 9-1-1 solution that cost
effectively provides a high degree of data integrity and reliability, allows
them to comply with regulatory mandates, and addresses their need to provide
additional value-added services. ILECs are seeking to reduce the significant
capital expenditures associated with supporting rapidly evolving 9-1-1
infrastructure and upgrading their 9-1-1 data management and network control
services to meet PSAP requirements and technological advancements. CLECs and
wireless carriers, many of which are relatively small and new to the markets in
which they are now competing, are seeking to increase their own subscriber bases
while minimizing their investment in OSS technology infrastructure and
personnel, as well as in the relationships with PSAPs necessary to provide 9-1-1
service. ILECs, CLECs and wireless carriers are also seeking a comprehensive
9-1-1 solution that effectively operates in multiple geographic locations over a
wide variety of legacy systems. In addition, the 9-1-1 OSS services
31
<PAGE> 34
offered by carriers and other service providers increasingly include
complementary add-on products and services, such as public warning services,
that enable them to reduce costs and generate value-added services for their
customers. Carriers with these requirements may choose to develop their own
proprietary solutions, to license the 9-1-1 OSS software and manage the delivery
of the 9-1-1 services themselves, or to outsource their 9-1-1 OSS needs.
THE SCC SOLUTION
The Company has redefined the U.S. market for 9-1-1 OSS by creating the
first and largest 9-1-1 service bureau, the SCC National Data Services Center,
with over 70 million subscriber data records under management throughout North
America. Through its NDSC, the Company offers a comprehensive, cost-effective
solution to the 9-1-1 service provisioning needs of ILECs, CLECs and wireless
carriers by enabling them to outsource virtually all aspects of the operations
of their 9-1-1 data management services, including system activation, routine
data administration, event transaction processing and performance management,
with a high level of security and survivability. The Company delivers an
outsourcing solution that can interface with each carrier's proprietary or open
system. In addition, the Company licenses its 9-1-1 OSS software to carriers
that wish to control the delivery of 9-1-1 services in-house. The Company
believes that its solution offers the following principal features and benefits:
Focus on Data Integrity. The accuracy of subscriber records that
identify and provide location information regarding the caller is an
essential element of 9-1-1 service. Using its software solution, SCC
conducts more than 60 logical tests to prepare the data for use in 9-1-1
operations. The Company's systems interface with other elements of a
carrier's OSS to provide timely and accurate subscriber location
information. Transactions identified by the system as requiring further
analysis are researched and resolved by a team of data integrity analysts.
Survivability and Reliability. SCC offers large scale,
mission-critical transaction processing through reliable, scalable
operating platforms. To provide high assurance of continued service, SCC
has designed systems that provide critical 9-1-1 data with multiple layers
of redundancy by deploying over 20 fault-tolerant, geographically dispersed
servers to provide multiple sources of 9-1-1 data. Since the launch of its
NDSC more than three years ago, SCC's systems for 9-1-1 information
delivery have provided uninterrupted service to its customers. SCC has also
developed a comprehensive disaster recovery program for its central data
administration operations.
Leading-Edge Technology. The Company believes it is the technological
leader in the 9-1-1 data management services industry based on its advances
in the areas of systems architecture, spatial data management and advanced
network integration. The Company's innovations include advance intelligent
call routing support, local number portability ("LNP") data transaction
support, technologies that improve 9-1-1 availability, a transaction-based
map maintenance system, a spatial coordinate-based E9-1-1 management system
and large-scale Internet applications for E9-1-1. The Company was the first
to demonstrate data management support capable of interfacing with wireless
systems that complied with both the Phase I and Phase II mandates of the
Order, and also has developed systems for the use of spatial coordinate
data for use in managing and routing non-address specific 9-1-1 calls.
Flexible Business Model. PSAPs generally pay carriers a capitated rate
based on the number of subscribers located in a particular PSAP's
jurisdiction. By outsourcing its data management and service provisioning
needs to the Company, a carrier can avoid costly capital expenditures and
fix its expenses for 9-1-1 services on a per subscriber basis.
Additionally, outsourcing allows carriers to customize their service
packages both to meet the needs of their subscribers and to comply with
regulatory mandates. The Company provides CLECs and wireless carriers with
clearinghouse services to format and insert subscriber data into the
appropriate 9-1-1 systems. Alternatively, carriers may elect to license
9-1-1 OSS software directly from the Company and manage the 9-1-1 data
themselves.
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STRATEGY
The Company's objective is to be the leading national provider of 9-1-1 OSS
and other complementary services to ILECs, CLECs and wireless carriers. SCC
focuses on developing innovative and automated solutions to provide customers
with a comprehensive system for managing large amounts of dynamic subscriber
information. Key elements of the Company's strategy are to:
Maintain and Extend Leadership Position in Wireline 9-1-1 Data
Management Market. SCC currently manages more than 70 million wireline
subscriber data records out of an estimated 178 million total wireline
telephone subscriber records in the United States. The Company intends to
maintain and extend its market leadership in the wireline 9-1-1 OSS systems
market by adding new service and license customers, increasing the number
of subscriber data records under management, enhancing its existing 9-1-1
services and supporting the evolving telecommunications infrastructure.
Capitalize on Emerging Wireless Carrier Opportunities. The Company
believes there is a significant opportunity to offer outsourcing services
to wireless carriers given the growing public demand for effective wireless
9-1-1 services and the FCC mandates for minimum service performance. The
Company intends to take advantage of this opportunity by leveraging its
position as the first company to offer both Phase I and Phase II compliant
solutions and its large market share in both the wireline and wireless data
management services industry.
Maintain and Extend Leadership Position in National Clearinghouse
Services. The Company believes opportunities exist to sell 9-1-1
clearinghouse services to CLECs which, in order to activate 9-1-1 service
for their customers, must provide subscriber and network information that
is compatible with an ILEC's 9-1-1 OSS. CLECs and wireless carriers, many
of which are relatively small and new to the markets in which they are now
competing, are seeking to grow their own subscriber bases while minimizing
their investment in OSS technology infrastructure and personnel, as well as
in the relationships with PSAPs and other service providers necessary to
provide 9-1-1 services. SCC plans to build upon its position as a neutral,
carrier-independent service provider by working cooperatively with newly
emerging dial tone providers, including CLECs, fixed-position wireless
carriers and cable television carriers, to increase its sales of 9-1-1
clearinghouse services.
Provide Additional Services to Telecommunications Carriers. ILECs,
CLECs and wireless carriers are seeking to apply emerging technologies in
response to competitive pressures and regulatory mandates. For example, the
Company has developed off-switch routing capabilities for carriers that
have deployed the advanced intelligent network and created LNP transaction
sets in response to the LNP mandates of the 1996 Act. By leveraging the
experience and economies of scale it has obtained in managing the 9-1-1 OSS
infrastructure for multiple carriers, the Company is well-positioned to
continue to develop and offer flexible, scalable solutions that allow
carriers to cost-effectively support new technological developments and
regulatory mandates.
Develop Applications for New Commercial Products. By leveraging its
core competency of managing dynamic subscriber location information, the
Company believes that it is well-positioned to expand into additional
markets outside 9-1-1 OSS services. The Company currently has under
development new products and services such as dynamic call routing for
multi-location call centers for both telecommunications carriers and others
and improved address information for operations areas of telecommunications
carriers such as their billing, ordering and provisioning departments.
Expand International Operations. SCC believes that a significant
opportunity to generate additional long-term revenue may be created by
partnering with established telecommunications carriers and systems
integration firms to design, implement, maintain and operate effective,
reliable emergency communications systems in countries other than the
United States or Canada. The Company intends to expand internationally to
address the needs of this market for telecommunications emergency services.
There can be no assurance that the Company will achieve its objective or any of
the key elements of its strategy. See "Risk Factors."
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<PAGE> 36
SERVICES AND PRODUCTS
SCC's 9-1-1 OSS solution enables a 9-1-1 call to be routed to the
appropriate PSAP along with accurate and timely information about the caller's
identification and location. Complex data screening and preparation is completed
to initialize properly the underlying systems necessary for 9-1-1 call routing
and information display for the call taker. SCC's NDSC frequently receives and
processes electronic transmissions from ILECs, CLECs and wireless carriers
detailing subscriber and coverage updates and public safety jurisdiction
boundary changes from PSAPs. Records identified as potentially having problems
are automatically separated for manual review and analysis by SCC data integrity
analysts. Using the updated information, SCC's 9-1-1 OSS then provides the
information to route the 9-1-1 call and transmit essential information to the
emergency service provider.
[CHART]
(1) When a caller dials 9-1-1, the call is directed to the 9-1-1 voice switch.
(2) The 9-1-1 switch queries SCC's dispersed 9-1-1 servers to determine the
jurisdictionally appropriate PSAP. The 9-1-1 OSS automatically responds with
call routing information.
(3) The 9-1-1 voice switch routes the call to the appropriate PSAP.
(4) Simultaneously, SCC's 9-1-1 OSS directs subscriber information, including
caller's address and call-back number, to call-taker's screen at the PSAP.
(5) PSAP dispatches personnel and equipment to assist.
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<PAGE> 37
BASE SERVICES OF SCC NATIONAL DATA SERVICES CENTER
Through SCC's NDSC, the Company provides the data management services that
ILECs, CLECs and wireless carriers need to deliver 9-1-1 calls to the
appropriate PSAP, along with critical information such as caller location and
call-back number that PSAPs need to respond effectively to emergencies. Services
include:
System Preparation and Administration. Before providing 9-1-1 data
management services to its customers, SCC must collect, organize, review
and analyze the data necessary to initialize the system properly. Data
preparation includes collecting information on PSAP jurisdictional
boundaries, performing a full inventory of addresses located in an area and
loading the subscriber information into the Company's systems. To improve
data quality and, therefore, 9-1-1 service, the Company performs diagnostic
reviews and analyses of information loaded into the NDSC systems. SCC
engages over 80 data integrity analysts to facilitate the creation,
maintenance and transition of key information.
Routine Data Administration. SCC's NDSC receives and automatically
processes service order updates from ILECs, CLECs and wireless carriers on
a regular basis, in order to maintain current data in the 9-1-1 OSS.
Service order updates include address changes, telephone number changes and
other information pertinent to 9-1-1 call processing. To maintain reliable
9-1-1 service, SCC usually receives between 100,000 and 500,000 service
orders per day and frequently receives boundary updates from PSAPs
reflecting changes in jurisdiction boundaries for PSAP responses. When SCC
receives a service order update or jurisdiction change, information
received must be checked for complete and appropriate data, and then
distributed throughout SCC's network of geographically dispersed servers.
Event Transaction Processing. When a caller dials 9-1-1 in an area
served by the Company, a request for information is automatically generated
by the PSAP answering the call and sent to one of the Company's
fault-tolerant servers. The server rapidly responds to the call taker with
information from the OSS database regarding the caller's location and
call-back number. Automated support is also available for real-time switch
control to direct the routing of the call.
Performance Management. SCC monitors and reports the performance of
its service operations by measuring response time, systems availability,
data accuracy and error resolution intervals, among other performance
measurements. Using these measurements as a basis, SCC designs and
implements programs to improve continuously the 9-1-1 OSS services provided
by its NDSC.
Mapping Services. Since traditional mapping services do not provide
the frequent updates necessary for the provision of emergency services, SCC
maintains a team of geographic information system experts, who work with
carriers and public safety officials to document, review and analyze call
routing boundaries and specific address information. The mapping services
department uses advanced tools to improve existing mapping information with
new and more detailed geographical information for optimal management of
9-1-1 call records. The mapping services department also assists in system
preparation and quality control programs to provide the SCC's NDSC with
current geographical information.
Clearinghouse Services. SCC's clearinghouse department provides a
single point of contact to process and format 9-1-1 data for CLECs and
independent telephone companies. CLECs and independent telephone companies
can utilize the services of the Company's clearinghouse department to offer
service in numerous localities without having to independently develop the
9-1-1 OSS systems, procedures and expertise necessary for each community.
CLECs and independent telephone companies electronically transmit
subscriber information to the clearinghouse department. The information is
then reformatted to comply with the destination community's local
standards, tested for detectable errors and delivered to the appropriate
9-1-1 data systems. The Company can process information for its
clearinghouse customers even if the data will be inserted in a system
operated by a carrier that does not utilize the Company's services or
products.
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ENHANCED SERVICES OF SCC NATIONAL DATA SERVICES CENTER
The Company offers enhancements to its 9-1-1 OSS services that provide
additional features and functionality. These services are targeted to specific
markets and are sold directly by the Company or indirectly through the Company's
customers.
9-1-1Net. 9-1-1Net, an online tool, creates an active communication channel
serving the NDSC, carriers and PSAPs. Through 9-1-1Net, users can view live
address routing rules, send address updates, review inbound call load, error
statistics and ALI discrepancy reports, and receive new product updates.
Private Switch ALI. Private telephone switches, commonly known as PBX's,
create a challenge for E9-1-1 operations because information describing the
individual caller's phone station or extension within a PBX may not be available
to the network receiving the 9-1-1 call. In the case of large facilities such as
campuses, hotels and hospitals, emergency response personnel may not have
adequate information to quickly determine the location of the caller. Private
Switch ALI allows PBX system managers to create and transmit appropriate data
records that identify a caller's extension or location within a facility for the
9-1-1 OSS.
9-1-1Connect. SCC provides wireless carriers with 9-1-1 OSS services that
are similar to those provided to wireline customers and that fully comply with
Phase I of the Order. Once a wireless carrier receives a request from a PSAP to
activate wireless 9-1-1 services, SCC's program managers develop a plan with the
wireless carrier to activate service, including development of ILEC network
interconnections for both data and voice that are specific to the local wireless
network configuration and interface requirements. The program managers develop
graphic coverage area maps that are superimposed on maps of current public
safety agency boundaries. Routing recommendations can then be made and
coordinated with the appropriate PSAP.
Subscriber ALI. The Company is currently preparing to test Subscriber ALI,
which is designed to allow subscribers to supply personal information in their
9-1-1 records such as medical condition, disability and language of choice. When
a subscriber calls 9-1-1, data previously provided by the subscriber will be
displayed along with traditional 9-1-1 information to the PSAP. A subscriber
also can designate a third party to be notified in the event a 9-1-1 call is
initiated from the subscriber's telephone. For example, parents away from home
would be notified when a child or babysitter calls 9-1-1 from their telephone.
The Company currently anticipates that this service will be available by late
1998.
Emergency Warning and Evacuation System. The Company is currently
developing its Emergency Warning and Evacuation System to initiate outbound
calls selectively in the event of potential disasters such as flash flooding,
hazardous materials incidents, industrial accidents and localized weather
events. The Emergency Warning and Evacuation System will utilize spatially
classified location information and up-to-date telephone subscriber data and
will be able to deliver voice or fax warnings to a geographically targeted
population. SCC intends to offer its Emergency Warning and Evacuation System by
late 1998.
LICENSE PRODUCTS
The Company offers 9-1-1 OSS software to customers that elect to manage
their own 9-1-1 data records rather than outsourcing such operations to SCC. SCC
also provides custom software development services to customers with specific or
local requirements through its engineering department. The engineering
department develops, customizes and enhances the software using a structured
approach to perform requirements analysis, software development and quality
assurance.
COMMERCIAL SERVICES
Many of the underlying elements used by the Company in managing large
volumes of dynamic subscriber information have commercial applications in other
industries. For instance, the Company has developed and is testing a dynamic
call routing system that will allow telecommunications carriers to support
real-time assignment of routing destinations for calls processed in public
telecommunications networks. Historically, calls have been routed pursuant to
preplanned and preprogrammed routing instructions. The Company's dynamic call
assignment will allow greater flexibility in call routing to respond to call
load or other complex non-network factors. The Company also intends to offer
improved address information to other operations
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<PAGE> 39
areas of telecommunications carriers such as their billing, ordering and
provisioning departments. Carriers can increase efficiencies and improve
customer service by responding to service calls with more accurate subscriber
location information.
SERVICE AND PRODUCT PRICING
Pricing for SCC's NDSC services usually includes a non-recurring initial
fee due upon execution of a contract with a customer. Thereafter, customers
generally pay a monthly fee based on the number of subscriber records maintained
by the NDSC and upon the services selected by the customer. The Company
typically enters into ten-year agreements for wireline base services and two to
five-year agreements for wireless base services. During the contract term, SCC
may offer customers enhanced services, which may be provided on a revenue
sharing basis. SCC also licenses software, hardware and professional services
necessary for the management of 9-1-1 services to its customers in exchange for
license and implementation services fees and maintenance fees.
SERVICE INFRASTRUCTURE AND ARCHITECTURE
The Company's operations include central data administration and
distributed systems for real-time 9-1-1 transaction support. Based on large
scale, fault-tolerant Tandem computers, the Company's major processing systems
are configured to provide high reliability. They are also designed to provide
significant capacity for continued growth using the Tandem NSK scalable
message-based architecture.
The Company's central data administration systems, located in Boulder,
Colorado, are a key element of its 9-1-1 OSS, and are used to perform routine
data maintenance and to support new customer transition and initial system
loads. SCC's NDSC also maintains a central monitoring facility in Boulder that
operates 24 hours a day, seven days a week. Data network access for the central
administration systems is provided using traditional T-1 connectivity to the
networks operated by SCC and its customers. To improve reliability and
survivability, the primary links are designed to have three or more backup paths
to access SCC's distributed networks, including VSAT satellite links. A
"hot-site" emergency business recovery facility has been established in New York
and can be activated to continue routine operations in the event of a disaster
at the Boulder site. Electronic processing necessary to handle actual 9-1-1
calls is geographically distributed and remains a local service for each region,
so SCC's central data administration systems are not in the actual 9-1-1 call
path.
Distributed throughout the U.S., the Company's real-time 9-1-1 OSS servers
are located in shared, hardened computer facilities. The systems are deployed in
pairs or quads. System pairs are intentionally distributed to different
geographic locations to provide an additional level of reliability. These
systems provide data display for thousands of public safety agencies throughout
the service areas of SCC's customers. Direct interface to telephone control
switches is also supported on these platforms, providing the information
necessary to route calls to the jurisdictionally appropriate PSAP. The Company
also uses a number of Microsoft NT servers for internal administrative
processing and extranet support.
CUSTOMERS
The Company provides its services to a range of telecommunications service
providers, including ILECs, CLECs and wireless carriers. The Company also
licenses its software and provides 9-1-1 data clearinghouse services directly
and indirectly to over 600 independent telephone companies. During the year
ended December 31, 1996, the Company recognized approximately 82% of total
revenue from continuing operations from Ameritech and U.S. WEST, each of which
accounted for greater than 10% of the Company's revenue in such periods. During
the year ended December 31, 1997, the Company recognized approximately 81% of
total revenue from Ameritech, BellSouth Inc. and U.S. WEST customers, each of
which accounted for greater than 10% of the Company's revenue in such period. No
other customers accounted for more than 10% of the Company's total revenue in
1996 or 1997. See "Risk Factors -- Reliance on Significant Customers."
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<PAGE> 40
The Company typically enters into contracts with carriers and their
affiliates to provide services to some or all of the carrier's operating
entities. Set forth below is a list of carriers utilizing the Company's services
or products, which the Company believes are representative of the Company's
overall customer base.
ILECs. The Company's customers include Ameritech, BellSouth Inc. and U.S.
WEST.
CLECs. The Company's customers include ICG Telecom, MCI and Worldcom
Network SVCS.
o
Wireless Carriers. The Company's customers include 360 Communications
Company, AT&T Wireless Services, Sprint PCS, U.S. WEST Wireless and Vanguard
Cellular Systems.
License Customers. The Company's license customers include Bell Atlantic,
Bell Canada, Pacific Bell and GTE Network Services.
SALES AND MARKETING
The Company's marketing efforts are focused on targeting key carriers and
PSAPs in each geographical market through advertising in telecommunications
industry publications, participation in trade shows, presentations at technical
conferences and other initiatives. Additionally, SCC employees serve as the
chairpersons and members of key standards committees related to emergency
communications services. The Company's sales strategy relies on direct channels
of distribution for its services. The Company has dedicated account teams to
work with each existing and potential customer. The Company's account teams
develop relationships with 9-1-1 service providers through a consultative,
problem-solving sales process and work closely with customers and potential
customers to determine how their needs can be fulfilled by the Company's
services. As of April 30, 1998, the Company employed 18 persons in its sales and
marketing organization. Sales cycles range from six months to over two years.
See "Risk Factors -- Significant Fluctuations in Quarterly Results of
Operations" and "-- Lengthy Sales Cycle."
RESEARCH AND DEVELOPMENT
The Company directs its research and development efforts toward providing
highly scalable applications that enable a more efficient 9-1-1 OSS process that
improves data quality. Development efforts currently in process are focused on
further embedding and using spatial coordinate data to manage geographic
assignment and other data, further enhancing the Company's wireless offerings.
These offerings include improving the Company's software, integrating standard
Web browser technology, and the development of decision support systems. By late
1998, the Company expects to introduce Subscriber ALI, which will allow
subscribers to append medical and other important data to their ALI record, and
Emergency Warning and Evacuation System, which will allow PSAPs to call all
numbers in a given area and warn of imminent danger. Research and development
expenses totaled approximately $338,000, $230,000 and $738,000 for December 31,
1995, 1996, and 1997, respectively. See "-- Products and Services -- Enhanced
Services of SCC National Data Services Center" and "Risk Factors -- Dependence
on New Products; Rapid Technological Change."
COMPETITION
The market for 9-1-1 OSS solutions is intensely competitive and the Company
expects competition to increase in the future. The Company believes that the
principal competitive factors affecting the market for 9-1-1 OSS solutions
include effectiveness with existing infrastructure, reliability, manageability,
technical features, wireless support, performance, ease of use, price, scope of
product offerings, and customer service and support. Although the Company
believes that its solution competes favorably with respect to such factors,
there can be no assurance that the Company can maintain its competitive position
against current and potential competitors, especially those with significantly
greater financial, marketing, service support, technical and other competitive
resources.
The Company's principal competitors generally fall within one of three
categories: internal development departments of major carriers or consulting
firms that support such departments; relatively smaller companies that offer
applications with limited scope; and larger companies that are either in the
process of entering the Company's market or have the potential to develop
products and services that compete with the Company's
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service offerings. Potential customers sometimes rely on their own internal
development teams to formulate 9-1-1 OSS systems or to retain consultants to
undertake such a project. The Company believes that its 9-1-1 OSS solution
competes favorably with internally developed systems, which are expensive to
develop and maintain, may not provide a comprehensive, reliable approach to
9-1-1 OSS services, and may not provide the flexibility to adapt readily to
regulatory, technological and market changes.
In addition, a number of companies currently market or have under
development software products and services to provide 9-1-1 administration. The
Company competes with a few smaller companies, including XYPoint Corporation,
for the provision of 9-1-1 OSS services to wireless carriers, although the
Company expects more significant competition to emerge in the future. The
Company believes that, to date, none of these relatively smaller companies offer
products or services that are as robust in features or as comprehensive in scope
as the Company's products and services. Although it is likely that the product
development efforts of these companies eventually will enable them to offer a
line of products or services to compete with the Company's current service
offerings, the Company intends to continue to dedicate significant resources for
product and service development in order to expand the Company's capabilities
ahead of these competitors. Notwithstanding, the Company expects additional
competition from these established competitors and from other emerging
companies. Mergers or consolidations among these competitors or acquisitions of
these companies by larger competitors would make them more formidable
competitors to the Company. There can be no assurance that the Company's current
and potential competitors will not develop products and services that may be
more effective than the Company's current or future 9-1-1 data management
solutions or that the Company's technologies and offerings will not be rendered
obsolete by such developments.
Finally, there are a number of companies that currently market and sell
various products and services to telecommunications carriers, such as billing
software and advanced telecommunications equipment, that have been broadly
adopted by the Company's customers and potential customers. In addition, vendors
of telecommunications software and hardware in the future may enhance their
products to include functionality that is currently provided by the Company's
solutions. The widespread inclusion of the functionality of the Company's
service offerings as standard features of other telecommunications software or
hardware could render the Company's services obsolete and unmarketable,
particularly if the quality of such functionality were comparable to that of the
Company's services. Furthermore, even if the 9-1-1 functionality provided as
standard features by telecommunications software or networking hardware is more
limited than that of the Company's services, there can be no assurance that a
significant number of customers would not elect to accept more limited
functionality in lieu of purchasing additional products or services. For
example, Lucent Technologies offers carriers software systems with functionality
similar to the Company's services. Many of these larger companies have longer
operating histories, greater name recognition, accesses to larger customer bases
and significantly greater financial, technical and marketing resources than the
Company. As a result, they 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 and services, than the
Company. The Company believes that the entry of these larger companies into its
market will require them to undertake operations that are currently not within
their core areas of expertise, and thus expose them to significant uncertainties
in the product development process or in providing a range of products and
services to comprehensively address the 9-1-1 requirements which the Company's
services addresses. However, if these companies were to introduce products or
services that effectively compete with the Company's service offerings, they
could be in a position to substantially lower the price of their 9-1-1 products
and services or to bundle such products and services with their other product
and service offerings.
For the foregoing reasons, there can be no assurance that the Company will
be able to compete successfully against its current and future competitors.
Increased competition may result in price reductions, reduced gross margins and
loss of market share, any of which would materially and adversely affect the
Company's business, financial condition and results of operations. See "Risk
Factors -- Highly Competitive Market; Competition."
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PROPRIETARY RIGHTS
The Company's success and its ability to compete depends significantly upon
its proprietary rights. The Company relies primarily on a combination of
copyright, trademark and trade secret laws, as well as confidentiality
procedures and contractual restrictions to establish and protect its proprietary
rights. There can be no assurance that such measures will be adequate to protect
the Company's proprietary rights. Further, the Company may be subject to
additional risks as it enters into transactions in foreign countries where
intellectual property laws are not well developed or are difficult to enforce.
Legal protections of the Company's proprietary rights may be ineffective in such
countries. Litigation to defend and enforce the Company's intellectual property
rights could result in substantial costs and diversion of resources, and could
have a material adverse effect on the Company's business, financial condition
and results of operations, regardless of the final outcome of such litigation.
Despite the Company's efforts to safeguard and maintain its proprietary rights
both in the United States and abroad, there can be no assurance that the Company
will be successful in doing so or that the steps taken by the Company in this
regard will be adequate to deter misappropriation or independent third-party
development of the Company's technology, or to prevent an unauthorized third
party from copying or otherwise obtaining and using the Company's technology.
There also can be no assurance that others will not independently develop
similar technologies or duplicate any technology developed by the Company. Any
such events could have a material adverse effect on the Company's business,
financial condition and results of operations.
As the number of entrants to the Company's markets increases and the
functionality of the Company's products and services increases and overlaps with
the products and services of other companies, the Company may become subject to
claims of infringement or misappropriation of the intellectual property rights
of others. In certain of its customer agreements, the Company agrees to
indemnify its customers for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third parties. In certain
limited instances, the amount of such indemnities may be greater than the
revenue the Company may have received from the customer. There can be no
assurance that third parties will not assert infringement or misappropriation
claims against the Company in the future with respect to current or future
products or services. Any claims or litigation, with or without merit, could be
time consuming, result in costly litigation or require the Company to enter into
royalty or licensing arrangements. Such royalty or licensing arrangements, if
required, may not be available on terms acceptable to the Company, if at all,
and could have a material adverse effect on the Company's business, financial
condition and results of operations.
EMPLOYEES
As of April 30, 1998, the Company employed 249 full-time employees in eight
states. Of these employees, 34 were involved in research and development, 18 in
sales and marketing, 165 in technical support and operations and 32 in
administration and finance. No employees are covered by any collective
bargaining agreements. The Company believes that its relationships with its
employees are good.
FACILITIES
The Company's principal administrative, sales and marketing, research and
development and support facilities consist of approximately 80,000 square feet
of office space in Boulder, Colorado. The Company occupies these premises under
a lease expiring December 31, 2002. As of March 31, 1998, the annual base rent
for this facility was approximately $670,000; however, the lease agreement
provides for periodic defined increases in rent through the lease term.
LEGAL PROCEEDINGS
The Company is not a party to any litigation that it believes could have a
material adverse effect on the Company or its business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Directors and executive officers and their ages as of April
30, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
George K. Heinrichs.............. 40 President, Chief Executive Officer and Director
John J. Sims..................... 42 Chief Operating Officer
Nancy K. Hamilton................ 45 Chief Financial Officer
John G. Hill(1).................. 57 Director
Darrell A. Williams(1)(2)........ 38 Director
David Kronfeld(2)................ 50 Director
</TABLE>
- ------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
George K. Heinrichs has been the President and a Director of the Company
since he cofounded the Company in 1979, and also has served as Chief Executive
Officer since February 1995. Prior to founding the Company, Mr. Heinrichs served
in a variety of public safety and criminal justice positions.
John J. Sims has been Chief Operating Officer of the Company since November
1995. From 1977 until October 1995, Mr. Sims was employed by Tandem Computers,
Inc., where he held a number of positions including Vice President of Sales and
General Manager for Worldwide Telecommunications, Director of Materials
Management, Vice President of Management Information Systems and Vice President
of the Tandem Alliance Group.
Nancy K. Hamilton has been the Chief Financial Officer and Senior Vice
President of the Company since December 1993. Prior to joining the Company, Ms.
Hamilton was Vice President and Chief Financial Officer of Fischer Imaging
Corp., a manufacturer of medical imaging systems, from January 1993 to November
1993. Prior to January 1993, Ms. Hamilton served in a variety of senior
management positions, including Chief Financial Officer, at NBI, Incorporated,
which at that time was a developer of hardware and software and a systems
integrator.
John G. Hill has been a Director of the Company since January 1990. Since
1989, Mr. Hill has been a general partner of Hill, Carman Ventures, a limited
partnership which is the general partner of The Hill Partnership III, a venture
capital fund and a stockholder of the Company. Since 1981, Mr. Hill has been the
General Partner of Hill Ventures. Mr. Hill currently serves as a director of
Genicom Corporation, a provider of midrange printer solutions, network
integration and multivendor services.
David Kronfeld has been a Director of the Company since March 1998 and
previously served as a Director of the Company from February 1992 until July
1996. Mr. Kronfeld has been a manager of JK&B Management L.L.C. since its
founding in October 1995. Since 1989, Mr. Kronfeld has been a general partner of
Boston Capital Ventures Limited Partnership, Boston Capital Ventures II Limited
Partnership, Boston Capital Ventures III, L.P. and Business Development
Partners, L.P., all of which are venture capital funds and stockholders of the
Company, and a general partner of Boston Capital Ventures, a venture capital
fund.
Darrell A. Williams has been a Director of the Company since February 1998.
Mr. Williams is Vice President, Venture Capital in the Ameritech Development
Corporation, which he joined in January 1995. From 1992 to 1995, Mr. Williams
was Director, Investment Acquisitions and Divestitures of Ameritech Corporation.
BOARD COMMITTEES
The Company has a standing Audit Committee currently composed of Darrell A.
Williams and David Kronfeld. The Audit Committee reviews and supervises the
Company's financial controls, including selecting the Company's auditors,
reviewing the books and accounts of the Company, meeting with the officers of
the Company regarding the Company's financial controls, acting upon
recommendations of auditors, and taking
41
<PAGE> 44
such further action as the Committee deems necessary to complete an audit of the
books and accounts of the Company, as well as other matters that may come before
it or as directed by the Board of Directors of the Company.
The Company has a standing Compensation Committee currently composed of
John G. Hill and Darrell A. Williams. The Compensation Committee reviews and
acts on matters relating to compensation levels and benefits plans for the
Company's executive officers and key employees. The Compensation Committee is
also responsible for granting stock awards, stock options, stock appreciation
rights and other awards to be made under the Company's existing incentive
compensation plans.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned during the 1997
fiscal year for services rendered in all capacities to the Company and its
subsidiaries during such fiscal year by the Company's Chief Executive Officer
and each of the two other executive officers whose annual bonus and salary for
such fiscal year exceeded $100,000 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SHARES
-------------------- UNDERLYING
NAME AND PRESENT PRINCIPAL POSITION SALARY BONUS OPTIONS(1)
- ----------------------------------- -------- -------- ------------
<S> <C> <C> <C>
George K. Heinrichs................................... $173,746 $180,000 66,667
President and Chief Executive Officer
John J. Sims.......................................... 225,000 100,000 120,000
Chief Operating Officer
Nancy K. Hamilton..................................... 148,750 100,000 57,333
Chief Financial Officer and Senior Vice President
</TABLE>
- ------------
(1) The options listed in the table were granted under the 1990 Stock Option
Plan. See "-- Option Grants During Last Fiscal Year."
OPTION GRANTS DURING LAST FISCAL YEAR
The following table sets forth information concerning the stock option
grants made to each of the Named Officers in the 1997 fiscal year.
OPTION GRANTS DURING LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM(2)
OPTIONS EMPLOYEES IN PER EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10%
- ---- ---------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
George K. Heinrichs........ 66,667 19.6% $7.50 10/21/07 $314,449 $776,875
John J. Sims............... 66,666 19.7 6.00 02/18/07 251,555 637,491
53,334 15.7 7.50 10/21/07 251,561 637,505
Nancy K. Hamilton.......... 15,666 4.6 4.50 02/18/07 44,335 112,354
41,667 12.3 7.50 10/21/07 196,531 498,049
</TABLE>
- ------------
(1) The options were granted to each of the Named Officers pursuant to the 1990
Stock Option Plan. Each option vests 24% one year from the date of grant and
2% each month thereafter.
(2) The five percent and ten percent assumed annual rates of compounded stock
price appreciation are mandated by the rules of the Securities and Exchange
Commission. There can be no assurance provided to the option holder or any
other holder of the Company's securities that the actual stock price
appreciation over the ten-year option term will be at the assumed five
percent and ten percent levels or at any other defined level.
42
<PAGE> 45
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
option holdings for the 1997 fiscal year with respect to each of the Named
Officers. None of the Named Officers exercised any options during the 1997
fiscal year.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-MONEY
NUMBER OF SECURITIES UNDERLYING OPTIONS AT
UNEXERCISED OPTIONS AT DECEMBER 31, 1997 DECEMBER 31, 1997(1)
---------------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
George K. Heinrichs......... 220,785 115,514 $2,924,482 $ 976,656
John J. Sims................ 54,558 175,501 652,139 1,538,509
Nancy K. Hamilton........... 96,483 78,667 1,232,315 670,835
</TABLE>
- ------------
(1) There was no public trading market for the Common Stock on December 31,
1997. Accordingly, solely for purposes of this table, the values in these
columns have been calculated on the basis of the assumed initial public
offering price of $14.00 per share (rather than a determination of the fair
market value of the Common Stock on December 31, 1997), less the aggregate
exercise price of the options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed in 1995, and
the current members of the Compensation Committee are John G. Hill and Darrell
Williams. Prior to April 1998, George K. Heinrichs and Mr. Hill were the members
of the Compensation Committee. Throughout the year ended December 31, 1997, Mr.
Heinrichs was an officer of the Company. No executive officer of the Company
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.
DIRECTOR COMPENSATION
Directors currently are not compensated for serving on the Board of
Directors. The Company reimburses its directors for all reasonable and necessary
travel and other incidental expenses incurred in connection with their
attendance at meetings of the Board of Directors. The Company has not previously
granted non-employee Board members options to purchase shares of Common Stock,
although the Company may grant options to its non-employee directors in the
future at the discretion of the Board. See "-- Benefit Plans -- 1998 Stock
Incentive Plan."
BENEFIT PLANS
1998 Stock Incentive Plan
The Company's 1998 Stock Incentive Plan (the "1998 Plan") is intended to
serve as the successor equity incentive program to the Company's 1990 Stock
Option Plan, as amended (the "Predecessor Plan"). The 1998 Plan was adopted by
the Board and the stockholders on April 7, 1998 (the "Plan Effective Date").
A total of 1,901,055 shares of Common Stock have been authorized for
issuance under the 1998 Plan. Such share reserve consists of (i) the number of
shares available for issuance under the Predecessor Plan on April 7, 1998,
including the shares subject to outstanding options and (ii) an additional
increase of approximately 500,000 shares. In addition, the share reserve will
automatically be increased on the first trading day of each calendar year,
beginning with the 1999 calendar year, by an amount equal to 3% of the total
number of shares of Common Stock outstanding on the last trading day in December
of the immediately preceding calendar year, but in no event shall any such
annual increase exceed 731,000 shares. To the extent any unvested shares of
Common Stock issued under the Predecessor Plan are repurchased by the Company
after the date on which the Common Stock is first registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), at the
exercise price paid per share, in connection with the holder's termination of
service, those repurchased shares will be added to the reserve of Common Stock
available for issuance under the 1998 Plan, but in no event shall more than
476,776 shares be added to the reserve from such repurchases. In no event may
any one participant in the 1998 Plan receive option grants,
43
<PAGE> 46
separately exercisable stock appreciation rights or direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year.
On the date on which the Common Stock is first registered under Section 12
of the Exchange Act, outstanding options issued under the Predecessor Plan will
be incorporated into the 1998 Plan, and no further option grants will be made
under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, unless the Plan Administrator elects to extend
one or more features of the 1998 Plan to those options. Except as otherwise
noted below, the incorporated options have substantially the same terms as will
be in effect for grants made under the Discretionary Option Grant Program of the
1998 Plan.
The 1998 Plan is divided into five separate components: (i) the
Discretionary Option Grant Program, under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members and
consultants) may, in the Plan Administrator's discretion, be granted options to
purchase shares of Common Stock at an exercise price not less than their fair
market value on the grant date; (ii) the Stock Issuance Program, under which
such individuals may, in the Plan Administrator's discretion, be issued shares
of Common Stock directly, through the purchase of such shares at a price not
less than their fair market value at the time of issuance or as a bonus tied to
the performance of services; (iii) the Salary Investment Option Grant Program,
which may, in the Plan Administrator's discretion, be activated for one or more
calendar years and thereby allow executive officers and other highly compensated
employees the opportunity to invest a portion of their base salary in special
below-market stock option grants; (iv) the Automatic Option Grant Program, under
which option grants will automatically be made at periodic intervals to eligible
non-employee Board members to purchase shares of Common Stock at an exercise
price equal to their fair market value on the grant date; and (v) the Director
Fee Option Grant Program, which may, in the Plan Administrator's sole
discretion, be activated for one or more calendar years and thereby allows
non-employee Board members the opportunity to apply all or any portion of the
annual retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants. The Discretionary Option
Grant, Stock Issuance Program and Automatic Option Program become effective on
the date on which the Underwriting Agreement to be executed in connection with
this offering is executed (the "Underwriting Date"). The implementation date of
the Salary Investment Option Grant Program and the Director Fee Option Program
will be decided by the Compensation Committee.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to be
made, the number of shares subject to each such grant or issuance, the status of
any granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance, and the maximum term for which any granted
option is to remain outstanding. The Compensation Committee will also have the
exclusive authority to select the executive officers and other highly
compensated employees who may participate in the Salary Investment Option Grant
Program in the event that program is activated for one or more calendar years,
but neither the Compensation Committee nor the Board will exercise any
administrative discretion with respect to option grants made under the Salary
Investment Option Grant Program or under the Automatic Option Grant or Director
Fee Option Grant Program for the non-employee Board members.
In the event the Plan Administrator elects to activate the Salary
Investment Option Grant Program for one or more calendar years, each executive
officer and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce his
or her base salary for that calendar year by a specified dollar amount not less
than $10,000 nor more than $50,000. If such election is approved by the Plan
Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase that number of shares of
Common Stock determined by dividing the salary reduction amount by two-thirds of
the fair market value per share of Common Stock on the grant date. The option
will be exercisable at a price per share equal to one-third of the fair market
value of the option shares on the grant date. As a result, the total spread on
the option shares at the time of grant (the fair market value of the option
shares on the grant date less the aggregate exercise price payable for those
shares) will be equal to the amount
44
<PAGE> 47
of salary invested in that option. The option will vest in a series of 12 equal
monthly installments over the calendar year for which the salary reduction is to
be in effect and will be subject to full and immediate vesting upon certain
changes in the ownership or control of the Company.
The Company has not previously granted non-employee Board members options
to purchase shares of Common Stock. However, under the Automatic Option Grant
Program, each individual who first becomes a non-employee Board member at any
time after the Underwriting Date will automatically be granted an option to
purchase 15,000 shares of Common Stock on the date such individual joins the
Board, provided such individual has not been in the prior employ of the Company.
In addition, on the date of each Annual Stockholders Meeting held on or after
the Underwriting Date, each non-employee Board member who is to continue to
serve as a non-employee Board member (including individuals who joined the Board
prior to the Underwriting Date) will automatically be granted an option to
purchase 3,000 shares of Common Stock, provided such individual has served on
the Board for at least six months.
Each automatic grant for the non-employee Board members will have a term of
10 years, subject to earlier termination following the optionee's cessation of
Board service. Each automatic option will be immediately exercisable for all of
the option shares; however, any unvested shares purchased under the option will
be subject to repurchase by the Company, at the exercise price paid per share,
should the optionee cease Board service prior to vesting in those shares. The
shares subject to each initial 15,000 share automatic option grant will vest
over a four-year period, as follows: (i) 25% of the option shares upon the
optionee's completion of one year of Board service measured from the grant date
and (ii) the balance of the option shares in a series of 36 successive equal
monthly installments upon the optionee's completion of each additional month of
service measured from the first anniversary of the grant date. The shares
subject to each annual 3,000 share grant will vest upon the optionee's
completion of one year of Board service measured from the grant date. However,
the shares subject to each automatic option grant will immediately vest in full
upon certain changes in control or ownership of the Company or upon the
optionee's death or disability while a Board member.
Should the Director Fee Option Grant Program be activated in the future,
each non-employee Board member will have the opportunity to apply all or a
portion of the annual retainer fee otherwise payable in cash to the acquisition
of a below-market option grant. The option grant will automatically be made on
the first trading day in January in the calendar year for which the retainer fee
would otherwise be payable in cash. The option will have an exercise price per
share equal to one-third of the fair market value of the option shares on the
grant date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of Common Stock on the grant date. As a result,
the total spread on the option (the fair market value of the option shares on
the grant date less the aggregate exercise price payable for those shares) will
be equal to the portion of the retainer fee invested in that option. The option
will become exercisable for the option shares in a series of twelve (12) equal
monthly installments over the calendar year for which the election is to be in
effect. However, the option will become immediately exercisable for all the
option shares upon (i) certain changes in the ownership or control of the
Company or (ii) the death or disability of the optionee while serving as a Board
member.
The Board may amend or modify the 1998 Plan at any time, subject to any
required stockholder approval. The 1998 Plan will terminate on the earliest of
(i) April 30, 2008, (ii) the date on which all shares available for issuance
under the 1998 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
1998 Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in March 1998 and approved by the Company's
stockholders in April 1998. A total of 200,000 shares of Common Stock have been
reserved for issuance under the Purchase Plan. There is automatically added to
the Purchase Plan in March of each year (i) that number of shares needed to
restore the maximum aggregate shares available to 200,000 shares or (ii) a
lesser amount determined by the Board. The Purchase Plan, which is intended to
qualify under Section 423 of the Code, provides for two six-month offering
periods each year beginning on the first of January and the first of July,
respectively; however, the initial offering period began on
45
<PAGE> 48
March 1, 1998 and continues through December 31, 1998. The Purchase Plan is
administered by a committee of at least two disinterested Directors appointed by
the Board. Employees (including officers and employee directors) of the Company
are eligible to participate if they are employed by the Company on a regular
full time or part time basis and if they are regularly scheduled to work more
than 20 hours per week. The Purchase Plan permits eligible employees to purchase
shares of Common Stock through periodic payroll deductions at a price equal to
the lower of 85% of the fair market value of the Company's Common Stock at the
beginning or end of the offering period. Employees may end their participation
in the offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company. The Board of
Directors has the power to amend or terminate the Purchase Plan as long as such
action does not adversely affect any outstanding rights to purchase stock
thereunder.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Certificate of Incorporation eliminates,
subject to certain exceptions, directors' personal liability to the Company or
its stockholders for monetary damages for breaches of fiduciary duties. The
Amended and Restated Certificate of Incorporation does not, however, eliminate
or limit the personal liability of a Director for (i) any breach of the
Director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law or (iv) any transaction from which the Director derived an
improper personal benefit.
The Company's Restated Bylaws, which will become effective upon the closing
of this offering, provide that the Company shall indemnify its Directors and
executive officers to the fullest extent permitted under the Delaware General
Corporation Law and may indemnify its other officers, employees and other agents
as set forth in the Delaware General Corporation Law. In addition, the Company
plans to enter into indemnification agreements (the "Indemnification
Agreements") with each of its Directors and executive officers, effective upon
the effectiveness of the Registration Statement of which this Prospectus forms a
part. The indemnification agreements will contain provisions that require the
Company, among other things, to indemnify its Directors and executive officers
against certain liabilities (other than liabilities arising from intentional or
knowing and culpable violations of law) that may arise by reason of their status
or service as Directors or executive officers of the Company or other entities
to which they provide service at the request of the Company and to advance
expenses they may incur as a result of any proceeding against them as to which
they could be indemnified. The Company believes that these provisions and
agreements are desirable to attract and retain qualified Directors and officers.
The Company has obtained an insurance policy covering Directors and officers for
claims that such Directors and officers may otherwise be required to pay or for
which the Company is required to indemnify them, subject to certain exclusions.
EMPLOYMENT AGREEMENTS AND COMPENSATION PLAN
Employment Agreements
The Company does not presently have any employment contracts with the Named
Officers.
Management Incentive Compensation Plan
In early 1998, the Compensation Committee of the Board of Directors
approved a Management Incentive Compensation Plan, under which selected key
employees, including executive officers, are eligible to receive bonus payments.
At the beginning of the year, financial objectives were established and approved
by the Compensation Committee for each participant in the program. A minimum
performance level must be achieved by the Company before any bonus may be earned
by a participant. Thereafter, an established progression rewards higher levels
of achievement with greater bonus payments. Aggregate bonuses payable under the
Management Incentive Compensation Plan in any one year will be limited to a
pre-determined percentage of each participant's salary.
46
<PAGE> 49
CERTAIN TRANSACTIONS
In connection with the Company's Series F Preferred Stock Financing on
March 5, 1996, the Company and the holders of Convertible Preferred Stock
entered into a Fourth Amended and Restated Registration Rights Agreement (the
"Registration Rights Agreement"). Pursuant to the Registration Rights Agreement,
holders of Convertible Preferred Stock that will be converted into Common Stock
in connection with this offering have the right, beginning six months after the
date of this offering and subject to certain limitations and conditions, to
require the Company to file registration statements under the Securities Act to
register all or a part of their shares of Common Stock. The Company, in certain
circumstances, may defer such registrations, and the Underwriters have the
right, subject to certain limitations, to limit the number of shares included in
such registrations. In the event that the Company proposes to register any of
its securities under the Securities Act, either for its own account or for the
account of other securities holders, the holders of Convertible Preferred Stock
are entitled to include their shares of Common Stock in such registration,
subject to marketing and other limitations. Generally, the Company is required
to bear all of the expenses of such registration. Ameritech Development Corp.,
which holds in the aggregate 23.5% of the outstanding capital stock of the
Company (on an as-converted basis), The Hill Partnership III, L.P. (the "Hill
Partnership"), which holds in the aggregate 25.7% of the outstanding capital
stock of the Company (on an as-converted basis), Boston Capital Ventures Limited
Partnership and its affiliates, which hold in the aggregate 25.0% of the
outstanding capital stock of the Company (on an as-converted basis), are parties
to the Registration Rights Agreement. John G. Hill, an affiliate of The Hill
Partnership, and Darrell A. Williams, an affiliate of Ameritech Development
Corp., are Directors of the Company.
The Company provides 9-1-1 OSS services pursuant to a 9-1-1 Services
Agreement dated as of August 31, 1994, as amended, between Ameritech Information
Systems, Inc. and the Company. Pursuant to a Master Lease dated as of March 11,
1996, with Ameritech Credit Corporation, the Company leases certain personal
property. Additionally, the Company is a party to a Consulting Agreement dated
October 27, 1997 with Ameritech Mobile Communications, Inc. pursuant to which
the Company performed a market survey regarding the provision of 9-1-1 service
to cellular telephone subscribers. Ameritech Information Systems, Inc.,
Ameritech Credit Corporation and Ameritech Mobile Communications, Inc. are
affiliates of Ameritech Development Corp. The Company received net proceeds of
approximately $3,226,000, $6,606,000 and $6,959,000 in 1995, 1996 and 1997,
respectively, pursuant to these agreements.
The Company believes that the terms of the transactions described above
were no less favorable to the Company than would have been obtained from an
unaffiliated third party. Any future transactions between the Company and any of
its officers, Directors or principal stockholders will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
and will be approved by a majority of the independent and disinterested members
of the Board of Directors.
The Company plans to enter into the Indemnification Agreements with its
Directors and executive officers, effective upon the effectiveness of the
Registration Statement of which this Prospectus forms a part. Subject to the
provisions of 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 that arises in their capacity as,
or as a result of, their positions with the Company. See
"Management -- Limitations on Liability and Indemnification Matters."
47
<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 30, 1998, and as adjusted to
reflect the sale of 3,300,000 shares of the Company's Common Stock offered
hereby by (i) each person who is known by the Company to beneficially own more
than 5% of the Company's Common Stock, (ii) each of the Company's Directors,
(iii) each of the Named Officers, (iv) all current executive officers and
Directors as a group and (v) other Selling Stockholders.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED NUMBER BENEFICIALLY OWNED
PRIOR TO OFFERING(1) OF AFTER OFFERING(1)(11)
-------------------- SHARES ---------------------
NUMBER PERCENT OFFERED(11) NUMBER PERCENT
---------- ------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS, DIRECTORS, NAMED OFFICERS AND
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
- -----------------------------------------------
The Hill Partnership III(2).................. 2,139,516 25.6% 311,989 1,827,527 17.5%
A Limited Partnership 885 Arapahoe Boulder,
Colorado 80302
John G. Hill(2).............................. 2,139,516 25.6 311,989 1,827,527 17.5
Boston Capital Ventures Limited 2,083,945 25.0 304,477 1,779,468 17.0
Partnership(3).............................
45 State Street Boston, Massachusetts 02109
David Kronfeld(3)............................ 2,083,945 25.0 304,477 1,779,468 17.0
Ameritech Development Corporation(4)......... 1,961,054 23.5 285,965 1,675,089 16.0
30 S. Wacker Drive, 37th Floor Chicago,
Illinois 60606
Darrell A. Williams(4)....................... 1,961,054 23.5 285,965 1,675,089 16.0
George K. Heinrichs(5)....................... 457,396 5.3 32,174 425,222 4.0
Nancy K. Hamilton(6)......................... 109,634 1.3 10,500 99,134 *
John J. Sims(7).............................. 87,432 1.0 -- 87,432 *
All Directors and executive officers as a 6,838,977 78.0 945,105 5,893,872 54.2
group (6 persons)(8).......................
John Quinlan................................. 389,976 4.7 49,314 340,662 3.3
OTHER SELLING STOCKHOLDERS
- --------------------------
Stephen Meer(9).............................. 304,052 3.6 42,380 261,672 2.5
R. Chris Roark............................... 276,082 3.3 21,757 254,325 2.4
Donald Van Wie............................... 212,227 2.5 14,000 198,227 1.9
Banc One Capital Partners, II, LLC (10)...... 195,148 2.3 97,574 97,574 *
c/o Banc One Capital Corporation
150 East Gay Street
Columbus, Ohio 43215
Jesse Simmons................................ 75,000 * 5,250 69,750 *
David Paulson................................ 71,666 * 8,166 63,500 *
Ronald J. Carroll............................ 63,000 * 4,410 58,590 *
Steve Lowe................................... 37,666 * 2,636 35,030 *
Michael Radicella............................ 20,000 * 700 19,300 *
Mark Flolid.................................. 19,333 * 1,353 17,980 *
Frances Esterbrook........................... 12,916 * 904 12,012 *
David Hose................................... 10,866 * 606 10,260 *
Kriston Chapman.............................. 9,260 * 2,100 7,160 *
Patrick Sloter............................... 8,044 * 567 7,477 *
</TABLE>
48
<PAGE> 51
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED NUMBER BENEFICIALLY OWNED
PRIOR TO OFFERING(1) OF AFTER OFFERING(1)(11)
-------------------- SHARES ---------------------
NUMBER PERCENT OFFERED(11) NUMBER PERCENT
---------- ------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Robert Umbreit............................... 5,602 * 1,423 4,179 *
Gary Ellis................................... 3,373 * 595 2,778 *
Thomas Barlow................................ 2,533 * 420 2,113 *
Paul Brill................................... 2,400 * 168 2,232 *
Robert G. Heil............................... 1,200 * 136 1,064 *
Jim Fitch.................................... 1,000 * 210 790 *
David Oberto................................. 666 * 75 591 *
Todd Kridel.................................. 216 * 151 65 *
</TABLE>
- ------------
* Less than 1%
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to the shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable. Beneficial ownership as reported in the above table has
been determined in accordance with Rule 13d-3 under the Exchange Act, based
on information furnished by the persons listed, and represents the number
of shares of Common Stock for which a person, directly or indirectly,
through any contract, management, understanding, relationship or otherwise,
has or shares voting power, including the power to vote or direct the
voting of such shares, or investment power, including the power to dispose
or to direct the disposition of such shares, and includes shares which may
be acquired upon the exercise of options within 60 days following April 30,
1998. However, shares that may be acquired upon the exercise of options are
not deemed outstanding for the purposes of computing the percentage
ownership of any other person. The address for Messrs. Heinrichs, Sims,
Hill, Williams and Kronfeld and Ms. Hamilton is c/o SCC Communications
Corp., 6285 Lookout Road, Boulder, Colorado 80301. This table assumes no
exercise of the Underwriters' over-allotment option. Percentage of
ownership is based on 8,342,007 shares of Common Stock, pro forma
outstanding on March 31, 1998, and 10,442,853 shares of Common Stock to be
outstanding after completion of this offering.
(2) The general partner of the Hill Partnership III, L.P., is Hill Carman
Ventures, L.P. John G. Hill, a Director of the Company, and Carl D. Carman
are the general partners of Hill Carman Ventures, L.P., and have joint
voting and investment control over the shares held by the Hill Partnership
III, L.P. Mr. Hill and Mr. Carman disclaim beneficial ownership of such
shares except to the extent of their pecuniary interest in Hill Carman
Ventures, L.P.
(3) Includes 314,818 shares held by Boston Capital Ventures, Limited
Partnership, 314,818 shares held by Boston Capital Ventures II, Limited
Partnership, 635,912 shares held by Business Development Partners, L.P. and
818,397 shares held by Boston Capital Ventures III Limited Partnership. The
general partner of Boston Capital Ventures Limited Partnership is BC&V
Limited Partnership. The general partner of Boston Capital Ventures II
Limited Partnership is Boston Capital Partners II. The general partner of
Business Development Partners, L.P. and Boston Capital Ventures III Limited
Partnership is BD Partners Limited Partnership. David Kronfeld, a Director
of the Company, is a general partner of certain of the entities associated
with the Boston Capital Ventures entities. Mr. Kronfeld disclaims
beneficial ownership of any of the shares owned by Boston Capital Ventures
Limited Partnership, Boston Capital Ventures II Limited Partnership,
Business Development Partners, L.P. and Boston Capital Ventures III Limited
Partnership, except to the extent of his pecuniary interest in certain
Boston Capital Ventures entities.
(4) Ameritech Development Corporation is a wholly-owned subsidiary of Ameritech
Corporation, a publicly traded company. Darrell A. Williams, a Director of
the Company, is a Vice President of Ameritech Development Corporation, the
board of directors of which has voting and investment control over the
shares held by Ameritech Development Corporation. Mr. Williams disclaims
beneficial ownership of such shares.
(5) Includes options to purchase 234,063 shares of Common Stock, all of which
were immediately exercisable or exercisable within 60 days of April 30,
1998. Excludes options to purchase 102,236 shares of Common Stock, none of
which were exercisable within 60 days of April 30, 1998.
(6) Includes options to purchase 109,634 shares of Common Stock, all of which
were immediately exercisable or exercisable within 60 days of April 30,
1998. Excludes options to purchase 65,516 shares of Common Stock, none of
which were exercisable within 60 days of April 30, 1998.
(7) Includes options to purchase 87,432 shares of Common Stock, all of which
were immediately exercisable or exercisable within 60 days of April 30,
1998. Excludes options to purchase 142,627 shares of Common Stock, none of
which were exercisable within 60 days of April 30, 1998.
(8) See Notes (2) through (7). Includes options to purchase 431,129 shares of
Common Stock, all of which were immediately exercisable or exercisable
within 60 days of April 30, 1998. Excludes options to purchase 310,379
shares of Common Stock, none of which were exercisable within 60 days of
April 30, 1998.
(9) Includes options to purchase 67,148 shares of Common Stock, all of which
were immediately exercisable or exercisable within 60 days of April 30,
1998. Excludes options to purchase 23,334 shares of Common Stock, none of
which were exercisable within 60 days of April 30, 1998.
49
<PAGE> 52
(10) Consists of a warrant to purchase Common Stock.
(11) If the underwriters' option is exercised in full, each of the following
Selling Stockholders will sell the following number of additional shares
and, thereafter, will own beneficially the number and percent of shares
indicated parenthetically: The Hill Partnership III, 32,595 shares
(1,794,932 shares, 16.7%); John G. Hill, 32,595 shares (1,794,932 shares,
16.7%); Boston Capital Ventures Limited Partnership, 31,810 shares
(1,747,658 shares, 16.2%); David Kronfeld, 31,810 shares (1,747,658 shares,
16.2%); Ameritech Development Corporation, 29,876 shares (1,645,213 shares,
15.3%); Darrell A. Williams, 29,876 shares (1,645,213 shares, 15.3%);
George K. Heinrichs, 13,789 shares (411,433 shares, 3.7%); Nancy K.
Hamilton, 4,500 shares (94,634 shares, less than one percent); John
Quinian, 21,134 shares (319,528 shares, 3.0%); Stephen Meer, 18,164 shares
(243,508 shares, 2.2%); R. Chris Roark, 9,325 shares (245,000 shares,
2.3%); Donald Van Wie, 6,000 shares (192,227 shares, 1.8%); Jesse Simmons,
2,250 shares (67,500 shares, less than one percent); David Paulson, 3,501
shares (59,999 shares, less than one percent); Ronald J. Carroll, 1,890
shares (56,700 shares, less than one percent); Steve Lowe, 1,131 shares
(33,899 shares, less than one percent); Michael Radicella, 300 shares
(19,000 shares, less than one percent); Mark Flolid, 580 shares (17,400
shares, less than one percent); Frances Esterbrook, 388 shares (11,624
shares, less than one percent); David Hose, 260 shares (10,000 shares, less
than one percent); Kriston Chapman, 900 shares (6,260 shares, less than one
percent); Patrick Sloter, 243 shares (7,234 shares, less than one percent);
Robert Umbreit, 610 shares (3,569 shares, less than one percent); Gary
Ellis, 255 shares (2,523 shares, less than one percent); Thomas Barlow, 180
shares (1,933 shares, less than one percent); Paul Brill, 72 shares (2,160
shares, less than one percent); Robert G. Heil, 59 shares (1,005 shares,
less than one percent); Jim Fitch, 90 shares (700 shares, less than one
percent); David Oberto, 33 shares (558 shares, less than one percent); and
Todd Kridel, 65 shares (0 shares, 0%).
50
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock, $.001
par value, and 15,000,000 shares of undesignated preferred stock, $.001 par
value (the "Preferred Stock").
COMMON STOCK
As of April 30, 1998, there were 8,342,853 shares of Common Stock
outstanding held of record by 124 stockholders. As of April 30, 1998, options to
purchase an aggregate of 1,114,046 shares of Common Stock were also outstanding.
See "Management -- Stock Plans."
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and have cumulative voting rights with
respect to the election of directors. Subject to the prior rights of holders of
Preferred Stock, if any, the holders of Common Stock are entitled to receive
such dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds legally available therefor. Upon
liquidation or dissolution of the Company, the remainder of the assets of the
Company will be distributed ratably among the holders of Common Stock after
payment of liabilities and the liquidation preferences of any outstanding shares
of Preferred Stock. The Common Stock has no preemptive or other subscription
rights and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. All of the outstanding shares of Common
Stock are, and the shares to be sold in this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue 15,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the Preferred
Stock in one or more series and to fix the price, rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting a series or the
designation of such series, without any further vote or action by the Company's
stockholders. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the stockholders and may
adversely affect the market price of, and the voting and other rights of, the
holders of Common Stock. The Company has no current plans to issue any shares of
Preferred Stock.
REGISTRATION RIGHTS
Under the Registration Rights Agreement, the holders of approximately
6,188,575 shares of Common Stock and their permitted transferees (the "Holders")
are entitled to certain rights with respect to the registration of such shares
("Registrable Securities") under the Securities Act. Under the terms of the
Registration Rights Agreement, the holders of at least 50% of the Registrable
Securities may require, on two occasions after six months from the effective
date of this offering, that the Company use its best efforts to register the
Registrable Securities for public resale. In addition, 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, the Holders are entitled to notice of such registration and are entitled
to include shares of such Common Stock therein. The Holders may also require the
Company on an unlimited number of occasions to register all or a portion of
their Registrable Securities on Form S-3 under the Securities Act when use of
such form becomes available to the Company. All such registration rights are
subject to certain conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares to be included in such
registration. In addition, the Company need not effect a registration within six
months following a previous registration, or after such time as all Holders may
sell under Rule 144(k) all shares of Common Stock to which such registration
rights apply. See "Certain Transactions."
Additionally, the holder of a warrant to purchase 195,148 shares of Common
Stock is entitled to request registration of such shares pursuant to a separate
registration rights agreement. In addition, if the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account
51
<PAGE> 54
or for other security holders exercising registration rights, the warrant holder
is entitled to notice of such registration and is entitled to include shares of
such Common Stock therein. The warrant will be exercised in full upon the
closing of this offering.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Amended and Restated Certificate of Incorporation and Restated Bylaws
The Company's Amended and Restated Certificate of Incorporation authorizes
the Board to establish one or more series of undesignated Preferred Stock, the
terms of which can be determined by the Board at the time of issuance. See
"-- Preferred Stock." The Amended and Restated Certificate of Incorporation also
provides that all stockholder actions must be effected at a duly called meeting
of stockholders and not by a consent in writing. In addition, effective upon the
closing of this offering, the Company's Restated Bylaws will not permit
stockholders of the Company to call a special meeting of stockholders; only the
Company's Chief Executive Officer, President or Chairperson of the Board or a
majority of the Board will be permitted to call a special meeting of
stockholders. The Restated Bylaws also will require that stockholders give
advance notice to the Company's Secretary of any nominations for Director or
other business to be brought by stockholders at any stockholders' meeting and
require a vote of 66 2/3% of the stockholders or a majority of the members of
the Board to amend the Restated Bylaws. These provisions of the Amended and
Restated Certificate of Incorporation and the Restated Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. Such provisions also may have the effect of preventing changes
in the management of the Company.
Delaware Anti-Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder (defined as any person or entity that is the beneficial owner of at
least 15% of a corporation's voting stock) for a period of three years following
the time that such stockholder became an interested stockholder, unless: (i)
prior to such time, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the stockholder's
becoming an interested stockholder; (ii) upon consummation of the transaction
that resulted in the stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding, for purposes of
determining the number of shares outstanding, those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) at or subsequent to such time, the business combination is approved by
the Board and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, lease, exchange, mortgage, transfer, pledge or other disposition involving
the interested stockholder and 10% or more of the assets of the corporation;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder; (iv) any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Bank
Minnesota, N.A.
52
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 10,442,007 shares of Common
Stock of the Company outstanding, based on shares outstanding as of April 9,
1998. There were also approximately 637,270 shares covered by vested options
outstanding, which are not considered to be outstanding shares. Of the
outstanding shares, 3,361,469 shares, including the 3,300,000 shares of Common
Stock sold in this offering, will be immediately eligible for resale in the
public market without restriction under the Securities Act, except that any
shares purchased in this offering by affiliates of the Company ("Affiliates"),
as that term is defined in Rule 144 under the Securities Act ("Rule 144"), may
generally only be resold in compliance with applicable provisions of Rule 144.
Beginning approximately 90 days after the date of this Prospectus, approximately
16,665 additional shares of Common Stock will become eligible for immediate
resale in the public market, subject to compliances to certain of such shares
with applicable provisions of Rules 144 and Rule 701 under the Securities Act
("Rule 701").
The Company, the executive officers and Directors of the Company, and
certain security holders have agreed pursuant to lock-up agreements that they
will not, without the prior written consent of BancAmerica Robertson Stephens,
offer, sell or otherwise dispose of the shares of Common Stock beneficially
owned by them for a period of 180 days from the date of this Prospectus. Each
holder who signed a lock-up agreement has agreed, subject to certain limited
exceptions, not to sell or otherwise dispose of any of the shares held by them
as of the date of this Prospectus for a period of 180 days after the date of
this Prospectus without the prior written consent of BancAmerica Robertson
Stephens. At the end of such 180-day period, approximately 8,706,944 shares of
Common Stock (including approximately 671,040 shares issuable upon exercise of
vested options) will be eligible for immediate resale, subject to compliance
with Rule 144 and Rule 701. The remainder of the approximately 110,068 shares of
Common Stock outstanding 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
any available registration rights or upon vesting pursuant to the Company's
standard four year vesting schedule. Approximately an additional 442,573 shares
issuable upon exercise of existing options will become eligible for sale at
various times over a period of less than four years.
In general, under Rule 144 beginning approximately 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
a stockholder, including an Affiliate, who has beneficially owned his or her
restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of one percent of the then outstanding shares of Common Stock
(approximately 104,420 shares immediately after the offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of
the Company for at least three months prior to the sale is entitled to sell the
shares immediately without compliance with the foregoing requirements under Rule
144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted prior
to this offering) are also restricted securities and, beginning 90 days after
the date of this Prospectus, may be sold by stockholders other than an Affiliate
of the Company subject only to the manner of sale provisions of Rule 144 and by
an Affiliate under Rule 144 without compliance with its one-year holding period
requirement.
Prior to this offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. The Company is unable to estimate
the number of shares that may be sold in the public market pursuant to Rule 144,
since this will depend on the market price of the Common Stock, the personal
circumstances of the sellers and other factors. Nevertheless, sales of
53
<PAGE> 56
significant amounts of the Common Stock of the Company in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through an offering of its equity securities.
In addition, the Company intends to register approximately 90 days after
the effective date of this offering a total of 1,901,055 shares of Common Stock
subject to outstanding options or reserved for issuance under the Company's 1998
Plan or outstanding shares that are subject to repurchase by the Company plus
200,000 shares of Common Stock reserved for issuance under the Purchase Plan.
Furthermore, upon expiration of lock-up agreements described above, holders of
approximately 6,383,723 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 of the Common Stock.
54
<PAGE> 57
UNDERWRITING
The Underwriters named below (the "Underwriters"), acting through their
representatives, BancAmerica Robertson Stephens and Hambrecht & Quist LLC (the
"Representatives"), have severally agreed with the Company and the Selling
Stockholders, subject to the terms and conditions of the Underwriting Agreement,
to purchase from the Company and the Selling Stockholders the number of shares
of Common Stock set forth opposite names below. The Underwriters are committed
to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
BancAmerica Robertson Stephens..............................
Hambrecht & Quist LLC.......................................
---------
Total............................................. 3,300,000
=========
</TABLE>
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the initial public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share, of which $ may be reallowed to
other dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representatives. No
such reduction shall change the amount of proceeds to be received by the Company
and the Selling Stockholders as set forth on the cover page of this Prospectus.
The Company and certain Selling Stockholders have granted to the
Underwriters an option, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to and additional shares of
Common Stock, respectively, at the same price per share as the Company and the
Selling Stockholders will receive for the 3,300,000 shares that the Underwriters
have agreed to purchase. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of Common Stock to be purchased by it shown in the above table represents
as a percentage of the 3,300,000 shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those on
which the 3,300,000 shares are being sold. The Company and such Selling
Stockholders will be obligated, pursuant to the option, to sell shares to the
extent the option is exercised. The Underwriters may exercise such option only
to cover over-allotments made in connection with the sale of shares of Common
Stock offered hereby.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Each officer and director and certain holders of shares of the Company's
Common Stock have agreed with the Representatives, for a period of 180 days
after the date of this Prospectus (the "Lock-Up Period"), subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of Common Stock,
any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock owned as
of
55
<PAGE> 58
the date of this Prospectus or thereafter acquired directly by such holders or
with respect to which they have or hereafter acquire the power of disposition,
without the prior written consent of BancAmerica Robertson Stephens. However,
BancAmerica Robertson Stephens may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. There are no agreements between the Representatives and any of the
Company's stockholders providing consent by the Representatives to the sale of
shares prior to the expiration of the Lock-Up Period. The Company has agreed
that during the Lock-Up Period, the Company will not, subject to certain
exceptions, without the prior written consent of BancAmerica Robertson Stephens,
(i) consent to the disposition of any shares held by stockholders prior to the
expiration of the Lock-Up Period or (ii) issue, sell, contract to sell or
otherwise dispose of, any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock, other than the
Company's sale of shares in this offering, the issuance of Common Stock upon the
exercise of outstanding options and warrants and the Company's issuance of
options and stock under the existing stock option and stock purchase plans. See
"Shares Eligible for Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby will be determined through negotiations between the
Company and the Representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain financial information of
the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
56
<PAGE> 59
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Denver, Colorado. Certain legal
matters in connection with the offering will be passed upon for the Underwriters
by Foley, Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
The Financial Statements of the Company as of December 31, 1996 and 1997,
and for each of the three years in the period ended December 31, 1997, included
in this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated by their report with respect thereto, and are included
in reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act,
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and such Common Stock, reference is made to the Registration Statement
and the exhibits and schedules filed as a part thereof. Statements contained in
this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete. In each instance, reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. Copies of the Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the Commission's principal
office in Washington, D.C., or obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the site is
http://www.sec.gov.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also makes electronic filings publicly available on the
Internet within 24 hours of acceptance. The Commission's Web site is located at
http://www.sec.gov. The Commission's Web site also contains reports, proxy and
information statements, and other information regarding registrants that file
electronically with the Commission.
57
<PAGE> 60
GLOSSARY OF TERMS
"AIN" -- Advanced Intelligent Network. A system of interconnected telephone
switches and specialized computers that provides advanced telephone
functionality based on computer software rather than software in the telephone
switch.
"ALI" -- Automatic Location Information. The location information
associated with the number of the telephone used to dial 9-1-1. ALI Data may
include address information, subaddress information (such as office number) and
information about the appropriate emergency response organization for the
jurisdiction.
"ANI" -- Automatic Number Identification. The number associated with the
telephone from which a 9-1-1 call is placed.
"cellular" -- Cellular Mobile Telephone System (or CMTS). A wireless
telephone system based on a grid of cell sites. Each cell site serves a limited
geographic area and contains transmitters, receivers and antennae. Each cell
site is connected to centrally-located switching gear and control equipment.
Each cellular telephone has a unique identification number which allows the
central switch to track and coordinate all mobile phones in the service area,
including the hand-offs from one cell site to another.
"CLECs" -- Competitive Local Exchange Carriers. A company that provides its
customers with an alternative to an ILEC for local transport of private line,
special access and interstate and local transport of switched access
telecommunications services.
"E9-1-1" -- Enhanced 9-1-1 service. An emergency telephone response service
that provides ANI and ALI to the PSAP responsible for dispatching police, fire
and other emergency services.
"FCC" -- Federal Communications Commission.
"ILECs" -- Incumbent Local Exchange Carriers. A company that provides its
customers with local transport of private line, special access and interstate
and local transport of switched access telecommunications services. These
companies typically are RBOCS or independent companies that were the only
suppliers before competition.
"LNP" -- Local Number Portability. LNP, which enables customers to retain
their local phone number when changing service providers, was mandated by the
Telecommunications Act of 1996 and regulations promulgated thereunder in order
to facilitate a level playing field for local telephone service competition. The
implementation of LNP utilizes a new ten-digit telephone number, known as the
Location Routing Number, or LRN. The LRN is used by the originating carrier to
determine the identity and location of the terminating carrier's switch.
"NDSC" -- The Company's National Data Services Center. Through the NDSC,
the Company offers comprehensive and cost-effective data management services to
ILECs, CLECs and wireless carriers, including system activation, routine data
administration, transaction processing and performance management with a high
level of security and survivability.
"1996 Act" -- The Telecommunications Act of 1996, which imposed, among
other things, new duties on local exchange carriers in order to open local
telephone markets to competition.
"Order" -- Report & Order 94-102 issued by the FCC on June 12, 1996, which
mandated the adoption of 9-1-1 technology by wireless carriers in Phase I and
Phase II.
"OSS" -- Operational Support Systems. The systems and procedures that
directly support the daily operation of the telecommunications infrastructure.
The average local exchange carrier has hundreds of OSS, which may be categorized
into service provisioning, operations, customer care and billing, and planning
and engineering.
"PBX" -- Private Branch Exchange. Privately owned switch systems typically
used in office buildings, college campuses and apartment complexes that connect
calls to a phone company.
58
<PAGE> 61
"Phase I" -- Mandate pursuant to the Order that required wireless carriers
to provide to requesting PSAP's, at the time of a 9-1-1 call, the caller's
telephone number and location of the receiving cell site. Wireless carriers had
to comply with Phase I mandates by the later of April 1, 1998, or six months
after the PSAP request.
"Phase II" -- Mandate pursuant to the Order requiring wireless carriers to
locate a 9-1-1 caller to within 125 meters, subject to FCC guidelines. Wireless
carriers must comply with Phase II mandates for requesting PSAPs by October 1,
2001.
"PSAP" -- Public Safety Answering Point. A public agency responsible for
receiving 9-1-1 calls in a jurisdiction.
"RBOCs" -- Regional Bell Operating Companies. The seven local exchange
carriers that were created in 1984 as a result of the breakup of AT&T.
"switch" -- A central facility capable of establishing, routing and
releasing connections on a per call basis between two or more circuits, services
or systems. Switches are used for both wireline and wireless communications
networks.
"VSAT" -- Very Small Aperture Terminal. A data communication system that
utilizes high power geosynchronous satellites and small diameter antenna earth
stations for communications.
59
<PAGE> 62
SCC COMMUNICATIONS CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)...................................... F-3
Statements of Operations for the years ended December 31,
1995, 1996 and 1997 and the three months ended March 31,
1997 and 1998 (unaudited)................................. F-5
Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1998 (unaudited)................... F-6
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and the three months ended March 31,
1997 and 1998 (unaudited)................................. F-7
Notes to Financial Statements............................... F-8
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of SCC Communications Corp.:
We have audited the accompanying balance sheets of SCC Communications Corp.
(a Delaware corporation) as of December 31, 1996 and 1997, and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SCC Communications Corp. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 20, 1998 (except with
respect to the matters in
Notes 2 and 4 as to which the
dates are March 18, 1998 and
April 8, 1998)
F-2
<PAGE> 64
SCC COMMUNICATIONS CORP.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------- ------- --------- ---------
(UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 32 $ 2,503 $ 1,177
Accounts receivable, net of allowance for doubtful
accounts of approximately $25, $50 and $32 in
1996, 1997 and 1998, respectively............... 1,376 2,328 2,939
Unbilled project revenue........................... 806 996 968
Prepaids and other................................. 46 224 461
Current assets from discontinued operations (Note
3).............................................. 4,778 -- --
------- ------- -------
Total current assets....................... 7,038 6,051 5,545
------- ------- -------
PROPERTY AND EQUIPMENT, at cost:
Computer hardware and equipment.................... 13,377 18,844 22,468
Furniture and fixtures............................. 581 709 736
Leasehold improvements............................. 552 621 662
Property and equipment from discontinued operations
(Note 3)........................................ 384 -- --
------- ------- -------
14,894 20,174 23,866
Less -- Accumulated depreciation................... (4,613) (8,136) (9,092)
Less -- Accumulated depreciation from discontinued
operations (Note 3)............................. (163) -- --
------- ------- -------
Total property and equipment............... 10,118 12,038 14,774
------- ------- -------
OTHER ASSETS......................................... 62 86 53
SOFTWARE DEVELOPMENT COSTS:
From continuing operations, net of accumulated
amortization of $97, $201 and $232 in 1996, 1997
and 1998, respectively.......................... 397 431 456
From discontinued operations (Note 3), net of
accumulated amortization of $968 in 1996........ 867 -- --
------- ------- -------
Total software development costs........... 1,264 431 456
------- ------- -------
$18,482 $18,606 $20,828
======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE> 65
SCC COMMUNICATIONS CORP.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------- ------- --------- ---------
(UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable....................................... $ 729 $ 965 $ 748
Payroll-related accruals............................... 324 780 629
Other accrued liabilities.............................. 1,410 3,039 3,151
Current portion of notes payable (Note 6).............. 2,005 986 450
Current portion of capital lease obligations (Note
6).................................................. 3,346 1,638 1,817
Deferred contract revenue.............................. 2,310 2,613 2,081
Current liabilities from discontinued operations (Note
3).................................................. 4,259 -- --
------- ------- --------
Total current liabilities...................... 14,383 10,021 8,876
LONG-TERM DEBT:
Notes payable, net of current portion (Note 6)......... 145 4,000 4,000
Discount on long-term note payable (Note 4)............ -- (1,430) (1,356)
Capital lease obligations, net of current portion (Note
6).................................................. 3,173 4,321 6,998
------- ------- --------
Total liabilities.............................. 17,701 16,912 18,518
------- ------- --------
COMMITMENTS AND CONTINGENCIES (Notes 1, 8 and 12)
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK (Note
4)
(Series A, B, C, D, E and F) $.001 par value; 6,188,575
shares authorized; 6,188,575 and 6,188,575 shares
issued and outstanding; entitled to $13,849 and
$14,589 in 1996 and 1997, respectively, in
liquidation or upon redemption if requested by the
holders after September 1, 1998, stated at
redemption value (none outstanding pro forma)....... 13,849 14,589 14,774 --
PUTABLE COMMON STOCK WARRANT (Note 4).................... -- 1,472 1,521 --
STOCKHOLDERS' EQUITY (DEFICIT) (Note 5):
Preferred stock, $.001 par value; 15,000,000 shares
authorized; none issued or outstanding (Note 2)..... -- -- -- --
Common stock, $.001 par value; 30,000,000 shares
authorized; 1,840,899, 1,994,281 and 1,994,534
shares issued in 1996, 1997 and 1998, respectively,
and 8,378,257 shares issued pro forma............... 2 2 2 8
Additional paid-in capital............................. 298 452 453 16,742
Treasury stock, 36,250 shares, at cost................. (3) (3) (3) (3)
Stock subscriptions receivable......................... (19) (99) (99) (99)
Accumulated deficit.................................... (13,346) (14,719) (14,338) (14,338)
------- ------- -------- --------
Total stockholders' equity (deficit)........... (13,068) (14,367) (13,985) $ 2,310
------- ------- -------- ========
$18,482 $18,606 $ 20,828
======= ======= ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-4
<PAGE> 66
SCC COMMUNICATIONS CORP.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Data management services...................... $ 3,531 $ 13,165 $ 24,005 $ 4,861 $ 7,533
Licenses and implementation services.......... 3,882 1,637 3,067 271 369
---------- ---------- ---------- ---------- ----------
Total revenue.......................... 7,413 14,802 27,072 5,132 7,902
COSTS AND EXPENSES:
Cost of data management services.............. 2,840 7,996 15,378 3,123 4,798
Cost of licenses and implementation
services.................................... 1,041 596 1,283 98 153
Sales and marketing........................... 2,016 3,204 3,850 933 843
General and administrative.................... 830 1,533 3,227 485 1,146
---------- ---------- ---------- ---------- ----------
Total costs and expenses............... 6,727 13,329 23,738 4,639 6,940
---------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS.......................... 686 1,473 3,334 493 962
OTHER INCOME (EXPENSE):
Interest and other income..................... 41 34 88 60 30
Interest and other expense.................... (409) (561) (967) (210) (331)
---------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES......................................... 318 946 2,455 343 661
PROVISION FOR INCOME TAXES (Note 7)............. 16 9 172 24 46
---------- ---------- ---------- ---------- ----------
NET INCOME FROM CONTINUING OPERATIONS........... 302 937 2,283 319 615
DISCONTINUED OPERATIONS (Note 3):
Loss from operations of discontinued division,
net of tax.................................. (1,746) (562) (876) (253) --
Loss from disposal of discontinued division... -- -- (2,032) -- --
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)............................... (1,444) 375 (625) 66 615
========== ========== ========== ========== ==========
Dividends accrued on Series D, E and F
mandatorily redeemable convertible preferred
stock......................................... (329) (673) (740) (185) (185)
Common stock warrant put price adjustment....... -- -- (8) -- (49)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK.... $ (1,773) $ (298) $ (1,373) $ (119) $ 381
========== ========== ========== ========== ==========
NET INCOME (LOSS) FROM CONTINUING OPERATIONS PER
SHARE (Note 2):
Basic......................................... $ (0.02) $ 0.15 $ 0.83 $ 0.07 $ 0.20
========== ========== ========== ========== ==========
Diluted....................................... $ (0.02) $ 0.11 $ 0.26 $ 0.04 $ 0.07
========== ========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE
Basic......................................... $ (1.07) $ (0.17) $ (0.74) $ (0.07) $ 0.20
========== ========== ========== ========== ==========
Diluted....................................... $ (1.07) $ 0.05 $ (0.07) $ 0.01 $ 0.07
========== ========== ========== ========== ==========
SHARES USED IN COMPUTING NET INCOME (LOSS) FROM
CONTINUING OPERATIONS PER SHARE AND NET INCOME
(LOSS) PER SHARE (Note 2):
Basic......................................... 1,652,379 1,790,230 1,857,413 1,808,015 1,958,143
========== ========== ========== ========== ==========
Diluted....................................... 1,652,379 8,299,362 8,788,816 8,659,789 9,143,534
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 67
SCC COMMUNICATIONS CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCK TREASURY STOCK STOCKHOLDERS
------------------ PAID-IN SUBSCRIPTIONS ---------------- ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL RECEIVABLE SHARES AMOUNT DEFICIT (DEFICIT)
--------- ------ ---------- ------------- ------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, at December 31,
1994...................... 1,296,260 $ 1 $231 $(14) (36,250) $(3) $(11,276) $(11,061)
Series E mandatorily
redeemable convertible
preferred stock
("Convertible Preferred
Stock") issued at $2.55
per share in exchange
for notes payable and
cancellation of
warrants................ -- -- (28) -- -- -- -- (28)
Dividends accrued on
Series D, E and F
Convertible Preferred
Stock................... -- -- -- -- -- -- (329) (329)
Exercise of stock options,
at various prices per
share ranging from $0.12
to $0.30................ 525,188 1 75 (5) -- -- -- 71
Net loss.................. -- -- -- -- -- -- (1,444) (1,444)
--------- --- ---- ---- ------- --- -------- --------
BALANCES, at December 31,
1995...................... 1,821,448 2 278 (19) (36,250) (3) (13,049) (12,791)
Dividends accrued on
Series D, E and F
Convertible Preferred
Stock................... -- -- -- -- -- -- (672) (672)
Exercise of stock options,
at various prices per
share ranging from $0.12
to $1.50................ 19,451 -- 20 -- -- -- -- 20
Net income................ -- -- -- -- -- -- 375 375
--------- --- ---- ---- ------- --- -------- --------
BALANCES, at December 31,
1996...................... 1,840,899 2 298 (19) (36,250) (3) (13,346) (13,068)
Dividends accrued on
Series D, E and F
Convertible Preferred
Stock................... -- -- -- -- -- -- (740) (740)
Exercise of stock options,
including stock issued
at $0.12 and $3.00 per
share in exchange for
notes receivable........ 153,382 -- 154 (80) -- -- -- 74
Common stock warrant put
price adjustment
(Note 4)................ -- -- -- -- -- -- (8) (8)
Net loss.................. -- -- -- -- -- -- (625) (625)
--------- --- ---- ---- ------- --- -------- --------
BALANCES, at December 31,
1997...................... 1,994,281 2 452 (99) (36,250) (3) (14,719) (14,367)
Dividends accrued on
Series D, E and F
Convertible Preferred
Stock (unaudited)....... -- -- -- -- -- -- (185) (185)
Exercise of stock options
at $3.00 per share
(unaudited)............. 253 -- 1 -- -- -- -- 1
Common stock warrant put
price adjustment
(unaudited)............. -- -- -- -- -- -- (49) (49)
Net income (unaudited).... -- -- -- -- -- -- 615 615
--------- --- ---- ---- ------- --- -------- --------
Balances, at March 31, 1998
(unaudited)............... 1,994,534 $ 2 $453 $(99) (36,250) $(3) $(14,338) $(13,985)
========= === ==== ==== ======= === ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE> 68
SCC COMMUNICATIONS CORP.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(1,444) $ 375 $ (625) $ 66 $ 615
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Amortization and depreciation........................... 1,062 2,242 3,534 765 985
Amortization of note payable discount................... 5 -- 33 -- 74
Gain on disposal of assets.............................. (7) -- (40) -- --
Loss on disposal of discontinued division............... -- -- 2,032 -- --
Provision for estimated losses on contracts............. 82 (321) (196) (10) (25)
Provision (recovery) of doubtful accounts............... (16) -- 25 -- (18)
Change in --
Accounts receivable................................... (1,370) 102 (977) 262 (593)
Unbilled project revenue.............................. 235 (778) (190) 321 28
Prepaids and other.................................... (116) 327 (202) (180) (204)
Accounts payable...................................... (108) 309 236 1,040 (217)
Accrued liabilities................................... (46) 477 1,337 325 (14)
Deferred contract revenue............................. 1,916 (1,932) 303 (123) (532)
Decrease in current assets and liabilities from
discontinued operations............................... (162) (1,257) 110 (809) --
------- ------- ------- ------ -------
Net cash provided by (used in) operating
activities........................................ 31 (456) 5,380 1,657 99
------- ------- ------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (455) (2,361) (2,646) (548) (399)
Proceeds from sale of net assets.......................... 14 -- 603 -- --
Software development costs................................ (159) (226) (142) (27) (56)
------- ------- ------- ------ -------
Net cash used in investing activities............... (600) (2,587) (2,185) (575) (455)
------- ------- ------- ------ -------
</TABLE>
<TABLE>
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Proceeds from issuance of notes payable................... 800 2,150 4,275 -- --
Proceeds from issuance of convertible notes payable....... 1,000 -- -- -- --
Principal payments on notes payable....................... (552) (1,527) (1,439) (329) (536)
Principal payments on capital lease obligations........... (467) (2,528) (3,634) (479) (435)
Exercise of stock options................................. 71 20 74 4 1
Proceeds from issuance of Series F Convertible Preferred
Stock................................................... -- 3,956 -- -- --
------- ------- ------- ------ -------
Net cash provided by (used in) financing
activities........................................ 852 2,071 (724) (804) (970)
------- ------- ------- ------ -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 283 (972) 2,471 278 (1,326)
CASH AND CASH EQUIVALENTS, beginning of period.............. 721 1,004 32 32 2,503
------- ------- ------- ------ -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,004 $ 32 $ 2,503 $ 310 $ 1,177
======= ======= ======= ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................. $ 400 $ 611 $ 942 $ 181 $ 367
======= ======= ======= ====== =======
Cash paid during the period for taxes..................... $ 17 $ 4 $ 18 $ 11 $ 71
======= ======= ======= ====== =======
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING
ACTIVITIES:
Conversion of debt and accrued interest thereon to Series
E Convertible Preferred Stock........................... $ 2,633 $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
Dividends accrued on Series D, E and F Convertible
Preferred Stock......................................... $ 329 $ 673 $ 740 $ 185 $ 185
======= ======= ======= ====== =======
Common stock issued to employees in exchange for employee
notes receivable........................................ $ 5 $ -- $ 80 $ -- $ --
======= ======= ======= ====== =======
Property acquired with capital leases..................... $ 3,735 $ 5,327 $ 3,074 $ 462 $ 3,291
======= ======= ======= ====== =======
Cancellation of common stock warrants..................... $ 101 $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
Conversion of debt and accrued interest thereon to Series
F Convertible Preferred Stock........................... $ -- $ 1,044 $ -- $ -- $ --
======= ======= ======= ====== =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-7
<PAGE> 69
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
(1) ORGANIZATION, BUSINESS AND LIQUIDITY
SCC Communications Corp., doing business as SCC (the "Company"), is a
Delaware corporation. The Company is the leading provider of 9-1-1 operations
support systems services to incumbent local exchange carriers, competitive local
exchange carriers and wireless carriers in the United States. The Company
manages the data which enables 9-1-1 calls to be routed to the appropriate
public safety agency with accurate and timely information about the caller's
identification and location. In addition, the Company licenses its 9-1-1
software to carriers that wish to manage the delivery of 9-1-1 data management
services in-house.
LIQUIDITY
Although the Company had a working capital deficit at December 31, 1997,
the Company generated net income from continuing operations before income taxes
of approximately $2,455,000 while also generating positive operating cash flows
of approximately $5,400,000 in 1997. The Company believes that its operating
cash and its line of credit, which has been renewed through April 15, 1999, will
be adequate to meet its cash requirements for operations for the next twelve
months.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATING CYCLE
Assets and liabilities related to contracts are included in current assets
and liabilities in the accompanying balance sheets since they will be liquidated
in the normal course of contract completion, although this may require more than
one year.
PROPERTY AND EQUIPMENT
Depreciation of property and equipment is computed using the straight-line
method over estimated useful lives of three to five years for computer hardware
and equipment, five years for furniture and fixtures and the life of the lease
for leasehold improvements. The costs of repairs and maintenance are expensed
while enhancements to existing assets are capitalized.
SOFTWARE DEVELOPMENT COSTS
The Company expenses the costs of developing computer software until
technological feasibility is established and capitalizes all costs incurred from
that time until the software is available for general customer release.
Technological feasibility for the Company's computer software products is based
upon the earlier of the achievement of (a) a detail program design free of
high-risk development issues or (b) completion of a working model. Costs of
major enhancements to existing products with a wide market are capitalized while
routine maintenance of existing products is charged to expense as incurred. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of capitalized computer software development costs requires
considerable judgment by management with respect to certain external factors,
including, but not limited to, technological feasibility, anticipated future
gross revenues, estimated economic life and changes in software and hardware
technology.
Capitalized software costs are amortized on a product-by-product basis. The
annual amortization is the greater of the amount computed using (a) the ratio
that current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product, or (b) the straight-line
method over the remaining estimated economic life of the product which is
typically five years. Accumulated amortization of capitalized software costs
from continuing operations totaled $38,000, $97,000 and $201,000, respectively,
for the years ended December 31, 1995, 1996 and 1997, and is included in cost of
data management services and licenses and implementation services in the
statements of operations.
F-8
<PAGE> 70
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
REVENUE RECOGNITION
The Company's revenue is derived from 9-1-1 data management services and
certain license fees and related implementation services that the Company
provides to telephone companies. Revenue from data management services generally
consists of a non-recurring initial fee and monthly recurring revenue. The non-
recurring initial fee is recognized using the percentage-of-completion method
over the period required to convert the customer's data to the Company's system
and otherwise prepare for implementation. Revenue from recurring monthly
services is recognized in the period the services are rendered. Related expenses
are recognized as they are incurred and are included in cost of data management
services in the accompanying statements of operations.
Because the Company's software requires significant modification for each
customer, revenue related to software license fees and implementation of the
Company's 9-1-1 systems at customer sites is recognized using the
percentage-of-completion method. Such contracts include a license fee for the
use of the Company's software and service fees for the installation and
customization of the system. The Company's costs to install its systems include
direct labor and expenses. Such costs are included in cost of licenses and
implementation services.
In applying the percentage-of-completion method, revenue and related costs
are recognized based on the percentage that labor hours incurred to date bear to
total estimated labor hours. Revenue recognized in excess of amounts billed is
reflected as unbilled project revenue and amounts billed in excess of revenue
recognized are reflected as deferred contract revenue in the accompanying
balance sheets. The Company recognizes any known or anticipated loss on
contracts in process when such losses are determined to exist.
Revenue from licenses and implementation services includes customer support
revenue which is recognized ratably over the related contract period on a
straight-line basis. Costs related to customer support revenue are included in
cost of licenses and implementation services in the accompanying statements of
operations.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company's
customers are generally telecommunications service providers; accordingly, the
Company's accounts receivable are concentrated in the telecommunications
industry. The Company's principal customers (Note 11) accounted for 86% and 40%
of the Company's accounts receivable as of December 31, 1996 and 1997,
respectively. The Company has no significant financial instruments with
off-balance sheet risk of accounting loss, such as foreign exchange contracts,
option contracts or other foreign currency hedging arrangements.
RESEARCH AND DEVELOPMENT
Research and development efforts consist of salaries, supplies and other
related costs. These costs are expensed as incurred and totaled approximately
$388,000, $230,000 and $738,000 for the years ended December 31, 1995, 1996 and
1997, respectively. These costs are included in cost of data management services
and licenses and implementation services in the accompanying statements of
operations and do not include development costs incurred as part of the efforts
performed under licenses and implementation services contracts with the
Company's customers.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
highly liquid investments with original maturities of 90 days or less.
F-9
<PAGE> 71
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash and cash equivalents, accounts
receivable and debt obligations. The carrying amounts for cash and cash
equivalents and accounts receivable approximate fair market value because of the
short maturity of these instruments. The fair value of notes and capital lease
obligations are estimated based on current rates available for similar debt with
maturities and securities, and at December 31, 1996 and 1997, approximates the
carrying value.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109
("SFAS 109"), which requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences, based on enacted
tax laws, of temporary differences between the financial reporting and tax bases
of assets and liabilities. SFAS 109 also requires recognition of deferred tax
assets for the expected future tax effects of loss carryforwards and tax credit
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, on a more likely
than not basis, are not expected to be realized (Note 7).
STOCK BASED COMPENSATION PLANS
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its stock option and other stock-based
compensation plans for employees and directors. The Company has adopted the
disclosure provisions of Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," for such options and
stock-based plans for employees and directors (Note 5).
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable from future undiscounted cash flows. Impairment losses are
recorded for the excess, if any, of the carrying value over the fair value of
the long-lived assets.
EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share," by retroactively restating loss per share amounts for
all periods presented. "Basic income (loss) per share" is determined by dividing
net income (loss) available to common shareholders by the weighted average
number of common shares outstanding during each period. "Diluted income (loss)
per share" includes the effects of potentially issuable common stock, but only
if dilutive (i.e., a loss per share is never reduced). The treasury stock
method, using the average price of the Company's common stock for the period, is
applied to determine dilution from options and warrants. The if-converted method
is used for convertible securities. Potentially dilutive common stock options
that were excluded from the calculation of diluted income per share
F-10
<PAGE> 72
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
because their effect is antidilutive totaled 230,316 and 298,017 in 1996 and
1997, respectively, and 46,801 for the three months ended March 31, 1997.
Because of the reported net loss available to common shareholders in 1995,
4,920,954 shares of mandatorily redeemable convertible preferred stock
("Convertible Preferred Stock") and 497,078 common stock options were excluded
from the calculation of diluted net loss per share because their effect is
antidilutive.
A reconciliation of the numerators and denominators used in computing per
share net income (loss) from continuing operations is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income from continuing
operations (numerator for
diluted loss per share for
1996 and 1997).............. $ 302,000 $ 937,000 $2,283,000 $ 319,000 $ 615,000
Dividends on Convertible
Preferred Stock............. (329,000) (673,000) (740,000) (185,000) (185,000)
Common stock warrant put price
adjustment.................. -- -- (8,000) -- (49,000)
---------- ---------- ---------- ---------- ----------
Numerator for basic
income (loss) per
share from continuing
operations (and, for
1995, diluted loss
per share)........... $ (27,000) $ 264,000 $1,535,000 $ 134,000 $ 381,000
========== ========== ========== ========== ==========
Denominator for basic income
(loss) per share:
Weighted average common shares
outstanding................. 1,652,379 1,790,230 1,857,413 1,808,015 1,958,143
========== ========== ========== ========== ==========
Denominator for diluted income
(loss) per share:
Convertible Preferred Stock.... -- 5,970,710 6,188,575 6,188,575 6,188,575
Weighted average common shares
outstanding................. 1,652,379 1,790,230 1,857,413 1,808,015 1,958,143
Options issued to employees.... -- 538,422 720,605 663,199 801,668
Putable common stock warrant... -- -- 22,223 -- 195,148
---------- ---------- ---------- ---------- ----------
Denominator for diluted
income (loss) per
share................ 1,652,379 8,299,362 8,788,816 8,659,789 9,143,534
========== ========== ========== ========== ==========
</TABLE>
F-11
<PAGE> 73
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
Income (loss) per common share was computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ---------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic income (loss) per share:
Income (loss) per share from continuing
operations........................... $(0.02) $ 0.15 $ 0.83 $ 0.07 $ 0.20
Net loss per share from discontinued
operations........................... (1.05) (0.32) (1.57) (0.14) --
------ ------ ------ ------ ------
Basic income (loss) per share... $(1.07) $(0.17) $(0.74) $(0.07) $ 0.20
====== ====== ====== ====== ======
Diluted income (loss) per share:
Income (loss) per share from continuing
operations........................... $(0.02) $ 0.11 $ 0.26 $ 0.04 $ 0.07
Net loss per share from discontinued
operations........................... (1.05) (0.06) (0.33) (0.03) --
------ ------ ------ ------ ------
Diluted income (loss) per
share......................... $(1.07) $ 0.05 $(0.07) $ 0.01 $ 0.07
====== ====== ====== ====== ======
</TABLE>
REVERSE STOCK SPLIT AND INCREASE IN AUTHORIZED SHARES
On March 18, 1998, the Company's Board of Directors authorized a
one-for-three reverse stock split to be effective upon the effective date of a
Registration Statement on Form S-1 filed by the Company with the Securities and
Exchange Commission. All share amounts, equivalent share amounts and per share
amounts have been adjusted retroactively to reflect the reverse stock split. The
Company's Board of Directors also authorized an increase in authorized common
stock to 30,000,000 shares and authorized 15,000,000 shares of undesignated
preferred stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." This statement, effective for fiscal years beginning
after December 15, 1997, would require the Company to report components of
comprehensive income in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is defined by
Concepts Statement No. 6, "Elements of Financial Statements," as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. The Company adopted SFAS 130 in the first quarter of
1998, however, the Company did not have any transactions which would require
additional disclosure under SFAS 130.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information." This statement, effective for financial statements for
periods beginning after December 15, 1997, requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Generally, financial information is required to be reported
on the basis that it is used internally for evaluation of segment performance
and deciding how to allocate resources to segments. The adoption of SFAS 131 is
not expected to have a material impact on the Company's financial statements.
F-12
<PAGE> 74
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
UNAUDITED PRO FORMA INFORMATION
The Company is contemplating a public offering of its common stock. If such
an offering is consummated, all of the Convertible Preferred Stock (Note 4)
outstanding as of the closing date will be converted into shares of common
stock. In addition, the put option related to common stock warrants will expire
upon completion of the offering and the common stock warrants will be exercised
for $100 into shares of common stock. The pro forma stockholders' equity in the
balance sheet as of December 31, 1997 reflects the conversion of all outstanding
Convertible Preferred Stock and the exercise of the common stock warrant to
stockholders' equity (deficit). Had the conversion of the Convertible Preferred
Stock occurred on January 1, 1997, basic and diluted net income per share from
continuing operations would have been $0.28 and $0.26, respectively for the year
ended December 31, 1997.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet as of March 31, 1998, the statements of
operations and of cash flows for the three months ended March 31, 1997 and 1998,
and the statement of stockholders' equity (deficit) for the three months ended
March 31, 1998 are unaudited. In the opinion of management, the statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
the fair statement of the results of the interim periods. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to conform
to the current year presentation.
(3) DISCONTINUED OPERATIONS
On June 30, 1997, the Company sold the net assets of its Premise Products
Division. The sale resulted in a net loss of $2,032,000. The net losses of this
division are included in the statements of operations as loss from operations of
discontinued division. Revenue from the division for the years ended December
31, 1995 and 1996 and the six months ended June 30, 1997, were $8,798,000,
$12,274,000 and $5,785,000, respectively.
F-13
<PAGE> 75
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
(4) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND PUTABLE COMMON STOCK
WARRANT
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has the following Convertible Preferred Stock authorized,
issued and outstanding at March 31, 1998, with the following liquidation or
redemption prices:
<TABLE>
<CAPTION>
SHARES
AUTHORIZED, LIQUIDATION OR ORIGINAL
ISSUED AND REDEMPTION PURCHASE
OUTSTANDING PRICE PRICE
----------- -------------- -----------
<S> <C> <C> <C>
Series A................................... 1,515,152 $ 1,500,000 $ 1,500,000
Series B................................... 1,010,101 1,000,000 1,000,000
Series C................................... 442,328 730,000 730,000
Series D................................... 912,123 2,403,000 1,614,458
Series E................................... 1,083,381 3,308,000 2,632,617
Series F................................... 1,225,490 5,833,000 5,000,000
--------- ----------- -----------
6,188,575 $14,774,000 $12,477,075
========= =========== ===========
</TABLE>
The activity of Series A through Series F Convertible Preferred Stock
issued and outstanding for the periods ended December 31, 1995, 1996 and 1997
and March 31, 1998, is as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
-------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F TOTAL
--------- --------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, at December 31,
1994....................... 1,515,152 1,010,101 442,328 912,123 -- -- 3,879,704
Series E Convertible
Preferred Stock issued at
$2.43 per share in
exchange for notes
payable and cancellation
of warrants.............. -- -- -- -- 1,083,381 -- 1,083,381
--------- --------- ------- ------- --------- --------- ---------
BALANCES, at December 31,
1995....................... 1,515,152 1,010,101 442,328 912,123 1,083,381 -- 4,963,085
Series F Convertible
Preferred Stock issued at
$4.08 per share in
exchange for cash and
notes payable............ -- -- -- -- -- 1,225,490 1,225,490
--------- --------- ------- ------- --------- --------- ---------
BALANCES, at December 31,
1996 and 1997 and March 31,
1998 (unaudited)........... 1,515,152 1,010,101 442,328 912,123 1,083,381 1,225,490 6,188,575
========= ========= ======= ======= ========= ========= =========
</TABLE>
F-14
<PAGE> 76
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
The activity related to the liquidation or redemption value of Series A
through Series F Convertible Preferred Stock for the periods ended December 31,
1995, 1996 and 1997 and March 31, 1998 is as follows:
<TABLE>
<CAPTION>
LIQUIDATION OR REDEMPTION VALUE
---------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F TOTAL
---------- ---------- -------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, at December 31,
1994................... $1,500,000 $1,000,000 $730,000 $1,984,000 $ -- $ -- $ 5,214,000
Series E Convertible
Preferred Stock
issued at $2.43 per
share in exchange for
notes payable and
cancellation of
warrants............. -- -- -- -- 2,633,000 -- 2,633,000
Dividends accrued on
Series D and E
Convertible Preferred
Stock................ -- -- -- 129,000 200,000 -- 329,000
---------- ---------- -------- ---------- ---------- ---------- -----------
BALANCES, at December 31,
1995................... 1,500,000 1,000,000 730,000 2,113,000 2,833,000 -- 8,176,000
Series F Convertible
Preferred Stock
issued at $4.08 per
share in exchange for
cash and notes
payable.............. -- -- -- -- -- 5,000,000 5,000,000
Dividends accrued on
Series D, E and F
Convertible Preferred
Stock................ -- -- -- 129,000 211,000 333,000 673,000
---------- ---------- -------- ---------- ---------- ---------- -----------
BALANCES, at December 31,
1996................... 1,500,000 1,000,000 730,000 2,242,000 3,044,000 5,333,000 13,849,000
Dividends accrued on
Series D, E and F
Convertible Preferred
Stock................ -- -- -- 129,000 211,000 400,000 740,000
---------- ---------- -------- ---------- ---------- ---------- -----------
BALANCES, at December 31,
1997................... 1,500,000 1,000,000 730,000 2,371,000 3,255,000 5,733,000 14,589,000
Dividends accrued on
Series D, E and F
Convertible Preferred
Stock (unaudited).... -- -- -- 32,000 53,000 100,000 185,000
---------- ---------- -------- ---------- ---------- ---------- -----------
BALANCES, at March 31,
1998 (unaudited)....... $1,500,000 $1,000,000 $730,000 $2,403,000 $3,308,000 $5,833,000 $14,774,000
========== ========== ======== ========== ========== ========== ===========
</TABLE>
In March 1996, the Company authorized and issued 1,225,490 shares of Series
F Convertible Preferred Stock, with a liquidation or redemption price of
$5,000,000. The Company received cash proceeds of $3,956,000 and converted its
$1,000,000 note payable and accrued interest thereon of $44,000 to a stockholder
of the Company to Series F Convertible Preferred Stock in this offering.
In the event of any liquidation, holders of Convertible Preferred Stock
would be entitled to preference in the amounts stated above. Any remaining
assets would be distributed to common and convertible preferred stockholders as
defined. At the request of the convertible preferred stockholders on any date
after March 1, 1998 (on March 18, 1998, the Convertible Preferred Stockholders
agreed to extend the date to September 1, 1998), the Convertible Preferred Stock
is redeemable at the above amounts. Such redemption, if requested, will be paid
in three installments as follows: first, the Company will redeem 50% of the
then-outstanding
F-15
<PAGE> 77
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
Convertible Preferred Stock ten days subsequent to the redemption request (the
"Optional Redemption Date"); then 25% on the first anniversary of the Optional
Redemption Date; and finally, 25% on the second anniversary of the Optional
Redemption Date.
Annual dividends of 8% accrue on Series A, B, C, D, E and F Convertible
Preferred Stock when and if declared by the Board of Directors. Upon redemption
or liquidation, a dividend of 8% per annum will accrue from the original
issuance date of the Series D, E and F Convertible Preferred Stock. Accordingly,
the Series D, E and F Convertible Preferred Stock in the accompanying balance
sheets include the accrual of such dividends through December 31, 1997. No
distributions may be made to common stockholders until declared and accrued
preferred stock dividends have been distributed. Common stock dividends may not
be made at a rate higher than the Convertible Preferred Stock dividends.
Each share of Series A, B, C, D, E and F is convertible at the option of
the holder into one share of common stock. The conversion rate is subject to
adjustment if sales of common stock, or equivalent options, excluding sales to
employees under provisions of the stock option plan (see below), are made at a
price lower than the original issue price of the Convertible Preferred Stock.
Each share of Convertible Preferred Stock will be automatically converted into
common stock upon completion of a $10 million firmly underwritten public
offering at a minimum price of at least $6.00 per share or immediately upon
conversion of 75% of the Convertible Preferred Stock into common stock.
During 1994, the Company issued notes payable to three of its existing
investors totaling $2,558,000. The notes were convertible into Series E at $3.00
per share and were interest bearing at 4% per annum. The investors received
warrants to purchase 200,000 shares of the Company's common stock for $600. The
warrants, exercisable for $.03 per share, were recorded at their estimated fair
market value of $100,000 and this amount was reflected as additional paid-in
capital. The notes payable were discounted by this amount and the discount was
being amortized as interest expense over the term of the debt. The notes were
due upon a public offering of the Company's common stock with a per share price
of at least $6.00 and aggregate proceeds of at least $10 million. Absent a
public offering prior to maturity, the notes were due or convertible into Series
E Convertible Preferred Stock, at the Company's option, on May 1, 1995. The
warrants had an expiration date of May 1, 1995. In January 1995, the debt and
accrued interest was replaced with new debt of $2,633,000 with similar terms,
convertible into 1,083,381 shares of Series E Convertible Preferred Stock (at
$2.43 per share). The warrants were canceled. The new debt was immediately
converted into 1,083,381 shares of Series E Convertible Preferred Stock, with a
liquidation or redemption price at that date of $2,633,000.
PUTABLE COMMON STOCK WARRANT
In November 1997, the Company borrowed $4,000,000 from Banc One Capital
Partners II, LLC (the "Lender") (Note 6). In connection with the loan, the
Lender received a warrant to purchase 195,148 shares of the Company's common
stock for $100. Under the warrant, if the Company does not complete a qualified
public offering as defined in the related agreement within twelve months of the
date of the agreement, the number of shares under the warrant is increased by an
additional 97,574 shares of the Company's common stock. If the Company does not
complete a qualified public offering as defined in the related agreement within
eighteen months of the date of the agreement, the number of shares under the
warrant is increased by another 97,574 shares of the Company's common stock. The
Company recorded $1,464,000 for the estimated value of the shares exercisable
under the warrant as a discount on long-term note payable in the accompanying
balance sheets and is amortizing the discount into interest expense over the
six-year term of the note. The warrant expires on the date which is the earliest
of (i) the date on which a qualified initial public offering is completed, (ii)
the date on which a disposition or non-surviving combination is consummated,
(iii) the date on which the Lender exercises its rights under a co-sale
agreement to sell all of its warrant shares or (iv) 90 days after the maturity
date of the related note.
F-16
<PAGE> 78
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
In addition, at any time after the occurrence of a put trigger event and
prior to a qualified public offering, as defined, the Lender may require the
Company to purchase all, but not less than all, of the common shares underlying
the warrant. A put trigger event is defined as the first to occur of any of the
following events: (1) the sixth anniversary date of the agreement; (2) a
disposition as defined in the agreement; (3) a non-surviving combination as
defined in the agreement; (4) the date upon which the Company prepays in full
the outstanding principal, interest and assessments, if any, on the note; or (5)
an acceleration event caused by a default of the note. The put price is
calculated as the greater of the market determined value amount as defined in
the agreement or an amount equal to six times earnings before interest, taxes,
depreciation and amortization for the preceding twelve months, reduced by
current outstanding indebtedness, increased by the fair market value of all
marketable securities, and divided by the number of fully diluted common shares
outstanding. On December 31, 1997, the Company recorded an amount equal to the
number of shares under the warrant times the difference between the current
market value, as defined, and the market value of the shares at the time the
warrant was issued. This amount of $8,000 was recorded as an increase in the
value of the putable common stock warrant and charged to accumulated deficit in
the accompanying financial statements.
The Lender is entitled to request registration of such shares pursuant to a
registration rights agreement. In addition, if the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account or for other security holders exercising registration rights,
the warrant holder is entitled to notice of such registration and is entitled to
include shares of such common stock therein.
Pursuant to an agreement with the Lender, dated April 8, 1998, the warrant
will be exercised automatically just before or contemporaneously with the
effectiveness of a qualified initial public offering.
(5) STOCKHOLDERS' EQUITY (DEFICIT)
STOCK SUBSCRIPTIONS RECEIVABLE
In September 1997, in connection with the sale of the Company's Premise
Products Division, several former employees of the Company signed full recourse
promissory notes to the Company to exercise their vested stock options. The
notes accrue interest at 6.07% per annum. The principal and accrued interest
thereon are due the earlier of September 28, 2000 or ninety days after the
Company becomes subject to the reporting requirements under Section 13 of the
Securities Exchange Act of 1934, as amended.
STOCK OPTION PLAN
The Company's 1990 Stock Option Plan (the "1990 Option Plan"), as amended
by the Company's Board of Directors, provides officers and employees options to
purchase up to 2,262,205 shares of common stock of the Company. Under the terms
of the 1990 Option Plan, the Board of Directors may grant officers and employees
either nonqualified or incentive stock options, as defined by the Internal
Revenue Service. The purchase price of the shares subject to incentive stock
options will be the fair market value of the common stock on the date the option
is granted. Options granted under the 1990 Option Plan are exercisable up to ten
years from the date of the grant and are contingent upon continued employment
with the Company.
In October 1995, the Company granted an option to purchase 66,666 shares of
common stock to an officer of the Company. The option is exercisable at $6.00
per share and was issuable contingent on the attainment of certain objectives.
During 1997, the Company's Board of Directors determined that the officer had
met the objectives required under the agreement, causing the options to be
issued. No compensation expense was recorded on this option because the exercise
price exceeded the fair market value of the shares.
F-17
<PAGE> 79
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 ("SFAS 123")
SFAS 123, "Accounting for Stock-Based Compensation," defines a fair value
based method of accounting for employee stock options or similar equity
instruments. However, SFAS 123 allows the continued measurement of compensation
cost for such plans using the intrinsic value based method prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), provided
that pro forma disclosures are made of net income or loss assuming the fair
value based method of SFAS 123 had been applied. The Company has elected to
account for its stock-based compensation plans under APB 25; accordingly, for
purposes of the pro forma disclosures presented below, the Company has computed
the fair values of all options granted under the 1990 Option Plan during 1995,
1996 and 1997, using the Black-Scholes pricing model and the following weighted
average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate............................ 5.85% 6.16% 6.41%
Expected dividend yield............................ 0.00% 0.00% 0.00%
Expected lives outstanding......................... 5.0 years 5.0 years 5.0 years
Expected volatility................................ 0.001% 0.001% 0.001%
</TABLE>
To estimate lives of options for this valuation, it was assumed options
will be exercised upon becoming fully vested. All options are initially assumed
to vest. Cumulative compensation costs recognized in pro forma net income or
loss with respect to options that are forfeited prior to vesting is adjusted as
a reduction of pro forma compensation expense in the period of forfeiture.
Because the Company's common stock is not yet publicly traded, the expected
market volatility was assumed to be zero. Actual volatility of the Company's
common stock may vary. Fair value computations are highly sensitive to the
volatility factor assumed; the greater the volatility, the higher the computed
fair value of options granted.
The total fair value of options granted under the 1990 Option Plan was
computed to be approximately $260,000, $187,000 and $499,000 for the years ended
December 31, 1995, 1996 and 1997, respectively. These amounts are amortized
ratably over the vesting periods of the options or recognized at date of grant
if no vesting period is required. Pro forma stock-based compensation, net of the
effect of forfeitures, was $26,000, $80,000 and $232,000 for 1995, 1996 and
1997, respectively.
A summary of stock options under the 1990 Option Plan as of December 31,
1995, 1996 and 1997 and changes during the years then ended are presented below:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year............... 1,470,386 $0.81 919,958 $1.35 1,073,908 $1.68
Granted............... 403,666 2.34 231,983 3.12 270,016 6.93
Exercised............. (525,188) 0.15 (19,450) 0.99 (153,382) 1.00
Canceled.............. (428,906) 1.35 (58,583) 1.92 (83,932) 2.46
--------- --------- ---------
Outstanding at end of
year.................. 919,958 $1.35 1,073,908 $1.68 1,106,610 $3.03
========= ========= =========
Weighted average fair
value of options
granted............... $ 0.63 $ 0.81 $ 1.80
========= ========= =========
</TABLE>
F-18
<PAGE> 80
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
The following table summarizes information about the options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE AT EXERCISE
EXERCISE PRICES AT 12/31/97 LIFE PRICE 12/31/97 PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$0.12 -- 0.30........................ 239,325 3.2 years $0.18 239,325 $0.18
$0.75 -- 1.80........................ 365,000 7.0 years 1.47 260,540 1.41
$3.00 -- 6.00........................ 287,018 8.7 years 4.02 71,501 3.03
$7.50 -- 9.00........................ 215,267 9.8 years 7.53 -- --
--------- -------
1,106,610 7.2 years $3.03 571,366 $1.11
========= =======
</TABLE>
If the Company had accounted for its stock-based compensation plan in
accordance with SFAS 123, the Company's net income from continuing operations
would have been reported as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Net income from continuing operations:
As reported...................................... $302,000 $937,000 $2,283,000
Pro forma........................................ $276,000 $857,000 $2,051,000
Basic income (loss) from continuing operations per
share:
As reported...................................... $ (0.02) $ 0.15 $ 0.83
Pro forma........................................ $ (0.03) $ 0.10 $ 0.70
Diluted net income (loss) from continuing
operations per share:
As reported...................................... $ (0.02) $ 0.11 $ 0.26
Pro forma........................................ $ (0.03) $ 0.10 $ 0.23
</TABLE>
(6) LONG-TERM DEBT
At December 31, 1996 and 1997 and March 31, 1998, notes payable and
long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Borrowings on revolving line of credit
bearing interest at prime plus 1.0% (9.50%
at March 31, 1998), due April 15, 1999.
Collateralized by certain assets of the
Company. Maximum borrowing amount of 75%
of qualified accounts receivable up to
$2,000,000................................ $ 1,950,000 $ 950,000 $ 450,000
</TABLE>
F-19
<PAGE> 81
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Secured promissory note to a bank, bearing
interest at prime plus 1% (9.50% at
December 31, 1997), minimum monthly
payments in varying amounts, currently
$16,000, including imputed interest of
9.50% per annum due February 1998 with a
final payment of $20,000, collateralized
by certain assets of the Company.......... 200,000 36,000 --
Note payable to Banc One Capital Partners
II, LLC, bearing interest at 11% through
May 31, 1999, and 12% thereafter, interest
is payable the last day of each month.
Quarterly principal payments of $250,000
from March 31, 2001 through December 31,
2002, then $500,000 per quarter due at
each subsequent quarter, thereafter. The
final payment is due November 30, 2003.
(Note 4).................................. -- 4,000,000 4,000,000
Capitalized lease obligations for equipment
due on various dates through October 1,
2002, minimum monthly payments in varying
amounts, currently $397,000 including
imputed interest ranging from 3.75% to
10.25% per annum, collateralized by the
related assets with a net book value of
$7,366,000 $8,101,000 and $7,495,000,
respectively.............................. 6,519,000 5,959,000 8,815,000
----------- ----------- ------------
8,669,000 10,945,000 13,265,000
Less -- Current portion..................... (5,351,000) (2,624,000) (2,267,000)
----------- ----------- ------------
$ 3,318,000 $ 8,321,000 $ 10,998,000
=========== =========== ============
</TABLE>
The Company may prepay the $4,000,000 note payable with Banc One Capital
Partners II, LLC after June 30, 1998, however, a prepayment premium will be due
equal to 4% of the amount outstanding if prepaid between June 30, 1998 and
November 30, 1998, 3% if prepaid between December 1, 1998 and November 30, 1999
and 2% if prepaid between December 1, 1999 and November 30, 2000.
F-20
<PAGE> 82
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
Debt maturities of notes payable and long-term debt as of March 31, 1998,
are as follows:
<TABLE>
<CAPTION>
CAPITAL NOTES
LEASES PAYABLE TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
1998, nine months............................. $ 1,812,000 $ 450,000 $ 2,262,000
1999.......................................... 2,893,000 -- 2,893,000
2000.......................................... 2,631,000 -- 2,631,000
2001.......................................... 2,040,000 1,000,000 3,040,000
2002.......................................... 1,285,000 1,250,000 2,535,000
Thereafter.................................... -- 1,750,000 1,750,000
----------- ---------- -----------
10,661,000 4,450,000 15,111,000
Less -- Amount related to interest............ (1,846,000) -- (1,846,000)
----------- ---------- -----------
Principal portion of future obligations....... 8,815,000 4,450,000 13,265,000
Less -- Current portion....................... (1,817,000) (450,000) (2,267,000)
----------- ---------- -----------
$ 6,998,000 $4,000,000 $10,998,000
=========== ========== ===========
</TABLE>
(7) INCOME TAXES
The Company has operated in three countries, the United States, Canada and
Australia. For income tax return reporting purposes, the Company has
approximately $9,600,000 of net operating loss carryforwards; approximately
$364,000 of research and development tax credit carryforwards and $39,000 of
alternative minimum tax credit carryforwards available to offset future federal
taxable income or federal tax liabilities in the United States. The research and
development credit and net operating loss carryforwards expire at various dates
through 2011. The Company also has $208,000 of foreign tax credit carryforwards.
The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss and credit carryforwards available to be used in any given year
upon the occurrence of certain events including significant changes in ownership
of the Company. In accordance with certain provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), a greater than 50% change in ownership of
a company within a three year period results in an annual limitation on the
Company's ability to utilize its net operating loss carryforwards from tax
periods prior to the ownership change.
Deferred income tax assets and liabilities at December 31, 1996 and 1997,
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Depreciation differences.................................. $ (377,000) $ (630,000)
Accrued liabilities and other............................. 374,000 656,000
Deferred revenue.......................................... 596,000 438,000
Net operating loss carryforwards.......................... 3,312,000 3,564,000
Tax credit carryforwards.................................. 647,000 611,000
Less -- Valuation allowance............................... (4,552,000) (4,639,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
Management believes the tax benefits of $4,552,000 and $4,639,000 as of
December 31, 1996 and 1997, respectively, do not satisfy the realization
criteria set forth in SFAS No. 109 and has recorded a valuation allowance for
the entire net tax asset.
F-21
<PAGE> 83
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
The components of the provision for income taxes attributable to income
from operations as of December 31, 1995, 1996 and 1997, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Current provision --
State............................................. $ 2,000 $ 69,000 $172,000
Foreign........................................... 14,000 (60,000) --
------- -------- --------
Income tax provision................................ $16,000 $ 9,000 $172,000
======= ======== ========
</TABLE>
The income tax provision for the three months ended March 31, 1997 and 1998
is comprised of current provision in states where the Company did not have net
operating loss carryforwards available to offset net income.
The components of the provision for income taxes attributable to income
from discontinued operations as of December 31, 1995, 1996 and 1997, were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Current provision --
Foreign........................................... $ -- $146,000 $100,000
======= ======== ========
</TABLE>
A reconciliation of income tax provision computed by applying the federal
income tax rate of 34% to income from continuing operations before income taxes
as of December 31, 1995, 1996 and 1997, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Computed normal tax provision................... $ 108,000 $ 322,000 $ 835,000
Tax effect of permanent differences............. 11,000 21,000 34,000
State tax, net of federal tax impact............ 15,000 44,000 113,000
Canada tax...................................... 14,000 -- --
Change in valuation allowance attributable to
continuing operations......................... (132,000) (378,000) (810,000)
--------- --------- ---------
Income tax provision............................ $ 16,000 $ 9,000 $ 172,000
========= ========= =========
</TABLE>
The provision for income taxes is attributable to continuing operations and
discontinued operations as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Provision attributable to continuing
operations.................................... $ 148,000 $ 387,000 $ 982,000
Change in valuation allowance attributable to
continuing operations......................... (132,000) (378,000) (810,000)
--------- --------- ---------
Net provision attributable to continuing
operations.................................... 16,000 9,000 172,000
--------- --------- ---------
Benefit attributable to discontinued
operations.................................... (705,000) (432,000) (797,000)
Change in valuation allowance attributable to
discontinued operations....................... 705,000 578,000 897,000
--------- --------- ---------
Net provision attributable to discontinued
operations.................................... -- 146,000 100,000
--------- --------- ---------
Total income tax provision............ $ 16,000 $ 155,000 $ 272,000
========= ========= =========
</TABLE>
F-22
<PAGE> 84
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
(8) COMMITMENTS
The Company leases its office and research facilities and certain equipment
under operating lease agreements which expire through December 2002. Rent
expense for the years ended December 31, 1995, 1996 and 1997 was approximately
$505,000, $621,000 and $718,000, respectively. Future minimum lease obligations
under these agreements are as follows:
<TABLE>
<S> <C>
1998..................................................... $1,716,000
1999..................................................... 1,662,000
2000..................................................... 1,388,000
2001..................................................... 1,385,000
2002..................................................... 1,407,000
----------
Total.......................................... $7,558,000
==========
</TABLE>
(9) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan under which eligible employees may defer up
to 15% of their compensation. The Company may make matching contributions and
discretionary contributions if approved by the Board of Directors. For 1995,
1996 and 1997, no employer matching or discretionary contributions were made to
the 401(k) plan.
(10) RELATED PARTY TRANSACTION
The Company provides data management and certain consulting services to and
leases equipment from entities in which a stockholder of the Company has an
ownership interest. A representative of the stockholder is a member of the
Company's Board of Directors. The Company received net proceeds of approximately
$3,226,000, $6,606,000 and $6,959,000 in 1995, 1996 and 1997, respectively,
pursuant to these agreements. Amounts due to the stockholder under the lease
agreements net of amounts due to the Company for services rendered as of
December 31, 1996 and 1997 were $3,158,000 and $5,148,000, respectively. The
leases have interest rates ranging from 9.25% to 9.50%, require monthly payments
and have expiration dates varying through October 2002.
(11) MAJOR CUSTOMERS
Revenue from certain customers exceeded 10% of total revenue for the
respective year as follows: 44%, 20% and 24% in 1995; 47% and 35% in 1996; and
30%, 29% and 22% in 1997. Contracts with certain of these customers have a
ten-year duration and provide for fixed monthly fees based upon the number of
subscriber records managed and upon the services selected by the customer.
(12) LEGAL MATTERS
The Company is subject to various claims and business disputes in the
ordinary course of business. While the outcome of these matters cannot be
predicted with certainty, management anticipates that the ultimate outcome of
the issues will not have a material impact on the financial statements.
(13) SUBSEQUENT EVENTS (UNAUDITED)
On March 18, 1998, the Company's Board of Directors authorized the filing
of a Registration Statement with the Securities and Exchange Commission covering
the proposed sale of shares of its common stock to the public.
F-23
<PAGE> 85
SCC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING INFORMATION RELATED TO UNAUDITED PERIODS)
On March 18, 1998, the Company adopted an employee stock purchase plan
("ESPP") under which eligible employees may contribute up to 10% of their
salaries through payroll deductions to purchase shares of the Company's common
stock. The first offering period of the ESPP began March 1, 1998 and will end
December 31, 1998. Thereafter, offering periods will be successive six month
periods. At the end of each offering period, amounts contributed by employees
will be used to purchase shares of the Company's common stock at a price equal
to 85% of the lower of the closing price of the common stock on the first day or
last day of the offering period. The Company's Board of Directors has authorized
the issuance of up to 200,000 shares under the ESPP and may terminate the ESPP
at any time. At January 1 of each year, the shares available under the ESPP will
be restored to 200,000, although the Company's Board of Directors may elect to
restore a lesser number of shares.
On April 7, 1998, the Company adopted the 1998 Stock Incentive Plan ("1998
Plan"), which is a successor to the 1990 Option Plan, to become effective upon a
qualified initial public offering. A total of 1,901,055 shares have been
authorized for issuance under the 1998 Plan, including shares authorized under
the 1990 Option Plan. The shares reserved for issuance will increase
automatically on the first trading day of each calendar year, beginning with the
1999 calendar year, by 3% of the number of shares of common stock outstanding on
the last trading day of the immediately preceding calendar year. The 1998 Plan
allows for issuances of options to officers, non-employee Board members and
consultants, as provided for under the terms of the 1998 Plan.
F-24
<PAGE> 86
SCC LOGO
[BACK COVER]
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than 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, the Nasdaq National Market filing fee and the
NASD fee.
<TABLE>
<CAPTION>
<S> <C>
Registration fee............................................ $ 16,793
Nasdaq National Market fee.................................. 78,875
NASD fee.................................................... 6,193
Blue Sky fees and expenses.................................. 7,500
Printing and engraving expenses............................. 125,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 126,000
Transfer Agent and Registrar fees........................... 2,500
Miscellaneous expenses...................................... 137,139
--------
TOTAL............................................. $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of the Company under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation Law.
Effective as of the closing of this offering, Article VII, Section 1 of the
Restated Bylaws of the Company will provide that the Company shall indemnify its
Directors and executive officers to the fullest extent not prohibited by the
Delaware General Corporation Law. The rights to indemnity thereunder will
continue as to a person who has ceased to be a Director, officer, employee or
agent and inure to the benefit of the heirs, executors and administrators of the
person. In addition, expenses incurred by a Director or executive officer in
defending any civil, criminal, administrative or investigative action, suit or
proceeding by reason of the fact that he or she is or was a Director or officer
of the Company (or was serving at the Company's request as a Director or officer
of another corporation) will be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such Director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
Company as authorized by the relevant section of the Delaware General
Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
effective as of the closing of this offering, Article V, Section (A) of the
Company's Amended and Restated Certificate of Incorporation will provide that a
Director of the Company shall not be personally liable for monetary damages for
breach of fiduciary duty as a Director, except for liability (i) for any breach
of the Director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or acts or omissions that 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 any improper personal benefit.
The Company intends to enter into indemnification agreements with each of
its Directors and executive officers, effective upon the effectiveness of this
Registration Statement. Generally, the indemnification agreements will attempt
to provide the maximum protection permitted by Delaware law as it may be amended
from time to time. Moreover, the indemnification agreements will provide for
certain additional indemnification. Under such additional indemnification
provisions, however, an individual will not receive indemnification
II-1
<PAGE> 88
for judgments, settlements or expenses if he or she is found liable to the
Company (except to the extent the court determines he or she is fairly and
reasonably entitled to indemnity for expenses), for settlements not approved by
the Company, or for settlements and expenses if the settlement is not approved
by the court. The indemnification agreements will provide for the Company to
advance to the individual any and all reasonable expenses (including legal fees
and expenses) incurred in investigating or defending any such action, suit or
proceeding. In order to receive an advance of expenses, the individual must
submit to the Company copies of invoices presented to him or her for such
expenses. Also, the individual must repay such advances upon a final judicial
decision that he or she is not entitled to indemnification.
The Company has purchased directors' and officers' liability insurance.
The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by
which the Underwriters have agreed to indemnify the Company, each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act, each Director of the Company, and each officer of the Company who signs
this Registration Statement, with respect to information furnished in writing by
or on behalf of the Underwriters for use in this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since March 31, 1995, the Company has sold and issued the following
unregistered securities.
(1) From March 31, 1995 to May 18, 1998, the Company issued an
aggregate of 749,078 options to purchase Common Stock with exercise prices
ranging from $0.30 to $12.75 per share under the 1990 Option Plan and an
aggregate of 235,912 shares of Common Stock were issued through the
exercise of options granted under the 1990 Option Plan for an aggregate
exercise price of $159,908. For additional information concerning these
transactions, reference is made to the information contained under the
caption "Management -- Benefit Plans" in the form of the Prospectus
included herein.
(2) On March 5, 1996, the Company issued an aggregate of 1,225,490
shares of Series F Preferred Stock to three investors for an aggregate
consideration of $5,000,000.
(3) On November 20, 1997, the Company issued a warrant to purchase
that number of Common Shares of the Company representing between two
percent and four percent of the fully diluted Common Stock of the Company,
depending upon certain circumstances, to Banc One Capital Partners II, LLC
in connection with a loan agreement.
The sales and issuances of securities in the above transactions were deemed
to be exempt under the Act by virtue of Section 4(2) thereof and/or Regulation D
and Rule 701 promulgated thereunder as transactions not involving any public
offering. 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 were affixed to the stock certificates issued in such
transactions. Similar representations of investment intent were obtained and
similar legends imposed in connection with any subsequent transfers of any such
securities. The Company believes that all recipients had adequate access,
through employment or other relationships, to information about the Company to
make an informed investment decision.
II-2
<PAGE> 89
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Form of Amended and Restated Certificate of Incorporation
of the Company to become effective immediately prior to
the closing of the offering.
3.2 -- Form of Restated Bylaws of the Company to be effective
upon the closing of the offering.
4.1 -- Form of Certificate for Common Stock.
4.2 -- Reference is made to Exhibits 3.1 and 3.2.
5.1 -- Opinion of Brobeck, Phleger & Harrison LLP with respect
to the Common Stock being registered.
10.1* -- Fourth Amended and Restated Registration Rights
Agreement, dated March 5, 1996.
10.2* -- 1990 Stock Option Plan.
10.3 -- 1998 Stock Incentive Plan.
10.4 -- 1998 Employee Stock Purchase Plan.
10.5 -- Form of Directors' and Officers' Indemnification
Agreement.
10.6*+ -- 9-1-1 Services Agreement between Ameritech Information
Systems, Inc. and SCC Communications Corp., signed August
31, 1994.
10.7*+ -- Agreement for Services between SCC Communications Corp.
and U S West Communications, Inc. dated December 28,
1995.
10.8*+ -- Services Agreement No. PR-9026-L between SCC
Communications Corp. and BellSouth Telecommunications,
Inc. dated October 13, 1995.
10.9*+ -- Wireless E9-1-1 Agreement between SCC Communications
Corp. and Ameritech Mobile Communications, Inc. dated
April 1998.
10.10*+ -- Asset Purchase Agreement between SCC Communications Corp.
and Printrak International, Inc., dated July 18, 1997.
10.11* -- Amendment One to Asset Purchase Agreement between SCC
Communications Corp. and Printrak International, Inc.
10.12* -- Bank One Loan Agreement dated April 15, 1997, effective
as of July 1, 1996.
10.13* -- Banc One Capital Partners and SCC Communications Corp.
Senior Subordinated Note and Warrant Purchase Agreement,
dated November 20, 1997.
10.14* -- Banc One Senior Subordinated Note due November 30, 2003.
10.15* -- Banc One Warrant Certificate.
10.16* -- Banc One and SCC Communications Corp. Option Agreement,
dated November 20, 1997.
10.17* -- Banc One and SCC Communications Corp. Registration Rights
Agreement, dated November 20, 1997.
10.18* -- Co-Sale Agreement, dated November 20, 1997, between SCC
Communications Corp., George Heinrichs, John Sims, Nancy
Hamilton, The Hill Partnership III, Ameritech Development
Corporation and Boston Capital Ventures Limited
Partnership and Banc One Capital Partners.
10.19* -- Preemptive Rights Agreement between Banc One Capital
Partners and SCC Communications Corp.
</TABLE>
II-3
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20* -- Master Lease Agreement Between Ameritech Credit
Corporation and SCC Communications Corp., dated March 11,
1996.
10.21*+ -- Consulting Agreement Between SCC Communications Corp. and
Ameritech Mobile Communications, Inc. dated October 27,
1997
10.22 -- Bank One Loan Change in Terms Agreement effective as of
April 15, 1998.
23.1 -- Consent of Brobeck, Phleger & Harrison LLP (contained in
their opinion filed as Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP, Independent Public
Accountants.
24.1* -- Power of Attorney.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* Filed with Registrant's Registration Statement on April 9, 1998.
+ Confidential treatment has been requested for a portion of these exhibits.
(b) Financial Statement Schedules included separately in the Registration
Statement.
All financial statement schedules have been omitted because they are not
required, are not applicable or the information is included in the Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 14, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a Director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver, County of Denver, State of
Colorado, on May 20, 1998.
SCC COMMUNICATIONS CORP.
By: /s/ NANCY K. HAMILTON
----------------------------------
Nancy K. Hamilton
Chief Financial Officer
and Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities indicated on
May 20, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* President, Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
George K. Heinrichs
/s/ NANCY K. HAMILTON Chief Financial Officer and Senior Vice
- ----------------------------------------------------- President (Principal Financial and
Nancy K. Hamilton Accounting Officer)
* Chief Operating Officer
- -----------------------------------------------------
John J. Sims
* Director
- -----------------------------------------------------
John G. Hill
* Director
- -----------------------------------------------------
Darrell A. Williams
* Director
- -----------------------------------------------------
David Kronfeld
*By: /s/ NANCY K. HAMILTON
------------------------------------------------
Nancy K. Hamilton
As Attorney-in-fact
</TABLE>
II-5
<PAGE> 92
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Form of Amended and Restated Certificate of Incorporation
of the Company to become effective immediately prior to
the closing of the offering.
3.2 -- Form of Restated Bylaws of the Company to be effective
upon the closing of the offering.
4.1 -- Form of Certificate for Common Stock.
4.2 -- Reference is made to Exhibits 3.1 and 3.2.
5.1 -- Opinion of Brobeck, Phleger & Harrison LLP with respect
to the Common Stock being registered.
10.1* -- Fourth Amended and Restated Registration Rights
Agreement, dated March 5, 1996.
10.2* -- 1990 Stock Option Plan.
10.3 -- 1998 Stock Incentive Plan.
10.4 -- 1998 Employee Stock Purchase Plan.
10.5 -- Form of Directors' and Officers' Indemnification
Agreement.
10.6*+ -- 9-1-1 Services Agreement between Ameritech Information
Systems, Inc. and SCC Communications Corp., signed August
31, 1994.
10.7*+ -- Agreement for Services between SCC Communications Corp.
and U S West Communications, Inc. dated December 28,
1995.
10.8*+ -- Services Agreement No. PR-9026-L between SCC
Communications Corp. and BellSouth Telecommunications,
Inc. dated October 13, 1995.
10.9*+ -- Wireless E9-1-1 Agreement between SCC Communications
Corp. and Ameritech Mobile Communications, Inc. dated
April 1998
10.10*+ -- Asset Purchase Agreement between SCC Communications Corp.
and Printrak International, Inc., dated July 18, 1997.
10.11* -- Amendment One to Asset Purchase Agreement between SCC
Communications Corp. and Printrak International, Inc.
10.12* -- Bank One Loan Agreement dated April 15, 1997, effective
as of July 1, 1996.
10.13* -- Banc One Capital Partners and SCC Communications Corp.
Senior Subordinated Note and Warrant Purchase Agreement,
dated November 20, 1997.
10.14* -- Banc One Senior Subordinated Note due November 30, 2003.
10.15* -- Banc One Warrant Certificate.
10.16* -- Banc One and SCC Communications Corp. Option Agreement,
dated November 20, 1997.
10.17* -- Banc One and SCC Communications Corp. Registration Rights
Agreement, dated November 20, 1997.
10.18* -- Co-Sale Agreement, dated November 20, 1997, between SCC
Communications Corp., George Heinrichs, John Sims, Nancy
Hamilton, The Hill Partnership III, Ameritech Development
Corporation and Boston Capital Ventures Limited
Partnership and Banc One Capital Partners.
10.19* -- Preemptive Rights Agreement between Banc One Capital
Partners and SCC Communications Corp.
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20* -- Master Lease Agreement Between Ameritech Credit
Corporation and SCC Communications Corp., dated March 11,
1996.
10.21*+ -- Consulting Agreement Between SCC Communications Corp. and
Ameritech Mobile Communications, Inc. dated October 27,
1997.
10.22 -- Bank One Loan Change in Terms Agreement effective as of
April 15, 1998.
23.1 -- Consent of Brobeck, Phleger & Harrison LLP (contained in
their opinion filed as Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP, Independent Public
Accountants.
24.1 -- Power of Attorney. Reference is made to Page II-5.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* Filed with Registrant's Registration Statement on April 9, 1998.
+ Confidential treatment has been requested for a portion of these Exhibits.
<PAGE> 1
EXHIBIT 1.1
Draft of 5/17/98
3,300,000 SHARES(1)
SCC COMMUNICATIONS CORP.
COMMON STOCK
UNDERWRITING AGREEMENT
____________, 1998
BANCAMERICA ROBERTSON STEPHENS
HAMBRECHT & QUIST LLC
As Representatives of the several Underwriters
c/o BancAmerica Robertson Stephens
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
SCC Communications Corp., a Delaware corporation (the "Company"), and
certain stockholders of the Company named in Schedule B hereto (hereafter
called the "Selling Stockholders") address you as the Representatives of each
of the persons, firms and corporations listed in Schedule A hereto (herein
collectively called the "Underwriters") and hereby confirm their respective
agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
2,100,000 shares of its authorized and unissued common stock, $.001 par value
per share, to the several Underwriters. The Selling Stockholders, acting
severally and not jointly, propose to sell an aggregate of 1,200,000 shares of
the Company's authorized and outstanding common stock, $.001 par value per
share, to the several Underwriters. The 2,100,000 shares of the Company's
common stock, $.001 par value per share, to be sold by the Company are
hereinafter called the "Company Shares" and the 1,200,000 shares of the
Company's common stock, $.001 par value per share, to be sold by the Selling
Stockholders are hereinafter called the "Selling Stockholder Shares." The
Company Shares and the Selling Stockholder Shares are hereinafter collectively
referred to as the "Firm Shares." The Company and certain Selling Stockholders
also propose to grant, severally and not jointly, to the Underwriters an option
to purchase up to 495,000 additional shares of the Company's common stock,
$.001 par value per share (the "Option Shares"), as provided in Section 7
hereof. As used in this Agreement, the term "Shares" shall refer collectively
to the Firm Shares and the Option Shares. All shares of the Company's common
stock, $.001 par value per share, to be outstanding after giving effect to the
sales contemplated hereby, including the Shares, are hereinafter referred to as
"Common Stock."
2. Representations, Warranties and Agreements of the Company and the
Selling Stockholders.
I. The Company and the Selling Stockholders identified by an
asterisk on Schedule B hereto represent and warrant to and agrees with each
Underwriter that:
(a) A registration statement on Form S-1 (File No.
333-49767) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and
the applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the
- ----------------
(1) Plus an option to purchase up to 495,000 additional shares from the Company
and certain stockholders of the Company to cover over-allotments.
<PAGE> 2
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses
subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been
required prior to the date hereof have been similarly prepared and filed
with the Commission; and the Company will file such additional amendments
to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements as may hereafter
be required. Copies of such registration statement and amendments, of
each related prospectus subject to completion (the "Preliminary
Prospectuses") and of any abbreviated registration statement pursuant to
Rule 462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has
been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted
from the registration statement pursuant to Rule 430A(a) or, if
BancAmerica Robertson Stephens, on behalf of the several Underwriters,
shall agree to the utilization of Rule 434 of the Rules and Regulations,
the information required to be included in any term sheet filed pursuant
to Rule 434(b) or (c), as applicable, of the Rules and Regulations
pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration
statement relating to the Shares has not been declared effective under
the Act by the Commission, the Company will prepare and promptly file an
amendment to the registration statement, including a final form of
prospectus, or, if BancAmerica Robertson Stephens, on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the
Rules and Regulations. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or
files a term sheet pursuant to Rule 434 of the Rules and Regulations, the
information deemed to be a part of the registration statement at the time
it became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules
and Regulations) and, in the event of any amendment thereto or the filing
of any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness
of such amendment or the filing of such abbreviated registration
statement) such registration statement as so amended, together with any
such abbreviated registration statement. The term "Prospectus" as used
in this Agreement shall mean the prospectus relating to the Shares as
included in such Registration Statement at the time it becomes effective
(including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the
information deemed to be a part of the Registration Statement at the time
it became effective pursuant to Rule 430A(b) of the Rules and
Regulations); provided, however, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of BancAmerica Robertson
Stephens, on behalf of the several Underwriters, the Company shall have
provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c),
as applicable, prior to the time that a confirmation is sent or given for
purposes of Section 2(10)(a) of the Act, the term "Prospectus" shall mean
the "prospectus subject to completion" (as defined in Rule 434(g) of the
Rules and Regulations) last provided to the Underwriters by the Company
and circulated by the Underwriters to all prospective purchasers of the
Shares (including the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the
Rules and Regulations). Notwithstanding the foregoing, if any revised
prospectus shall be provided to the Underwriters by the Company for use
in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or
not such revised prospectus is required to be filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations), the term
"Prospectus" shall
2
<PAGE> 3
refer to such revised prospectus from and after the time it is first
provided to the Underwriters for such use. If in reliance on Rule 434 of
the Rules and Regulations and with the consent of BancAmerica Robertson
Stephens, on behalf of the several Underwriters, the Company shall have
provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c),
as applicable, prior to the time that a confirmation is sent or given for
purposes of Section 2(10)(a) of the Act, the Prospectus and the term
sheet, together, will not be materially different from the prospectus in
the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted
proceedings for that purpose, and each such 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 became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing
Date (hereinafter defined) and on any later date on which Option Shares
are to be purchased, (i) the Registration Statement and the Prospectus,
and any amendments or supplements thereto, contained and will contain all
material 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, (ii) the
Registration Statement, and any amendments or supplements thereto, did
not and will not 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, and (iii) the Prospectus, and
any amendments or supplements thereto, did not and will not include any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties contained in
this subparagraph (b) shall apply to information contained in or omitted
from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) 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,
lease and operate its properties and conduct its business as described in
the Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified
or be in good standing would not have a material adverse effect on its
condition (financial or otherwise), earnings, operations, business or
business prospects; no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification; the Company
is in possession of and operating in compliance with all authorizations,
licenses, certificates, consents, orders and permits from state, federal
and other regulatory authorities that are material to the conduct of its
business, all of which are valid and in full force and effect; the
Company is not in violation of its certificate of incorporation or bylaws
or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material
bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument to which the
Company is a party or by which it or its properties may be bound; and
Company is not in material violation of any law, order, rule, regulation,
writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction
over the Company or its properties of which it has knowledge. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity.
3
<PAGE> 4
(d) 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 is a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general equitable
principles; the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default
under, (i) any bond, debenture, note or other evidence of indebtedness,
or under any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument to which the
Company is a party or by which it or its properties may be bound, (ii)
the certificate of incorporation or bylaws of the Company, or (iii) any
law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or its properties. No consent,
approval, authorization or order of or qualification with any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or its properties is required for the
execution and delivery of this Agreement and the consummation by the
Company of the transactions herein contemplated, except such as may be
required under the Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or under state or other securities or Blue Sky
laws, all of which requirements have been satisfied in all material
respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against
the Company or any of its officers, properties, assets or rights before
any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or its officers, properties
or otherwise that (i) might result in any material adverse change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company or might materially and adversely
affect their properties, assets or rights, (ii) might prevent
consummation of the transactions contemplated hereby or (iii) is required
to be disclosed in the Registration Statement or Prospectus and is not so
disclosed; and there are no agreements, contracts, leases or documents of
the Company of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations that have
not been accurately described in all material respects in the
Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the
Company (including the Selling Stockholder Shares) have been duly
authorized and validly issued and 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 the authorized
and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms in all
material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly
state the substance of the instruments defining the capitalization of the
Company); the Firm Shares and the Option Shares to be purchased from the
Company hereunder have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by
the Company against payment therefor in accordance with the terms of this
Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first
refusal or other similar right of stockholders exists with respect to any
of the Firm Shares or Option Shares to be purchased from the Company
hereunder or the issuance and sale thereof other than those that have
been expressly waived prior to the date hereof and those that will
automatically expire upon and will not apply to the consummation of the
transactions contemplated on the Closing Date. No further approval or
authorization of any stockholder, the Board of Directors of the Company
or others is required for the issuance and
4
<PAGE> 5
sale or transfer of the Shares except as may be required under the Act,
the Exchange Act or under state or other securities or Blue Sky laws.
Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus, the
Company does not have any 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.
(g) Arthur Andersen LLP, which has examined the financial
statements of the Company, together with the related schedules and notes,
as of December 31, 1996 and 1997 and for each of the years in the three
years ended December 31, 1997, filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations; the audited financial statements of the Company, together
with the related schedules and notes, and the unaudited financial
information, forming part of the Registration Statement and Prospectus,
fairly present the financial position and the results of operations of
the Company at the respective dates and for the respective periods to
which they apply; and all audited financial statements of the Company,
together with the related schedules and notes, and the unaudited
financial information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved except as may be otherwise stated therein. The selected
and summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been
compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there
has not been (i) any material adverse change in the condition (financial
or otherwise), earnings, operations, business or business prospects of
the Company, (ii) any transaction that is material to the Company, except
transactions entered into in the ordinary course of business, (iii) any
material obligation, direct or contingent, incurred by the Company,
except any obligation incurred in the ordinary course of business, (iv)
any material change in the capital stock or outstanding indebtedness of
the Company, (v) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company, or (vi) any loss or damage
(whether or not insured) to the property of the Company that has been
sustained or will have been sustained that has a material adverse effect
on the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all
properties and assets described in the Registration Statement and
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company, (ii) the agreements to which the Company is a party described in
the Registration Statement and Prospectus are valid agreements,
enforceable by the Company, except as the enforcement thereof may be
limited
5
<PAGE> 6
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge,
the other contracting party or parties thereto are not in material breach
or material default under any of such agreements, and (iii) the Company
has valid and enforceable leases for all properties described in the
Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except
as set forth in the Registration Statement and Prospectus, the Company
owns or leases all such properties as are necessary to its operations as
now conducted or as proposed to be conducted.
(j) The Company has timely filed all necessary federal,
state and foreign income and franchise tax returns and has paid all taxes
shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the
Company that might have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company; and all tax liabilities are adequately provided
for on the books of the Company.
(k) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts
generally deemed adequate for its business and consistent with insurance
coverage maintained by similar companies in similar businesses, including
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 does not have any 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), earnings, operations, business or business
prospects of the Company.
(l) To the best of Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its licensors or its significant customers that
might be expected to result in a material adverse change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company. No collective bargaining agreement exists with
any of the Company's employees and, to the best of the Company's
knowledge, no such agreement is imminent.
(m) The Company owns or possesses adequate rights to use
all patents, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names and copyrights that are necessary
to conduct its businesses as described in the Registration Statement and
Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a
material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others
with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect
to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights that, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or
finding,
6
<PAGE> 7
might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company.
(n) The Common Stock has been approved for quotation on
the Nasdaq National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to
conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" or a company "controlled" by an
"investment company" within the meaning of such Act and rules and
regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on
which Option Shares are to be purchased, as the case may be, and (ii)
completion of the distribution of the Shares, any offering material in
connection with the offering and sale of the Shares other than any
Preliminary Prospectuses, the Prospectus, the Registration Statement and
other materials, if any, permitted by the Act.
(q) The Company has not 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 or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price
of the Common Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company, each
Selling Stockholder and each beneficial owner of shares of Common Stock
has agreed in writing that such person will not, for a period of 180 days
after the date of the Prospectus (the "Lock-up Period"), offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to (collectively, a "Disposition") any shares of
Common Stock, any options or warrants to purchase any shares of Common
Stock or any securities convertible into or exchangeable for shares of
Common Stock (collectively, "Securities") now owned or hereafter acquired
directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona
fide gift or gifts, provided the donee or donees thereof agree in writing
to be bound by this restriction, (ii) as a distribution to, members or
partners or stockholders of such person, provided the distributees
thereof agree in writing to be bound by the terms of this restriction or
(iii) with the prior written consent of BancAmerica Robertson Stephens.
The foregoing restriction has been expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other
transaction that is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than such holder.
Such prohibited hedging or other transactions would include any short
sale (whether or not against the box) or any purchase, sale or grant of
any right (including any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any
significant part of its value from the Securities. Notwithstanding the
foregoing, this restriction shall not prohibit (i) the sale of Shares to
the Underwriters pursuant to this Agreement or (ii) resales of shares of
Common Stock acquired either in the public offering to which the
Registration Statement relates or in subsequent open-market purchases.
Furthermore, such
7
<PAGE> 8
person also has agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of
the Securities held by such person except in compliance with this
restriction. The Company has provided to Foley, Hoag & Eliot LLP,
counsel for the several Underwriters ("Underwriters' Counsel"), a
complete and accurate list of all securityholders of the Company and the
number and type of securities held by each securityholder. The Company
has provided to Underwriters' Counsel true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors and
stockholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers,
directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of
BancAmerica Robertson Stephens.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental
Laws") that are applicable to its business, (ii) the Company has received
no notice from any governmental authority or third party of an asserted
claim under Environmental Laws, which claim is required to be disclosed
in the Registration Statement and the Prospectus, (iii) the Company will
not be required to make future material capital expenditures to comply
with Environmental Laws and (iv) no property that is owned, leased or
occupied by the Company has been designated as a Superfund site pursuant
to the Comprehensive Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, et seq.), or has been otherwise
designated as a contaminated site under applicable state or local law.
(u) The Company maintains a system of internal accounting
controls 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.
(v) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business)
or guarantees of indebtedness by the Company to or for the benefit of any
of the officers or directors of the Company or any of the members of the
families of any of them, except as disclosed in the Registration
Statement and the Prospectus.
(w) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
II. Each Selling Stockholder, severally and not jointly,
represents and warrants to and agrees with each Underwriter and the Company
that:
(a) Such Selling Stockholder now has and on the Closing
Date, and on any later date on which Option Shares are purchased, will
have valid marketable title to the Shares to be sold by such Selling
Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than pursuant to this
Agreement; and upon delivery of such Shares hereunder and payment of the
purchase price as herein contemplated, each of the Underwriters will
obtain valid marketable title to the Shares purchased by it from such
Selling Stockholder, free and clear of any pledge, lien, security
interest pertaining to such Selling Stockholder or such Selling
Stockholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability
to or claims of any creditor, devisee, legatee or beneficiary of such
Selling Stockholder.
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(b) Such Selling Stockholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to
the Representatives, an irrevocable Power of Attorney (the "Power of
Attorney") appointing George K. Heinrichs and Nancy K. Hamilton as
attorneys-in-fact (collectively, the "Attorneys" and individually, an
"Attorney") and a Letter of Transmittal and Custody Agreement (the
"Custody Agreement") with SCC Communications Corp., as custodian (the
"Custodian"); each of the Power of Attorney and the Custody Agreement
constitutes a valid and binding agreement on the part of such Selling
Stockholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each
of such Selling Stockholder's Attorneys, acting alone, is authorized to
execute and deliver this Agreement and the certificate referred to in
Section 6(h) hereof on behalf of such Selling Stockholder, to determine
the purchase price to be paid by the several Underwriters to such Selling
Stockholder as provided in Section 3 hereof, to authorize the delivery of
the Selling Stockholder Shares and the Option Shares to be sold by such
Selling Stockholder under this Agreement and to duly endorse (in blank or
otherwise) the certificate or certificates representing such Shares or a
stock power or powers with respect thereto, to accept payment therefor,
and otherwise to act on behalf of such Selling Stockholder in connection
with this Agreement.
(c) All consents, approvals, authorizations and orders
required for the execution and delivery by such Selling Stockholder of
the Power of Attorney and the Custody Agreement, the execution and
delivery by or on behalf of such Selling Stockholder of this Agreement
and the sale and delivery of the Selling Stockholder Shares and the
Option Shares to be sold by such Selling Stockholder under this Agreement
(other than, at the time of the execution hereof (if the Registration
Statement has not yet been declared effective by the Commission), the
issuance of the order of the Commission declaring the Registration
Statement effective and such consents, approvals, authorizations or
orders as may be necessary under state or other securities or Blue Sky
laws) have been obtained and are in full force and effect; such Selling
Stockholder, if other than a natural person, has been duly organized and
is validly existing in good standing under the laws of the jurisdiction
of its organization as the type of entity that it purports to be; and
such Selling Stockholder has full legal right, power and authority to
enter into and perform its obligations under this Agreement and such
Power of Attorney and Custody Agreement, and to sell, assign, transfer
and deliver the Shares to be sold by such Selling Stockholder under this
Agreement.
(d) Such Selling Stockholder will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such Selling Stockholder or with respect to which
such Selling Stockholder has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to limited partners, members or
stockholders of such Selling Stockholder, provided the distributees
thereof agree in writing to be bound by the terms of this restriction or
(iii) with the prior written consent of BancAmerica Robertson Stephens.
The foregoing restriction is expressly agreed to preclude the holder of
the Securities from engaging in any hedging or other transaction that is
designed to or reasonably expected to lead to or result in a Disposition
of Securities during the Lock-up Period, even if such Securities would be
disposed of by someone other than the Selling Stockholder. Such
prohibited hedging or other transactions would include any short sale
(whether or not against the box) or any purchase, sale or grant of any
right (including any put or call option) with respect to any Securities
or with respect to any security (other than a broad-based market basket
or index) that includes, relates to or derives any significant part of
its value from the
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<PAGE> 10
Securities. Notwithstanding the foregoing, this restriction shall not
prohibit (i) the sale of Shares to the Underwriters pursuant to this
Agreement or (ii) resales of shares of Common Stock acquired either in
the public offering to which the Registration Statement relates or in
subsequent open-market purchases. Such Selling Stockholder also agrees
and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of Securities held by such
Selling Stockholder except in compliance with this restriction.
(e) Certificates in negotiable form for all Shares to be
sold by such Selling Stockholder under this Agreement, together with a
stock power or powers duly endorsed in blank by such Selling Stockholder,
have been placed in custody with the Custodian for the purpose of
effecting delivery hereunder.
(f) This Agreement has been duly authorized by each
Selling Stockholder that is not a natural person and has been duly
executed and delivered by or on behalf of such Selling Stockholder and is
a valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder
may be limited by applicable law and except as the enforcement hereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles; and the performance of this Agreement and
the consummation of the transactions herein contemplated will not result
in a breach or violation of any of the terms and provisions of or
constitute a default under any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to
which such Selling Stockholder is a party or by which such Selling
Stockholder, or any Selling Stockholder Shares or any Option Shares to be
sold by such Selling Stockholder hereunder, may be bound or, to the best
of such Selling Stockholder's knowledge, result in any violation of any
law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign,
having jurisdiction over such Selling Stockholder or over the properties
of such Selling Stockholder, or, if such Selling Stockholder is other
than a natural person, result in any violation of any provisions of the
charter, bylaws or other organizational documents of such Selling
Stockholder.
(g) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.
(h) Such Selling Stockholder has not distributed and will
not distribute any prospectus or other offering material in connection
with the offering and sale of the Shares.
(i) All information furnished by or on behalf of such
Selling Stockholder relating to such Selling Stockholder and the Selling
Stockholder Shares that is contained in the representations and
warranties of such Selling Stockholder in such Selling Stockholder's
Power of Attorney or set forth in the Registration Statement or the
Prospectus is, and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent
thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, was or will be, true, correct and
complete, and does not, and at the time the Registration Statement became
or becomes, as the case may be, effective and at all times subsequent
thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, will not, contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make such information not misleading.
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(j) Such Selling Stockholder will review the Prospectus
and will comply with all agreements and satisfy all conditions on its
part to be complied with or satisfied pursuant to this Agreement on or
prior to the Closing Date, or any later date on which Option Shares are
to be purchased, as the case may be, and will advise one of its Attorneys
and BancAmerica Robertson Stephens prior to the Closing Date or such
later date on which Option Shares are to be purchased, as the case may
be, if any statement to be made on behalf of such Selling Stockholder in
the certificate contemplated by Section 6(h) would be inaccurate if made
as of the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be.
(k) Such Selling Stockholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or right of
first refusal or other similar right to purchase any of the Shares that
are to be sold by the Company or any of the other Selling Stockholders to
the Underwriters pursuant to this Agreement; such Selling Stockholder
does not have, or has waived prior to the date hereof, any registration
right or other similar right to participate in the offering made by the
Prospectus, other than such rights of participation as have been
satisfied by the participation of such Selling Stockholder in the
transactions to which this Agreement relates in accordance with the terms
of this Agreement; and such Selling Stockholder does not own any
warrants, options or similar rights to acquire, and does not have any
right or arrangement to acquire, any capital stock, rights, warrants,
options or other securities from the Company, other than those described
in the Registration Statement and the Prospectus.
(l) If such Selling Stockholder is not identified by an
asterisk on Schedule B hereto, such Selling Stockholder is not aware
(without having conducted any investigation or inquiry) that any of the
representations and warranties of the Company set forth in Section 2.I.
above is untrue or inaccurate in any material respect.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $_____ per
share, the respective number of Company Shares and Selling Stockholder Shares
as set forth opposite the names of the Company and the Selling Stockholders in
Schedule B hereto. The obligation of each Underwriter to the Company and to
each Selling Stockholder shall be to purchase from the Company or such Selling
Stockholder that number of Company Shares or Selling Stockholder Shares, as the
case may be, that (as nearly as practicable, as determined by you) is in the
same proportion to the number of Company Shares or Selling Stockholder Shares,
as the case may be, set forth opposite the name of the Company or such Selling
Stockholder in Schedule B hereto as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 10) is to the total number of Firm Shares to
be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder
Shares have been placed in custody (for delivery under this Agreement) under
the Custody Agreement. Each Selling Stockholder agrees that the certificates
for the Selling Stockholder Shares of such Selling Stockholder so held in
custody are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Stockholder for such custody, including the
Power of Attorney, is to that extent irrevocable and that the obligations of
such Selling Stockholder hereunder shall not be terminated by the act of such
Selling Stockholder or by operation of law, whether by the death or incapacity
of such Selling Stockholder or the occurrence of any other event, except as
specifically provided herein or in the Custody Agreement. If any Selling
Stockholder should die or be incapacitated, or if any other such event should
occur, before the
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delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by
the Custodian in accordance with the terms and conditions of this Agreement as
if such death, incapacity or other event had not occurred, regardless of
whether the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company with regard to the Shares being purchased from the Company, and
to the order of the Custodian for the respective accounts of the Selling
Stockholders with regard to the Shares being purchased from such Selling
Stockholders (and the Company and such Selling Stockholders agree not to
deposit and to cause the Custodian not to deposit any such check in the bank on
which it is drawn, and not to take any other action with the purpose or effect
of receiving immediately available funds, until the business day following the
date of its delivery to the Company or the Custodian, as the case may be, and,
in the event of any breach of the foregoing, the Company or the Selling
Stockholders, as the case may be, shall reimburse the Underwriters for the
interest lost and any other expenses borne by them by reason of such breach),
at the offices of Brobeck Phleger & Harrison LLP, 1125 Seventeenth Street,
Suite 2525, Denver, Colorado (or at such other place as may be agreed upon
among the Representatives, the Company and the Attorneys), at 7 A.M., San
Francisco time, (a) on the third full business day following the first day that
Shares are traded, (b) if this Agreement is executed and delivered after 1:30
P.M., San Francisco time, the fourth full business day following the day that
this Agreement is executed and delivered or (c) at such other time and date not
later than seven full business days following the first day that Shares are
traded as the Representatives, the Company and the Attorneys may determine (or
at such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery
being herein called the "Closing Date"; provided, however, that if the Company
has not made available to the Representatives copies of the Prospectus within
the time provided in Section 4(d) hereof, the Representatives may, in their
sole discretion, postpone the Closing Date until no later than two full
business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will
be made available to you at such office or such other location, including in
New York City, as you may reasonably request for checking at least one full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the Closing Date for the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public
offering price of $_____ per share. After the initial public offering, the
several Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover concerning stabilization and over-allotment by the Underwriters,
and under the second, sixth and eighth paragraphs and the third sentence of the
fifth
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paragraph under the caption "Underwriting" in any Preliminary Prospectus and in
the Prospectus constitutes the only information furnished by the Underwriters
to the Company for inclusion in any Preliminary Prospectus, the Prospectus or
the Registration Statement, and you, on behalf of the respective Underwriters,
represent and warrant to the Company and the Selling Stockholders that the
statements made therein do not 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, in the light of the circumstances under which they
were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters 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 as promptly as possible; the Company
will use its best efforts to cause any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations as may be required
subsequent to the date the Registration Statement is declared effective
to become effective as promptly as possible; the Company will notify you,
promptly after it shall receive notice thereof, of the time when the
Registration Statement, any subsequent amendment to the Registration
Statement or any abbreviated registration statement has become effective
or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules
and Regulations, the Company will provide evidence satisfactory to you
that the Prospectus contains such information and has been filed, within
the time period prescribed, with the Commission pursuant to subparagraph
(1) or (4) of Rule 424(b) of the Rules and Regulations or as part of a
post-effective amendment to such Registration Statement as originally
declared effective that is declared effective by the Commission; if the
Company files a term sheet pursuant to Rule 434 of the Rules and
Regulations, the Company will provide evidence satisfactory to you that
the Prospectus and term sheet meeting the requirements of Rule 434(b) or
(c), as applicable, of the Rules and Regulations, have been filed, within
the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the
filing of the final form of Prospectus is required under Rule 424(b)(3)
of the Rules and Regulations, it will provide evidence satisfactory to
you that the Prospectus contains such information and has been filed with
the Commission within the time period prescribed; it will notify you
promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; promptly upon your request, it will prepare and
file with the Commission any amendments or supplements to the
Registration Statement or Prospectus that, in the opinion of
Underwriters' Counsel, may be necessary or advisable in connection with
the distribution of the Shares by the Underwriters; it will promptly
prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus that may be necessary to correct any statements or omissions,
if, at any time when a prospectus relating to the Shares is required to
be delivered under the Act, any event shall have occurred as a result of
which the Prospectus or any other prospectus relating to the Shares as
then in effect would include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; in case any Underwriter is required to deliver a prospectus
nine months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare
promptly upon request, but at the expense of such Underwriter, 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; and it will file no
amendment or supplement to the Registration Statement or Prospectus that
shall not previously have been submitted to you a reasonable time prior
to the proposed filing thereof or to which you shall reasonably object in
writing, subject, however, to compliance with the Act and the Rules and
Regulations and the provisions of this Agreement.
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(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or
of the initiation or threat of any proceeding for that purpose; and it
will promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal at the earliest possible moment if such
stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so
long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or
as a condition thereof to qualify as a foreign corporation or to execute
a general consent to service of process in any jurisdiction in which it
is not otherwise required to be so qualified or to so execute a general
consent to service of process. In each jurisdiction in which the Shares
shall have been qualified as above provided, the Company will make and
file such statements and reports in each year as are or may be required
by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and,
in the case of the Prospectus and any term sheet or abbreviated term
sheet under Rule 434, in no event later than the first full business day
following the first day that Shares are traded, copies of the
Registration Statement (three of which will be signed and which will
include all exhibits), each Preliminary Prospectus, the Prospectus and
any amendments or supplements to such documents, including any prospectus
prepared to permit compliance with Section 10(a)(3) of the Act, all in
such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if BancAmerica Robertson Stephens, on
behalf of the several Underwriters, shall agree to the utilization of
Rule 434 of the Rules and Regulations, the Company shall provide to you
copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than
the forty-fifth day following the end of the fiscal quarter first
occurring after the first anniversary of the effective date of the
Registration Statement, an earnings statement (which will be in
reasonable detail but need not be audited) complying with the provisions
of Section 11(a) of the Act and covering a twelve-month period beginning
after the effective date of the Registration Statement.
(f) During a period of five years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the
end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and
unaudited quarterly reports of operations for each of the first three
quarters of the fiscal year, and will furnish to you and the other
several Underwriters hereunder, upon request (i) concurrently with
furnishing such reports to its stockholders, statements of operations of
the Company for each of the first three quarters in the form furnished to
the Company's stockholders, (ii) concurrently with furnishing to its
stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity,
and of cash flows of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent certified public
accountants, (iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or
filed
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with the Commission, any securities exchange or the National Association
of Securities Dealers, Inc. (the "NASD"), (v) every material press
release and every material news item or article in respect of the Company
or its affairs that was generally released to stockholders or prepared by
the Company, and (vi) any additional information of a public nature
concerning the Company, or its business that you may reasonably request.
During such five-year period, if the Company shall have any active
subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and
such subsidiaries are consolidated and shall be accompanied by similar
financial statements for any significant subsidiary that is not so
consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common
Stock.
(i) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company
or any Selling Stockholder to perform any agreement on their respective
parts to be performed hereunder or to fulfill any condition of the
Underwriters' obligations hereunder, or if the Company shall terminate
this Agreement pursuant to Section 11(a) hereof, or if the Underwriters
shall terminate this Agreement pursuant to Section 11(b)(i), the Company
will reimburse the several Underwriters for all out-of- pocket expenses
(including fees and disbursements of Underwriters' Counsel) incurred by
the Underwriters in investigating or preparing to market or marketing the
Shares.
(j) If at any time during the ninety-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely
to be materially affected (regardless of whether such rumor, publication
or event necessitates a supplement to or amendment of the Prospectus),
the Company will, after written notice from you advising the Company to
the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the
prior written consent of BancAmerica Robertson Stephens, effect the
Disposition of, directly or indirectly, any Securities other than the
sale of the Company Shares and the Option Shares to be sold by the
Company hereunder and the Company's issuance of options or Common Stock
under the Company's presently authorized 1990 Stock Option Plan, as
amended, 1998 Stock Incentive Plan or 1998 Employee Stock Purchase Plan.
(l) During a period of ninety days from the effective date of
the Registration Statement, the Company will not file a registration
statement registering shares under the Company's presently authorized
1990 Stock Option Plan, as amended, 1998 Stock Incentive Plan or 1998
Employee Stock Purchase Plan or any other benefit plan.
5. Expenses.
(a) The Company and the Selling Stockholders agree with each
Underwriter that:
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(i) The Company and the Selling Stockholders will pay and
bear all costs and expenses in connection with the preparation,
printing and filing of the Registration Statement (including
financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements
thereto; the issuance and delivery of the Shares hereunder to the
several Underwriters, including transfer taxes, if any, the cost
of all certificates representing the Shares, and transfer agents'
and registrars' fees; the fees and disbursements of counsel for
the Company; all fees and other charges of the Company's
independent certified public accountants; the cost of furnishing
to the several Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectuses and the
Prospectus and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares
under the laws of such jurisdictions as you may designate
(including filing fees and fees and disbursements of Underwriters'
Counsel in connection with such NASD filings and Blue Sky
qualifications); and all other expenses directly incurred by the
Company and the Selling Stockholders in connection with the
performance of their obligations hereunder. Any additional
expenses incurred as a result of the sale of the Shares by the
Selling Stockholders will be borne collectively by the Company and
the Selling Stockholders. The provisions of this Section 5(a)(i)
are intended to relieve the Underwriters from the payment of the
expenses and costs that the Selling Stockholders and the Company
hereby agree to pay, but shall not affect any agreement that the
Selling Stockholders and the Company may make, or may have made,
for the sharing of any of such expenses and costs. Such
agreements shall not impair the obligations of the Company and the
Selling Stockholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under Section
8(a) hereof, the Company agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(a) hereof, it will reimburse the
Underwriters on a monthly 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 obligation to reimburse the Underwriters 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 Underwriters shall promptly return
such payment to the Company 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) listed from time to time in The Wall Street Journal that
represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty largest banks (the
"Prime Rate"). Any such interim reimbursement payments that are
not made to the Underwriters within thirty days of a request for
reimbursement shall bear interest at the Prime Rate from the date
of such request.
(iii) In addition to their other obligations under Section
8(b) hereof, each Selling Stockholder agrees that, as an interim
measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(b) hereof
relating to such Selling Stockholder, it will reimburse the
Underwriters on a monthly 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 such
Selling Stockholder's obligation to reimburse the Underwriters 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 Underwriters shall
promptly return such payment to the Selling Stockholders, together
with interest, compounded
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<PAGE> 17
daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments that are not made to the
Underwriters within thirty days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such
request.
(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(c) hereof, they will
reimburse the Company and each Selling Stockholder on a monthly 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 each such 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 each such Selling Stockholder shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments that are not made to the Company and each
such Selling Stockholder within thirty days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any
requested reimbursement payments, the method of determining such amounts
and the basis on which such amounts shall be apportioned among the
reimbursing parties, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the 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 a 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. Any such arbitration
will be limited to the operation of the interim reimbursement provisions
contained in Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof and will not
resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses that is created by the provisions of Sections
8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
that is created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case may
be, of the representations and warranties of the Company and the Selling
Stockholders herein, 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 2 P.M., San Francisco time, on the date following the date of
this Agreement, or such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company, any Selling Stockholder or any
Underwriter, threatened by the Commission, and any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with
to the satisfaction of Underwriters' Counsel.
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<PAGE> 18
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and
the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to
Underwriters' Counsel, and Underwriters' Counsel shall have been
furnished with such papers and information as they may reasonably have
requested to enable them to pass upon the matters referred to in this
Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company from that set forth in the
Registration Statement or Prospectus that, in your sole judgment, is
material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of Brobeck, Phleger & Harrison LLP, special counsel for
the Company and counsel for the Selling Stockholders, dated the Closing
Date or such later date on which Option Shares are to be purchased,
addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware.
(ii) The Company has the corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus.
(iii) The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction, if
any, in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where
the failure to be so qualified or be in good standing would not have
a material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company. To such counsel's
knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity.
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein. The issued and
outstanding shares of capital stock of the Company (including the
Selling Stockholder Shares) have been duly and validly issued and
are fully paid and nonassessable (assuming that the Company has
received payment for such shares as contemplated by the votes of the
Board of Directors of the Company approving such issuances) and, to
such counsel's knowledge, have not been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right.
(v) The Firm Shares or the Option Shares, as the case may
be, to be issued by the Company pursuant to the terms of this
Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will
be duly and validly issued and fully paid and nonassessable, and
will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first
refusal or other similar right.
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<PAGE> 19
(vi) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder.
(vii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles.
(viii) The Registration Statement has become effective under
the Act, and to such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending
or threatened under the Act.
(ix) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial
statements, including supporting schedules, and financial data
derived therefrom, as to which such counsel need express no
opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements
of the Act and the applicable Rules and Regulations.
(x) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by such
counsel and is a fair summary of such matters and conclusions; and
the forms of certificates evidencing the Common Stock and filed as
exhibits to the Registration Statement comply with the Delaware
General Corporation Law.
(xi) The description in the Registration Statement and the
Prospectus of the certificate of incorporation and bylaws of the
Company and of statutes are accurate and fairly present the
information required to be presented by the Act and the applicable
Rules and Regulations.
(xii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement that are not described or referred to
therein or filed as required.
(xiii) The performance of this Agreement and the consummation
of the transactions herein contemplated (other than performance of
the Company's indemnification obligations hereunder, concerning
which no opinion need be expressed) will not (a) result in any
violation of the Company's certificate of incorporation or bylaws or
(b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a
default under, (1) any bond, debenture, note or other evidence of
indebtedness, or any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party or
by which its properties are bound, (2) any applicable statute, rule
or regulation known to such counsel or (3) any order, writ or decree
known to such counsel of any court, government or governmental
agency or body having jurisdiction over the Company or any of its
properties or operations.
19
<PAGE> 20
(xiv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or
body having jurisdiction over the Company or any of its properties
or operations is necessary in connection with the consummation by
the Company of the transactions herein contemplated, except such as
have been obtained under the Act or such as may be required under
state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriters.
(xv) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company
of a character required to be disclosed in the Registration
Statement or the Prospectus by the Act or the Rules and Regulations,
other than those described therein.
(xvi) To such counsel's knowledge, the Company is not
presently (a) in material violation of its certificate of
incorporation or bylaws or (b) in material breach of any applicable
statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or
any of its properties or operations.
(xvii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or
other securities of the Company have registration rights with
respect to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of
the Company having rights known to such counsel to registration of
such shares of Common Stock or other securities, because of the
filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration
Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights.
(xviii) Each Selling Stockholder that is not a natural
person has full right, power and authority to enter into and to
perform its obligations under the Power of Attorney and Custody
Agreement to be executed and delivered by it in connection with the
transactions contemplated herein. The Power of Attorney and Custody
Agreement of each Selling Stockholder that is not a natural person
has been duly authorized by such Selling Stockholder; the Power of
Attorney and Custody Agreement of each Selling Stockholder has been
duly executed and delivered by or on behalf of such Selling
Stockholder; and the Power of Attorney and Custody Agreement of each
Selling Stockholder constitutes the valid and binding agreement of
such Selling Stockholder, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles.
(xix) Each of the Selling Stockholders has full right, power
and authority to enter into and to perform its obligations under
this Agreement and to sell, transfer, assign and deliver the Shares
to be sold by such Selling Stockholder hereunder.
(xx) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed
and delivered by or on behalf of each Selling Stockholder.
(xxi) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will
receive valid marketable title to the Shares purchased by it from
20
<PAGE> 21
such Selling Stockholder, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest. In
rendering such opinion, such counsel may assume that the
Underwriters are without notice of any defect in the title of the
Shares being purchased from the Selling Stockholders.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of
the Company, the Representatives, Underwriters' Counsel and the
independent certified public accountants of the Company, at which such
conferences the contents of the Registration Statement and Prospectus and
related matters were discussed, and although they have not verified the
accuracy or completeness of the statements contained in the Registration
Statement or the Prospectus, nothing has come to the attention of such
counsel that leads them to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and
on the Closing Date and on any later date on which Option Shares are to
be purchased, the Registration Statement and any amendment or supplement
thereto (other than the financial statements, including supporting
schedules, and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or at the Closing Date or any later date on which
the Option Shares are to be purchased, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement
thereto (except as aforesaid) contained 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.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State
of California or Colorado or the corporate law of the State of Delaware
upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in
which case their opinion is to state that they are so relying and that
they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you,
as Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of Ireland, Stapleton, Pryor & Pascoe, P.C., general
counsel for the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, addressed to the Underwriters
and with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) To such counsel's knowledge, the Company does not own
or control, directly or indirectly, any corporation, association or
other entity.
(ii) To such counsel's knowledge, none of the issued and
outstanding shares of capital stock of the Company (including the
Selling Stockholder Shares) have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right.
(iii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to
21
<PAGE> 22
in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement that are not described or
referred to therein or filed as required.
(iv) To such counsel's knowledge, the performance of this
Agreement and the consummation of the transactions herein
contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion
need be expressed) will not result in a material breach or violation
of any of the terms and provisions of, or constitute a default
under, (1) any bond, debenture, note or other evidence of
indebtedness, or any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party or
by which its properties are bound, (2) any applicable statute, rule
or regulation known to such counsel or (3) any order, writ or decree
known to such counsel of any court, government or governmental
agency or body having jurisdiction over the Company or any of its
properties or operations.
(v) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company
of a character required to be disclosed in the Registration
Statement or the Prospectus by the Act or the Rules and Regulations,
other than those described therein.
(vi) To such counsel's knowledge, the Company is not
presently (a) in material violation of its certificate of
incorporation or bylaws or (b) in material breach of any applicable
statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or
any of its properties or operations.
(vii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or
other securities of the Company have registration rights with
respect to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of
the Company having rights known to such counsel to registration of
such shares of Common Stock or other securities, because of the
filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration
Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights.
In addition, such counsel shall state that such counsel has
participated in certain conferences with officials and other
representatives of the Company, the Representatives, Underwriters'
Counsel and the independent certified public accountants of the Company
(which conferences did not constitute all of the conferences held by such
parties with respect to the preparation of the Registration Statement),
at which such conferences the contents of the Registration Statement and
Prospectus and related matters were discussed, and although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the
attention of such counsel that leads them to believe, based upon such
conferences and such counsel's prior experience with the Company's
business, that, at the time the Registration Statement became effective
and at all times subsequent thereto up to and on the Closing Date and on
any later date on
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<PAGE> 23
which Option Shares are to be purchased, the Registration Statement and
any amendment or supplement thereto (other than the financial statements,
including supporting schedules, and other financial and statistical
information derived therefrom, as to which such counsel need express no
comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or at the Closing Date or any
later date on which the Option Shares are to be purchased, as the case
may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto (except as aforesaid) contained 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.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State
of Colorado or the corporate law of the State of Delaware upon opinions
of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company and of government officials, in
which case their opinion is to state that they are so relying and that
they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you,
as Representatives of the Underwriters, and to Underwriters' Counsel.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an
opinion of Underwriters' Counsel, in form and substance satisfactory to
you, with respect to the sufficiency of all such corporate proceedings
and other legal matters relating to this Agreement and the transactions
contemplated hereby as you may reasonably require, and the Company shall
have furnished to Underwriters' Counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
letter from Arthur Andersen LLP addressed to the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, confirming that they are independent
certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations and
based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five business
days prior to the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, (i) confirming, to the extent
true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set
forth in the Original Letter that are necessary to reflect any changes in
the facts described in the Original Letter since the date of such letter,
or to reflect the availability of more recent financial statements, data
or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company from that set forth in the Registration
Statement or Prospectus that, in your sole judgment, is material and
adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus. The Original Letter from Arthur Andersen
LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent that
they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules
and Regulations, (ii) set forth their opinion with respect to their
examination of the balance sheet of the Company as of December 31, 1997
and related statements of operations, stockholders' equity, and cash
flows for the twelve months ended December 31, 1997, and (iii) address
other matters agreed upon by Arthur Andersen LLP and you. In addition,
you shall have received from Arthur Andersen LLP a letter addressed to
the Company and made available to you for the use of the Underwriters
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope
of their examination of the Company's financial statements as of December
31, 1997, did not disclose any weaknesses in internal controls that they
considered to be material weaknesses.
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<PAGE> 24
(h) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by
the Chief Executive Officer and Chief Financial Officer of the Company,
to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be
purchased, 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 at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate,
the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to
be included therein by the Act and the Rules and Regulations and in
all material respects conformed to the requirements of the Act and
the Rules and Regulations, the Registration Statement, and any
amendment or supplement thereto, did not and does not 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, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue
statement of a material fact or omit 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, since
the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus that has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company, (b) any transaction that is material to
the Company, except transactions entered into in the ordinary course
of business, (c) any material obligation, direct or contingent,
incurred by the Company, except obligations incurred in the ordinary
course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company that is material to the
Company, (e) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company, or (f) any loss or
damage (whether or not insured) to the property of the Company that
has been sustained or will have been sustained and that has a
material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(i) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, from the Attorneys for
each Selling Stockholder to the effect that, as of the Closing Date, or
any later date on which Option Shares are to be purchased, as the case
may be, they have not been informed that:
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<PAGE> 25
(i) The representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect
on the Closing Date or on any later date on which Option Shares are
to be purchased, as the case may be; or
(ii) Such Selling Stockholder has not complied with any
obligation or satisfied any condition that is required to be
performed or satisfied on the part of such Selling Stockholder at or
prior to the Closing Date or any later date on which Option Shares
are to be purchased, as the case may be.
(j) The Company shall have obtained and delivered to you an
agreement from each officer and director of the Company, each Selling
Stockholder and each other beneficial owner of Common Stock in writing
prior to the date hereof that such person will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such person or with respect to which such person has
or hereafter acquires the power of disposition, otherwise than (i) as a
bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to
limited partners, members or stockholders of such person, provided the
distributees thereof agree in writing to be bound by the terms of this
restriction or (iii) with the prior written consent of BancAmerica
Robertson Stephens. The foregoing restriction shall have been expressly
agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction that is designed to or reasonably expected
to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other
than the such holder. Such prohibited hedging or other transactions
would include any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including any put or call option)
with respect to any Securities or with respect to any security (other
than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from the Securities.
Notwithstanding the foregoing, this restriction shall not prohibit (i)
the sale of Shares to the Underwriters pursuant to this Agreement or (ii)
resales of shares of Common Stock acquired either in the public offering
to which the Registration Statement relates or in subsequent open-market
purchases. Furthermore, such person will have also agreed and consented
to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except
in compliance with this restriction.
(k) The Company and the Selling Stockholders shall have furnished
to you such further certificates and documents as you shall reasonably
request (including certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person) as to the accuracy of the
representations and warranties of the Company and the Selling
Stockholders herein, as to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder and as to the
other conditions concurrent and precedent to the obligations of the
Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will
furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set
forth, the Company and the Selling Stockholders named in Schedule C
hereto (the "Option Stockholders") hereby grant, severally and not
jointly, to the several
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<PAGE> 26
Underwriters, for the purpose of covering over-allotments in connection
with the distribution and sale of the Firm Shares only, nontransferable
options to purchase the respective number of Option Shares as set forth
opposite the names of the Company and the Option Stockholders in Schedule
C hereto, all at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the
Representatives on behalf of the several Underwriters on one or more
occasions in whole or in part during the period of thirty days after the
date on which the Firm Shares are initially offered to the public, by
giving written notice to the Company and the Option Stockholders in
accordance with Section 12 hereof. The number of Option Shares to be
purchased by each Underwriter upon the exercise of such option shall be
the same proportion of the total number of Option Shares to be purchased
by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in
Schedule A hereto) bears to the total number of Firm Shares purchased by
the several Underwriters (set forth in Schedule A hereto), adjusted by
the Representatives in such manner as to avoid fractional shares. In the
event such option is exercised for less than all of the Option Shares,
the Option Shares to be purchased shall be purchased [let us know if this
will be pro rata (based on the numbers of Option Shares set forth in
Schedule C hereto) from the Company and each of the Option Stockholders,
or whether there will be a priority (e.g., Option Stockholders first, on
a pro rata basis, and then Company)], adjusted by the Representatives in
such manner as to avoid fractional shares.
The certificates in negotiable form for the Option Shares to
be purchased from the Option Stockholders pursuant to the exercise of the
option granted by this Section 7 have been placed in custody (for
delivery under this Agreement) under the Custody Agreement. Each Option
Stockholder agrees that the certificates for the Option Shares of such
Option Stockholder so held in custody are subject to the interests of the
Underwriters hereunder, that the arrangements made by such Option
Stockholder for such custody, including the Power of Attorney is to that
extent irrevocable and that the obligations of such Option Stockholder
hereunder shall not be terminated by the act of such Option Stockholder
or by operation of law, whether by the death or incapacity of such Option
Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Option Stockholder
should die or be incapacitated, or if any other such event should occur,
before the delivery of the certificates for the Option Shares to be sold
by such Option Stockholder, such Option Shares shall, except as
specifically provided herein or in the Custody Agreement, be delivered by
the Custodian in accordance with the terms and conditions of this
Agreement as if such death, incapacity or other event had not occurred,
regardless of whether the Custodian shall have received notice of such
death or other event.
Delivery of definitive certificates for the Option Shares to
be purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or
official bank check or checks drawn in next-day funds, payable to the
order of the Company with regard to the Option Shares being purchased
from the Company, and to the order of the Custodian for the respective
accounts of Option Stockholders with regard to the Option Shares being
purchased from the Option Stockholders (and the Company and the Option
Stockholders agree not to deposit and to cause the Custodian not to
deposit any such check in the bank on which it is drawn, and not to take
any other action with the purpose or effect of receiving immediately
available funds, until the business day following the date of its
delivery to the Company or the Custodian, as the case may be). In the
event of any breach of the foregoing, the Company and the Option
Stockholders, as the case may be, shall reimburse the Underwriters for
the interest lost and any other expenses borne by them by reason of such
breach. Such delivery and payment shall take place at the offices of
Brobeck Phleger & Harrison LLP, 1125 Seventeenth Street, Suite 2525,
Denver, Colorado or at such other place as may be agreed upon
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<PAGE> 27
among the Representatives, the Company and the Attorneys (i) on the
Closing Date, if written notice of the exercise of such option is
received by the Company and the Option Stockholders at least two full
business days prior to the Closing Date, or (ii) on a date that shall not
be later than the third full business day following the date the Company
and the Option Stockholders receive written notice of the exercise of
such option, if such notice is received by the Company and the Option
Stockholders less than two full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will
be made available to you at such office or such other location, including
in New York City, as you may reasonably request for checking at least one
full business day prior to the date of payment and delivery and will be
in such names and denominations as you may request, such request to be
made at least two full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares
may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be
obligated to) make payment of the purchase price on behalf of any
Underwriter or Underwriters whose check or checks shall not have been
received by you prior to the date of payment and delivery for the Option
Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of
any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such
Option Shares will be subject (as of the date hereof and as of the date
of payment and delivery for such Option Shares) to the accuracy of and
compliance with the representations, warranties and agreements of the
Company and the Option Stockholders herein, to the accuracy of the
statements of the Company, the Option Stockholders and officers of the
Company made pursuant to the provisions hereof, to the performance by the
Company and the Option Stockholders of their respective obligations
hereunder, to the conditions set forth in Section 6 hereof, and to the
condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel,
and you shall have been furnished with all such documents, certificates
and opinions as you may request in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants or agreements of the Company and the
Option Stockholders or the satisfaction of any of the conditions herein
contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including in its
capacity as an Underwriter or as a "qualified independent underwriter"
within the meaning of Schedule E of the Bylaws of the NASD), under the
Act, the Exchange Act or otherwise, specifically including losses,
claims, damages or liabilities (or actions in respect thereof) arising
out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in
the Registration Statement or any amendment or supplement thereto, or 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 untrue statement or alleged untrue statement of
any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or
27
<PAGE> 28
supplement thereto, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, and agrees to reimburse each Underwriter for
any legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or any such
amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the
Company by such Underwriter, directly or through you, specifically for
use in the preparation thereof and, provided further that the indemnity
agreement provided in this Section 8(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom
the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of material
fact or omission or alleged omission to state therein a material fact
purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is
the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the
Act or the Exchange Act. This indemnity agreement shall be in addition
to any liabilities that the Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may
become subject (including in its capacity as an Underwriter) under the
Act, the Exchange Act or otherwise, specifically including losses,
claims, damages or liabilities (or actions in respect thereof) arising
out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of such Selling Stockholder herein contained, (ii)
any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement
thereto, or 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 untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, in the case of subparagraphs (ii) and (iii) of
this Section 8(b) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information
furnished to the Company or such Underwriter by such Selling Stockholder,
directly or through such Selling Stockholder's representatives,
specifically for use in the preparation thereof, and agrees to reimburse
each Underwriter for any legal or other expenses reasonably incurred by
it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity
agreement provided in this Section 8(b) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom
the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state therein a material fact
purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is
the result of noncompliance by the Company with Section 4(d) hereof.
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<PAGE> 29
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the
Act or the Exchange Act. This indemnity agreement shall be in addition
to any liabilities that such Selling Stockholder otherwise may have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each Selling Stockholder
against any losses, claims, damages or liabilities, joint or several, to
which the Company or such Selling Stockholder may become subject under
the Act or otherwise, specifically including losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon
(i) any breach of any representation, warranty, agreement or covenant of
such Underwriter herein contained, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or 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 untrue statement or alleged untrue statement of any material
fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, in the case of subparagraphs (ii) and (iii) of this Section
8(c) to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter, directly or through you, specifically for
use in the preparation thereof, and agrees to reimburse the Company and
each such Selling Stockholder for any legal or other expenses reasonably
incurred by the Company and each such Selling Stockholder in connection
with investigating or defending any such loss, claim, damage, liability
or action.
The indemnity agreement in this Section 8(c) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each
director of the Company, each Selling Stockholder and each person, if
any, who controls the Company or any Selling Stockholder within the
meaning of the Act or the Exchange Act. This indemnity agreement shall
be in addition to any liabilities that each Underwriter may otherwise
have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, 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 that it may
have to any indemnified party otherwise than under this Section 8. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified
party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that 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 legal defenses available to it and/or other
indemnified parties that 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
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<PAGE> 30
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 the indemnifying party's 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 8 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 separate counsel 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 (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a), 8(b) or 8(c) hereof who are
parties to such action), (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement
of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable
in respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement;
provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have
been a party and indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on all claims that
are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 8 provides for indemnification
in such case, all the parties hereto shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as
set forth in Section 8(f) hereof, the Underwriters severally and not
jointly are responsible pro rata for the portion represented by the
percentage that the underwriting discount bears to the initial public
offering price, and the Company and the Selling Stockholders are
responsible for the remaining portion, provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the
amount by which the underwriting discount applicable to the Shares
purchased by such Underwriter exceeds the amount of damages that such
Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who is not guilty
of such fraudulent misrepresentation. The contribution agreement in this
Section 8(e) shall extend upon the same terms and conditions to, and
shall inure to the benefit of, each person, if any, who controls any
Underwriter, the Company or any Selling Stockholder within the meaning of
the Act or the Exchange Act and each officer of the Company who signed
the Registration Statement and each director of the Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity and contribution agreements contained in the provisions of this
Section 8 shall be limited to an amount equal to the initial public
offering price of the Selling Stockholder Shares and any Option Shares
sold by such Selling Stockholder to the Underwriters minus the amount of
the underwriting discount paid thereon to the Underwriters by such
Selling Stockholder. The Company and such Selling Stockholders may
agree, as among themselves and without limiting the rights of the
Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
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<PAGE> 31
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including the provisions of
this Section 8, and are fully informed regarding said provisions. They
further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the
Company and its business in order to assure that adequate disclosure is
made in the Registration Statement and Prospectus as required by the Act
and the Exchange Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter within the meaning of the
Act or the Exchange Act, or by or on behalf of the Company or any Selling
Stockholder, or any of their officers, directors or controlling persons within
the meaning of the Act or the Exchange Act, and shall survive the delivery of
the Shares to the several Underwriters hereunder or termination of this
Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares that such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed ten percent of the Firm Shares, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares that such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds ten percent of the Firm Shares, the
remaining Underwriters shall have the right, but shall not be obligated, to take
up and pay for (in such proportions as may be agreed upon among them) the Firm
Shares that the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares that the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four hours to allow the several Underwriters the privilege of
substituting within twenty-four hours (including non-business hours) another
underwriter or underwriters (which may include any nondefaulting Underwriter)
satisfactory to the Company. If no such underwriter or underwriters shall have
been substituted as aforesaid by such postponed Closing Date, the Closing Date
may, at the option of the Company, be postponed for a further twenty-four hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares that the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven full
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement, supplements to the Prospectus or other such documents
that may thereby be made necessary, and (ii) the respective number of Firm
Shares to be purchased by the remaining Underwriters and substituted underwriter
or underwriters shall be taken as the basis of their underwriting obligation.
If the remaining Underwriters shall not take up and pay for all such Firm Shares
so agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
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<PAGE> 32
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections
5 and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from
such default) be liable to the Company or any Selling Stockholder (except to
the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., San Francisco time, on the first full business day following
the effective date of the Registration Statement or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after
the Registration Statement becomes effective. The time of the initial
public offering shall mean the time of the release by you, for
publication, of the first newspaper advertisement relating to the Shares,
or the time at which the Shares are first generally offered by the
Underwriters to the public by letter, telephone, telegram or telecopy,
whichever shall first occur. By giving notice as set forth in Section 12
before the time this Agreement becomes effective, you, as Representatives
of the several Underwriters, or the Company, may prevent this Agreement
from becoming effective without liability of any party to any other
party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as
hereinafter specified at any time on or prior to the Closing Date or on
or prior to any later date on which Option Shares are to be purchased, as
the case may be, (i) if the Company or any Selling Stockholder shall have
failed, refused or been unable to perform any agreement on its part to be
performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled is not fulfilled,
including any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set
forth in the Registration Statement or Prospectus that, in your sole
judgment, is material and adverse, or (ii) 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 if a banking moratorium shall
have been declared by federal, New York or California authorities, or
(iii) if the Company shall have sustained a loss by strike, fire, flood,
earthquake, accident or other calamity of such character as to interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured or (iv) if
there shall have been a material adverse change in the general political
or economic conditions or financial markets as in your reasonable
judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have
been an outbreak or escalation of hostilities or of any other
insurrection or armed conflict or the declaration by the United States of
a national emergency that, in the reasonable opinion of the
Representatives, makes it impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. In
the event of termination pursuant to subparagraph (i) above, the Company
shall remain obligated to pay costs and expenses
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<PAGE> 33
pursuant to Sections 4(j), 5 and 8 hereof. Any termination pursuant to
any of subparagraphs (ii) through (v) above shall be without liability of
any party to any other party except as provided in Sections 5 and 8
hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each
case confirmed by letter. If the Company shall elect to prevent this
Agreement from becoming effective, the Company shall promptly notify you
by telephone, telecopy or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o BancAmerica Robertson Stephens, 555 California
Street, Suite 2600, San Francisco, California 94104, telecopier number (415)
781-0278, Attention: General Counsel; if sent to the Company, such notice
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to SCC Communications Corp., 6285 Lookout Road,
Boulder, Colorado 80301, telecopier number (303) 581-5697, Attention: Chief
Executive Officer; if sent to one or more of the Selling Stockholders, such
notice shall be sent mailed, delivered, telegraphed (and confirmed by letter)
or telecopied (and confirmed by letter) to George K. Heinrichs, as Attorney-in-
Fact for the Selling Stockholders, at SCC Communications Corp., 6285 Lookout
Road, Boulder, Colorado 80301, telecopier number (303) 581-5697.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and the Selling Stockholders
and their respective executors, administrators, successors and assigns.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person or entity, other than the parties hereto and their
respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act, officers
and directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors and assigns
and said controlling persons and said officers and directors, and for the
benefit of no other person or entity. No purchaser of any of the Shares from
any Underwriter shall be construed a successor or assign by reason merely of
such purchase.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company and the Selling
Stockholders shall be entitled to act and rely upon any statement, request,
notice or agreement made or given by you jointly or by BancAmerica Robertson
Stephens on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. Construction. The headings in this Agreement are included only for
convenience and shall not affect the meaning or interpretation of this
Agreement. The words "herein" and "hereof" and other words of similar import
refer to this Agreement as a whole and not to any particular part of this
Agreement. The word "including" as used herein shall not be construed so as to
exclude any other thing not referred to or described.
16. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
33
<PAGE> 34
* * *
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling
Stockholders and the several Underwriters.
Very truly yours,
SCC COMMUNICATIONS CORP.
By
---------------------------------------------
President and Chief Executive Officer
SELLING STOCKHOLDERS
By
---------------------------------------------
Attorney-in-Fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
BANCAMERICA ROBERTSON STEPHENS
HAMBRECHT & QUIST LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto
By BancAmerica Robertson Stephens
By
----------------------------------
Authorized Signatory
34
<PAGE> 35
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ -----------
<S> <C>
BancAmerica Robertson Stephens . . . . . . . . . . . . . . . . .
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300,000
==========
</TABLE>
<PAGE> 36
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
COMPANY
SHARES TO
COMPANY BE SOLD
- ------- ----------
<S> <C>
SCC Communications Corp. . . . . . . . . . . . . . . . . . . . 2,100,000
==========
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SELLING
STOCKHOLDER
SHARES
NAME OF SELLING STOCKHOLDER TO BE SOLD
- --------------------------- -----------
<S> <C>
-----------
Total 1,200,000
===========
</TABLE>
<PAGE> 37
SCHEDULE C
<TABLE>
<CAPTION>
NUMBER OF
OPTION
SHARES TO
COMPANY OR OPTION STOCKHOLDER BE SOLD
- ----------------------------- ---------
<S> <C>
SCC Communications Corp. . . . . . . . . . . . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 495,000
=========
</TABLE>
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF SCC COMMUNICATIONS CORP.
a Delaware corporation
SCC Communications Corp. (the "corporation"), a corporation organized
and existing under the laws of the State of Delaware, hereby certifies as
follows:
1. The name of the corporation is SCC Communications Corp. The
original name of the corporation was Systems Concepts of Colorado, Inc. and was
initially incorporated under said name in the state of Colorado on July 2,
1979. The corporation's name was changed into SCC Communications Corp.
pursuant to a merger between Systems Concepts of Colorado, Inc. and SCC
Communications Corp., a Delaware corporation on September 21, 1993. The
corporation was the surviving entity in the merger. The original Certificate
of Incorporation of the corporation was filed with the Secretary of State of
the State of Delaware on September 17, 1993. The Certificate of Incorporation
of the corporation was amended pursuant to a Certificate of Amendment of
Certificate of Incorporation of the corporation filed with the Secretary of
State of the State of Delaware on each of April 28, 1994; January 26, 1995;
February 29, 1995; and March 5, 1996.
2. Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, the Amended and Restated Certificate of
Incorporation was adopted by the corporation's Board of Directors and
stockholders, the stockholders of the corporation having approved the Amended
and Restated Certificate of Incorporation by the written consent of the holders
of at least a majority of the outstanding shares in accordance with Section 228
thereof, and written notice having been given in accordance with the
requirements of such Section. The Amended and Restated Certificate of
Incorporation restates, integrates and amends the provisions of the Certificate
of Incorporation of this corporation.
3. The text of the Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:
"ARTICLE I
The name of this corporation is SCC Communications Corp.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle. The
name of its registered agent at such address is Corporation Service Company.
<PAGE> 2
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
Delaware General Corporation Law.
ARTICLE IV
1. Classes of Stock. This corporation is authorized to issue two
classes of stock, denominated Common Stock and Preferred Stock. The Common
Stock shall have a par value of $0.001 per share and the Preferred Stock shall
have a par value of $0.001 per share. The total number of shares of Common
Stock which the Corporation is authorized to issue is Thirty Million
(30,000,000), and the total number of shares of Preferred Stock which the
Corporation is authorized to issue is Fifteen Million (15,000,000), which
shares of Preferred Stock shall be undesignated as to series.
2. Issuance of Preferred Stock. The Preferred Stock may be
issued from time to time in one or more series. The Board of Directors is
hereby authorized, by filing one or more certificates pursuant to the Delaware
General Corporation Law (each, a "Preferred Stock Designation"), to fix or
alter from time to time the designations, powers, preferences and rights of
each such series of Preferred Stock and the qualifications, limitations or
restrictions thereof, including without limitation the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, and the
liquidation preferences of any wholly-unissued series of Preferred Stock, and
to establish from time to time the number of shares constituting any such
series and the designation thereof, 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.
3. Rights, Preferences, Privileges and Restrictions of Common
Stock.
(a) Dividend Rights. Subject to the prior or equal
rights of holders of all classes of stock at the time outstanding having prior
or equal rights as to dividends, the holders of the Common Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of any
assets of the corporation legally available therefor, such dividends as may be
declared from time to time by the Board of Directors.
(b) Redemption. The Common Stock is not redeemable upon
demand of any holder thereof or upon demand of this corporation.
(c) Voting Rights. The holder of each share of Common
Stock shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with
- 2 -
<PAGE> 3
the Bylaws of this corporation, and shall be entitled to vote upon such matters
and in such manner as may be provided by law.
ARTICLE V
1. Exculpation. A director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for 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 any improper personal benefit. If the Delaware General
Corporation Law is hereafter amended to further reduce or to authorize, with
the approval of the corporation's stockholders, further reductions in the
liability of the corporation's directors for breach of fiduciary duty, then a
director of the corporation shall not be liable for any such breach to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
2. Indemnification. To the extent permitted by applicable law,
this corporation is also authorized to provide indemnification of (and
advancement of expenses to) such agents (and any other persons to which
Delaware law permits this corporation to provide indemnification) through bylaw
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
3. Effect of Repeal or Modification. Any repeal or modification
of any of the foregoing provisions of this Article V shall be prospective and
shall not adversely affect any right or protection of a director, officer,
agent or other person existing at the time of, or increase the liability of any
director of the corporation with respect to any acts or omissions of such
director occurring prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation.
ARTICLE VII
No holder of shares of stock of the corporation shall have any
preemptive or other right, except as such rights are expressly provided by
contract, to purchase or subscribe for or receive any shares of any class, or
series thereof, of stock of the corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other securities
convertible into,
- 3 -
<PAGE> 4
exchangeable for or carrying any right to purchase any share of any class, or
series thereof, of stock; but such additional shares of stock and such
warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any shares of any class, or
series thereof, of stock may be issued or disposed of by the Board of Directors
to such persons, and on such terms and for such lawful consideration as in its
discretion it shall deem advisable or as the corporation shall have by contract
agreed.
ARTICLE VIII
The corporation is to have a perpetual existence.
ARTICLE IX
The corporation reserves the right to repeal, alter, amend or rescind
any provision contained in this Amended and Restated Certificate of
Incorporation and/or any provision contained in any amendment to or restatement
of this Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation.
ARTICLE X
The Board of Directors may from time to time make, amend, supplement
or repeal the Bylaws by the requisite affirmative vote of Directors as set
forth in the Bylaws; provided, however, that the stockholders may change or
repeal any bylaw adopted by the Board of Directors by the requisite affirmative
vote of stockholders as set forth in the Bylaws; 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.
ARTICLE XI
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 no action shall be taken by the stockholders by written consent.
ARTICLE XII
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."
- 4 -
<PAGE> 5
SIGNATURES
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed under the seal of the corporation as of this ____
day of May, 1998.
SCC COMMUNICATIONS CORP.,
a Delaware corporation
By:
--------------------------------------
George K Heinrichs
President and Chief Executive Officer
ATTEST:
- --------------------------------
John G. Lewis, Secretary
- 5 -
<PAGE> 1
EXHIBIT 3.2
RESTATED BYLAWS
OF
SCC COMMUNICATIONS CORP.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office in the
State of Delaware shall be at 1013 Centre Road, City of Wilmington, County of
New Castle.
Section 2. Other Offices. The corporation 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
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders
for the election of Directors shall be held in the City of Boulder, State of
Colorado, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
Colorado as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Colorado, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. 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 no
later than the date specified in the corporation's proxy statement released to
stockholders in connection
<PAGE> 2
with the previous year's annual meeting of stockholders, which date shall be
not less than one hundred twenty (120) calendar days in advance of the date of
such proxy statement; 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 a reasonable time before the solicitation is made.
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 or her
capacity as a proponent to a stockholder proposal. In addition to 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 to the extent such regulations require notice that is
different from the notice required above. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b) of
this Section 2. The chairperson 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 the chairperson should so determine, the chairperson
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 2. 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 that 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
2.
<PAGE> 3
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 subitems (ii), (iii) and (iv)
of paragraph (b) of this Section 2. 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 chairperson 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 the chairperson should so
determine, the chairperson shall so declare at the meeting, and the defective
nomination shall be disregarded.
Section 3. Notice of Annual Meeting. Written notice of the
annual meeting stating the place, date and hour of the meeting shall be given
to each stockholder entitled to vote at such meeting not less than ten (10) nor
more than sixty (60) days before the date of the meeting.
Section 4. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, or have prepared and made, at
least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 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 so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 5. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, as amended from time to time,
may only be called as provided in this Section 5 by the President, Chief
Executive Officer or Chairperson of the Board and shall be called by the
President or Secretary at the request in writing of a majority of the Board of
Directors. Such request shall state the purpose or purposes of the proposed
meeting. The place, date and time of any special meeting shall be determined
by the Board of Directors. Such determination shall include the record date for
determining the stockholders having the right of and to vote at such meeting.
Section 6. Notice of Special Meeting. Written notice of a
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called 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.
3.
<PAGE> 4
Section 7. Action at Special Meeting. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 8. Quorum and Adjournments.
(a) The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation, as amended from time to time. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally notified. 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.
(b) When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of statutes
or of the Certificate of Incorporation, as amended from time to time, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 9. Voting Rights. Unless otherwise provided in the
Certificate of Incorporation, as amended from time to time, each stockholder
shall at every meeting of the stockholders be entitled to one (1) vote in
person or by proxy for each share of the capital stock having voting power held
by such stockholder, but no proxy shall be voted on after three (3) years from
its date, unless the proxy provides for a longer period.
Section 10. Action Without Meeting. No action shall be taken by
the stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with these Bylaws, and no action shall be
taken by the stockholders by written consent.
ARTICLE III
DIRECTORS
Section 1. Number, Election, Tenure and Qualification. The
number of directors which shall constitute the whole Board of Directors shall
be fixed from time to time by resolution of the Board of Directors or by the
Stockholders at an annual meeting of the Stockholders provided that the number
of directors shall be not less than one (1). The directors shall be elected at
the annual meeting of the Stockholders by a plurality vote of the shares
represented in
4.
<PAGE> 5
person or by proxy and each director elected shall hold office until his or her
successor is elected and qualified unless he or she shall resign, become
disqualified, disabled, or otherwise removed. Directors need not be
Stockholders.
Section 2. Vacancies. Vacancies may be filled only by a
majority of the Directors then in office, though less than a quorum, or by a
sole remaining Director. Each Director so chosen shall hold office until a
successor is duly elected and shall qualify or until his or her earlier death,
resignation or removal. If there are no Directors in office, then an election
of Directors may be held in the manner provided by statute. If, at the time of
filling any vacancy, the Directors then in office shall constitute less than a
majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such Directors, summarily
order an election to be held to fill any such vacancies, or to replace the
Directors chosen by the Directors then in office.
Section 3. Powers. The business of the corporation shall be
managed by or under the direction of its Board of Directors which may exercise
all such powers of the corporation and do all such lawful acts and things as
are not by statute or by the Certificate of Incorporation, as amended from time
to time, or by these Bylaws directed or required to be exercised or done by the
stockholders.
Section 4. Regular and Special Meetings. The Board of Directors
of the corporation may hold meetings, both regular and special, either within
or without the State of Delaware.
Section 5. Annual Meeting. The annual meeting of each newly
elected Board of Directors shall be held without notice other than this Bylaw
immediately after, and at the same place as, the annual meeting of
stockholders. In the event the annual meeting of any newly elected Board of
Directors shall not be held immediately after, and at the same place as, the
annual meeting of stockholders, the meeting may be held at such time and place
as shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors.
Section 6. Notice of Regular Meetings. Regular meetings of the
Board of Directors may be held without notice at such time and at such place as
shall from time to time be determined by the Board.
Section 7. Notice of Special Meetings. Special meetings of the
Board may be called by the Chief Executive Officer or President on no less than
forty-eight (48) hours notice to each Director either personally, or by
telephone, mail, telegram or facsimile; special meetings shall be called by the
Chief Executive Officer, President or Secretary in like manner and on like
notice on the written request of two Directors unless the Board consists of
only one Director, in which case special meetings shall be called by the Chief
Executive Officer, President or Secretary in like manner and on like notice on
the written request of the sole Director. A written waiver of
5.
<PAGE> 6
notice, signed by the person entitled thereto, whether before or after the time
of the meeting stated therein, shall be deemed equivalent to notice.
Section 8. Quorum. At all meetings of the Board a majority of
the Directors shall constitute a quorum for the transaction of business and the
act of a majority of the Directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation, as
amended from time to time. If a quorum shall not be present at any meeting of
the Board of Directors, the Directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 9. Action Without Meeting. Unless otherwise restricted
by the Certificate of Incorporation, as amended from time to time, 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 or committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 10. Meetings by Telephone Conference Calls. Unless
otherwise restricted by the Certificate of Incorporation, as amended from time
to time, or these Bylaws, members of the Board of Directors, or any committee
designated by the Board of Directors, may participate in a meeting of the Board
of Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 11. Committees.
(a) The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the corporation. The
Board may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
(b) In the absence of disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he, she 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.
(c) Any such committee, to the extent 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, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
6.
<PAGE> 7
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, as amended from time to time, 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 stockholders a dissolution of the
corporation or a revocation of a dissolution, or amending the Bylaws of the
corporation; and, unless the resolution or the Certificate of Incorporation, as
amended from time to time, expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
(d) Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
Section 12. Fees and Compensation. Unless otherwise restricted
by the Certificate of Incorporation, as amended from time to time, or these
Bylaws, the Board of Directors shall have the authority to fix the compensation
of Directors. The Directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
Director. No such payment shall preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for
attending committee meetings.
Section 13. Removal. Subject to any limitations imposed by law
or the Certificate of Incorporation, as amended from time to time, the Board of
Directors, or any individual Director, may be removed from office at any time
only with cause by the affirmative vote of the holders of at least a majority
of shares entitled to vote at an election of Directors.
ARTICLE IV
NOTICES
Section 1. Notice. Whenever, under the provisions of the
statutes or of the Certificate of Incorporation, as amended from time to time,
or of these Bylaws, notice is required to be given to any Director or
stockholder, it shall not be construed to mean personal notice, but such notice
may be given in writing, by mail, addressed to such Director or stockholder, at
his or her address as it appears on the records of the corporation, with
postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
Directors may also be given by telephone, telegram and facsimile.
Section 2. Waiver of Notice. Whenever any notice is required to
be given under the provisions of the statutes or of the Certificate of
Incorporation, as amended from time to time, or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
7.
<PAGE> 8
ARTICLE V
OFFICERS
Section 1. Enumeration. The officers of the corporation shall
be chosen by the Board of Directors and shall be a Chief Executive Officer, a
Chief Financial Officer and a Secretary. The Board of Directors may elect from
among its members a Chairperson of the Board and a Vice Chairperson of the
Board. The Board of Directors may also choose a President, one or more Vice
Presidents and one or more Assistant Secretaries. Any number of offices may be
held by the same person, unless the Certificate of Incorporation, as amended
from time to time, or these Bylaws otherwise provide.
The compensation of all officers and agents of the
corporation shall be fixed by the Board of Directors, and no officer shall be
prevented from receiving such compensation by virtue of his or her also being a
Director of the corporation.
Section 2. Election or Appointment. The Board of Directors at
its first meeting after each annual meeting of stockholders shall choose a
Chief Executive Officer, Chief Financial Officer and a Secretary and may choose
a President, one or more Vice Presidents and one or more Assistant Secretaries.
The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
Section 3. Tenure, Removal and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualified.
Any officer elected or appointed by the Board of Directors may be removed at
any time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the corporation shall be filled by the Board
of Directors.
Section 4. Chairperson of the Board. The Chairperson of the
Board, if any, shall preside at all meetings of the Board of Directors and of
the stockholders at which he or she shall be present. The Chairperson of the
Board shall have and may exercise such powers as are, from time to time,
assigned by the Board and as may be provided by law.
Section 5. Vice Chairperson of the Board. In the absence of the
Chairperson of the Board, the Vice Chairperson of the Board, if any, shall
preside at all meetings of the Board of Directors and of the stockholders at
which he or she shall be present. The Vice Chairperson of the Board shall have
and may exercise such powers as are, from time to time, assigned by the Board
and as may be provided by law.
8.
<PAGE> 9
Section 6. Chief Executive Officer.
(a) The Chief Executive Officer of the
corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the corporation. The Chief Executive Officer shall preside at all meetings of
the stockholders and, in the absence or nonexistence of a Chairperson or Vice
Chairperson of the Board at all meetings of the Board of Directors. The Chief
Executive Officer shall have the general powers and duties of management
usually vested in the Chief Executive Officer of a corporation, including
general supervision, direction and control of the business and supervision of
other officers of the corporation, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws.
(b) The Chief Executive Officer shall, without
limitation, have the authority to execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
Section 7. President. Subject to such supervisory powers as may
be given by these Bylaws or the Board of Directors to the Chairperson of the
Board or the Chief Executive Officer, if there be such officers, the President
shall have general supervision, direction and control of the business and
supervision of other officers of the corporation, and shall have such other
powers and duties as may be prescribed by the Board of Directors or these
Bylaws. In the event a Chief Executive Officer shall not be appointed, the
President shall have the duties of such office.
Section 8. Vice Presidents. The Vice President, or if there
shall be more than one, the Vice Presidents in the order determined by the
Board of Directors, shall, in the absence or disability of the President, act
with all of the powers and be subject to all the restrictions of the President.
The Vice Presidents shall also perform such other duties and have such other
powers as the Board of Directors, the President or these Bylaws may, from time
to time, prescribe.
Section 9. Secretary. The Secretary shall attend all meetings
of the Board of Directors, all meetings of the committees thereof and all
meetings of the stockholders and record all the proceedings of the meetings in
a book or books to be kept for that purpose. Under the Chief Executive
Officer's or President's supervision, the Secretary shall give, or cause to be
given, all notices required to be given by these Bylaws or by law; shall have
such powers and perform such duties as the Board of Directors, the Chief
Executive Officer, the President or these Bylaws may, from time to time,
prescribe; and shall have custody of the seal of the corporation. The
Secretary, or an Assistant Secretary, shall have authority to affix the seal of
the corporation to any instrument requiring it and when so affixed, it may be
attested by his or her signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
or her signature.
9.
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Section 10. Assistant Secretary. The Assistant Secretary, if
any, or if there be more than one, the Assistant Secretaries in the order
determined by the Board of Directors, shall, in the absence, disability or
refusal to act of the Secretary, perform the duties and exercise the powers of
the Secretary and shall perform such other duties and have such other powers as
the Board of Directors, the Chief Executive Officer, the President, the
Secretary or these Bylaws may, from time to time, prescribe.
Section 11. Chief Financial Officer.
(a) The Chief Financial Officer shall act as
Treasurer and shall have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories
as may be designated by the Board of Directors.
(b) The Chief Financial Officer shall disburse
the funds of the corporation as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the
President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his or her transactions as
Treasurer and of the financial condition of the corporation.
(c) If required by the Board of Directors, the
Chief Financial Officer shall give the corporation a bond (which shall be
renewed every six years) in such sum and with such surety or sureties as shall
be satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or
her possession or under his or her control belonging to the corporation.
Section 12. Other Officers, Assistant Officers and Agents.
Officers, assistant officers and agents, if any, other than those whose duties
are provided for in these Bylaws, shall have such authority and perform such
duties as may from time to time be prescribed by the Board of Directors, the
Chief Executive Officer or the President.
Section 13. Absence or Disability of Officers. In the case of
the absence or disability of any officer of the corporation and of any person
hereby authorized to act in such officer's place during such officer's absence
or disability, the Board of Directors may delegate the powers and duties of
such officer to any officer or to any Director, or to any other person who it
may select.
10.
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ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Certificates of Stock.
(a) 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 Chairperson or Vice Chairperson of the Board of Directors,
or the President or a Vice President and the Chief Financial Officer or an
Assistant Chief Financial Officer, or the Secretary or an Assistant Secretary
of the corporation, certifying the number of shares owned by him or her in the
corporation.
(b) Certificates may be issued for partly paid
shares and in such case upon the face or back of the certificates issued to
represent any such partly paid shares, the total amount of the consideration to
be paid therefor, and the amount paid thereon shall be specified.
(c) If the corporation shall be authorized to
issue more than one class of stock or more than one series of any class, 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
shall be set forth in full or summarized on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock,
provided that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements, there may
be set forth on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, 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 2. Execution of Certificates. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct
a new certificate or certificates to 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. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his or her legal representative, to advertise the
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same in such manner as it shall require and/or to give the corporation a bond
in such sum 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 4. Transfer of Stock. Upon surrender to the corporation
or the transfer agent of the corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 5. Fixing Record Date. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholder or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. 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.
Section 6. 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 to
hold liable for calls and assessments a person registered on its books as the
owner of shares 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 VII
INDEMNIFICATION
Section 1. Indemnification of Directors and Executive Officers.
The corporation shall indemnify its Directors and executive officers to the
fullest extent not prohibited by the Delaware General Corporation Law;
provided, however, that the corporation may limit 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 or any proceeding by such person
against the corporation or its Directors, officers, employees or other agents
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, and
(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.
12.
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Section 2. Indemnification of 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.
Section 3. Good Faith.
(a) For purposes of any determination under this
Bylaw, a Director or officer shall be deemed to have acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe that any conduct was unlawful, if such
Director's or officer's action is based on information, opinions, reports and
statements, including financial statements and other financial data, in each
case prepared or presented by:
(1) one or more officers or employees of
the corporation whom the Director or executive officer believed to be reliable
and competent in the matters presented;
(2) counsel, independent accountants or
other persons as to matters which the Director or executive officer believed to
be within such person's professional competence; and
(3) with respect to a Director, a
committee of the Board upon which such Director does not serve, as to matters
within such Committee's designated authority, which committee the Director
believes to merit confidence; so long as, in each case, the Director or
executive officer acts without knowledge that would cause such reliance to be
unwarranted.
(b) The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which was reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal proceeding, that the person had reasonable cause to believe that his
or her consent was unlawful.
(c) The provisions of this Section 3 shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth
by the Delaware General Corporation Law.
Section 4. Expenses.
(a) The corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director or officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person
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to repay said amounts if it should be determined ultimately that such person is
not entitled to be indemnified under this Bylaw or otherwise.
(b) Notwithstanding the foregoing, unless
otherwise determined pursuant to Section 4 of this Bylaw, no advance shall be
made by the corporation 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.
Section 5. Enforcement. Without the necessity of entering into
an express contract, all rights to indemnification and advances to Directors
and 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 officer. Any right to indemnification or
advances granted by this Bylaw to a Director or 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 or her claim. 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. 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 or she 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 the
claimant has not met the applicable standard of conduct.
Section 6. 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, as amended from time to time, Bylaws, agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his or her 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.
14.
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Section 7. 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.
Section 8. 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.
Section 9. 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.
Section 10. 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 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.
Section 11. Certain Definitions. For the purposes of this Bylaw,
the following definitions shall apply:
(a) 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 the testimony in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative.
(b) 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.
(c) 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 or she would have with respect to such constituent
corporation if its separate existence had continued.
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(d) References to a "Director," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as a
Director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(e) 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 or she
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 VIII
LOANS TO OFFICERS
Section 1. 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
this Bylaw shall be deemed to deny, limit or restrict the powers of guaranty or
warranty of the corporation at common law or under any statute.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Declaration of Dividends. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation, as amended from time to time, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation, as amended from
time to time.
Section 2. 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 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
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corporation, or for such other purposes as the Directors shall think conducive
to the interest of the corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
Section 3. Execution of Corporate Instruments. All checks or
demands for money and notes of the corporation shall be signed by such officer
or officers or such other person or persons as the Board of Directors may from
time to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation
shall be fixed by resolution of the Board of Directors.
Section 5. Corporate Seal. The Board of Directors may adopt a
corporate seal having inscribed thereon the name of the corporation, the year
of its organization and the words "Corporate Seal, Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE X
AMENDMENTS
Section 1. Amendments.
(a) Except as otherwise set forth in Section 9 of
Article VII of these Bylaws, the Bylaws may be altered or amended or new Bylaws
adopted by the affirmative vote of the holders of at least sixty-six and two-
thirds percent of the voting power of all of the then-outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
Directors. The Board of Directors shall also have the power, if such power is
conferred upon the Board of Directors by the Certificate of Incorporation, as
amended from time to time, to adopt, amend or repeal Bylaws by a vote of the
majority of the Board of Directors unless a greater or different vote is
required pursuant to the provisions of the Bylaws, the Certificate of
Incorporation or any applicable provision of law.
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CERTIFICATE OF SECRETARY
The undersigned, being the Secretary of SCC Communications Corp., a
Delaware corporation, does hereby certify the foregoing to be the Bylaws of
said Corporation, as adopted by the requisite vote or votes of the stockholders
and Directors of the Corporation and which remain in full force and effect as
of the date hereof.
Executed at Boulder, Colorado effective as of May __, 1998.
--------------------------------
John G. Lewis, Secretary
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EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SCC COMMUNICATIONS CORP.
NUMBER
SHARES
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE OF $0.01 PER
SHARE, OF THE COMMON STOCK OF
- -------------------------- SCC COMMUNICATIONS CORP. --------------------------
transferable on the books of the Corporation by the holder hereof in person or
by Attorney upon surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
IN WITNESS WHEREOF said the Corporation has caused this certificate to be signed
by facsimile signatures of its duly authorized officers.
Dated: [SEAL]
-------------------------------- --------------------------------
President Secretary
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A.
TRANSFER AGENT AND REGISTRAR
By
--------------------------
Authorized Signature
The corporation will furnish to any shareholder, upon request and without
charge, a full statement of the designations, preferences, limitations, and
relative rights of the shares of each class or series authorized to be issued,
so far as they have been determined, and the authority of the Board of Directors
to determine the relative rights and preferences of subsequent classes or
series.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common TEN ENT--as tenants by the entireties
JT TEN--as joint tenants with right of survivorship and not as tenants in common
UTMA ______ Custodian _______ under the Uniform Transfer to Minors Act _______
(cust) (Minor) (state)
Additional abbreviations may also be used though not in the above
For value received, ____________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_________________________________ Attorney to transfer the said stock on the
books of the within named Corporation with full power of substitution in the
premises.
Dated _________________
- ---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE SIGNATURES
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature Guaranteed:
- ---------------------------------------
<PAGE> 1
EXHIBIT 5.1
[BROBECK PHLEGER & HARRISON LLP LETTERHEAD]
May 21, 1998
SCC Communications Corp.
6285 Lookout Road
Boulder, Colorado 80301
Re: SCC Communications Corp. Registration Statement on Form S-1 for
3,300,000 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to SCC Communications Corp., a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
by the Company of up to 3,300,000 shares of the Company's Common Stock (the
"Shares") pursuant to the Company's Registration Statement on Form S-1 (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements of Item
16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE> 2
SCC Communications Corp.
May 21, 1998
Page 2
This opinion letter is rendered as of the date first written above and we
disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
/s/ BROBECK, PHLEGER & HARRISON LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 10.3
SCC COMMUNICATIONS CORP.
1998 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Incentive Plan is intended to promote the
interests of SCC Communications Corp., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity
programs:
- the Discretionary Option Grant Program under
which eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
- the Salary Investment Option Grant Program,
which may, in the Plan Administrator's discretion, be activated for one or more
calendar years and thereby allow eligible employees the opportunity to invest a
portion of their base salary invested each year in special option grants,
- the Stock Issuance Program under which
eligible persons may, at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the immediate purchase of such
shares or as a bonus for services rendered the Corporation (or any Parent or
Subsidiary),
- the Automatic Option Grant Program under
which eligible non-employee Board members shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock, and
<PAGE> 2
- the Director Fee Option Grant Program, which
may, in the Plan Administrator's discretion, be activated for one or more
calendar years and thereby allow the non-employee Board members the opportunity
to apply all or any portion of their annual retainer fee otherwise payable in
cash to a special option grant.
B. The provisions of Articles One and Seven shall apply
to all equity programs under the Plan and shall govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders. Administration of the
Discretionary Option Grant and Stock Issuance Programs with respect to all
other persons eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer those programs with respect to all
such persons.
B. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Discretionary
Option Grant and Stock Issuance Programs and to make such determinations under,
and issue such interpretations of, the provisions of such programs and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Discretionary Option Grant and Stock
Issuance Programs under its jurisdiction or any stock option or stock issuance
thereunder.
D. The Primary Committee shall have the sole and
exclusive authority to determine which Section 16 Insiders and other highly
compensated Employees shall be eligible for participation in the Salary
Investment Option Grant Program for one or more calendar years. However, all
option grants under the Salary Investment Option Grant Program shall be made in
accordance with the express terms of that program, and the Primary Committee
shall not exercise any discretionary functions with respect to the option
grants made under that program.
E. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such
2.
<PAGE> 3
committee. No member of the Primary Committee or the Secondary Committee shall
be liable for any act or omission made in good faith with respect to the Plan
or any option grants or stock issuances under the Plan.
F. Administration of the Automatic Option Grant and
Director Fee Option Grant Programs shall be self-executing in accordance with
the terms of those programs, and no Plan Administrator shall exercise any
discretionary functions with respect to any option grants or stock issuances
made under those programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Only Employees who are Section 16 Insiders or other
highly compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of
its administrative jurisdiction under the Plan, have full authority to
determine, (i) with respect to the option grants under the Discretionary Option
Grant Program, which eligible persons are to receive option grants, the time or
times when such option grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times when each option
is to become exercisable, the vesting schedule (if any) applicable to the
option shares and the maximum term for which the option is to remain
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive stock issuances, the time or
times when such issuances are to be made, the number of shares to be issued to
each Participant, the vesting schedule (if any) applicable to the issued shares
and the consideration for such shares.
D. The Plan Administrator shall have the absolute
discretion either to grant options in accordance with the Discretionary Option
Grant Program or to effect stock issuances in accordance with the Stock
Issuance Program.
3.
<PAGE> 4
E. The individuals who shall be eligible to participate
in the Automatic Option Grant Program shall be limited to (i) those individuals
who first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date, including individuals who first joined the Board prior to
the Underwriting Date. A non-employee Board member who has previously been in
the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an option grant under the Automatic Option Grant Program at
the time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock initially reserved for issuance over the term of the
Plan shall not exceed 1,901,055 shares, which shall consist of (i) the number
of shares which remained available for issuance, as of the Plan Effective Time,
under the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to outstanding options under that Predecessor
Plan, and (ii) an additional increase of approximately 500,000 shares
authorized by the Board and the stockholders prior to the Section 12
Registration Date. In addition, the share reserve will automatically be
increased on the first trading day in January of each calendar year, beginning
with the 1999 calendar year, by an amount equal to 3% of the total number of
shares of Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year, but in no event shall any such annual
increase exceed 731,000 shares. To the extent any unvested shares of Common
Stock outstanding under the Predecessor Plan as of the Plan Effective Time are
subsequently repurchased by the Corporation, at the option exercise price paid
per share, in connection with the holder's termination of service prior to
vesting in the shares, those repurchased shares shall be added to the reserve
of Common Stock available for issuance under the Plan, but in no event shall
more than 476,776 shares be added to the reserve from such repurchases.
B. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares of Common Stock in the aggregate per
calendar year, beginning with the 1998 calendar year.
C. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent (i) those
options expire or terminate for any reason prior to exercise
4.
<PAGE> 5
in full or (ii) the options are cancelled in accordance with the
cancellation-regrant provisions of Article Two. Unvested shares issued under
the Plan and subsequently repurchased by the Corporation (including unvested
shares issued under the Predecessor Plan and repurchased by the Corporation at
or after the Plan Effective Time), at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number of shares of Common Stock available
for issuance under the Plan shall be reduced by the gross number of shares for
which the option is exercised or which vest under the stock issuance, and not
by the net number of shares of Common Stock issued to the holder of such option
or stock issuance. Shares of Common Stock underlying one or more stock
appreciation rights exercised under Section IV of Article Two of the Plan shall
NOT be available for subsequent issuance under the Plan.
D. If any change is made to the Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number and/or class of securities by
which the share reserve may increase each calendar year pursuant to the
automatic share increase provisions of the Plan, (iii) the number and/or class
of securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iv) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (v) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan and (vi) the number and/or class of securities and price
per share in effect under each outstanding option incorporated into this Plan
from the Predecessor Plan. Such adjustments to the outstanding options are to
be effected in a manner which shall preclude the enlargement or dilution of
rights and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
5.
<PAGE> 6
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Six and the documents evidencing the option, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable instructions to (a) a Corporation-designated brokerage
firm to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
6.
<PAGE> 7
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:
(i) Any option outstanding at the time
of the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or
in part by the Optionee at the time of death may be subsequently
exercised by the personal representative of the Optionee's estate or
by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution.
(iii) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:
(i) extend the period of time for which
the option is to remain exercisable following the Optionee's cessation
of Service from the limited exercise period otherwise in effect for
that option to such greater period of time
7.
<PAGE> 8
as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional installments
in which the Optionee would have vested had the Optionee continued in
Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death.
Non-Statutory Options shall be subject to the same restrictions, except that a
Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section
II.
A. ELIGIBILITY. Incentive Options may only be granted
to Employees.
8.
<PAGE> 9
B. EXERCISE PRICE. The exercise price per share shall
not be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value
of the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To
the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an
Incentive Option is granted is a 10% Stockholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully vested shares of Class A Common Stock. However, an
outstanding option shall NOT become exercisable on such an accelerated basis if
and to the extent: (i) such option is, in connection with the Corporate
Transaction, to be assumed by the successor corporation (or parent thereof) or
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
9.
<PAGE> 10
C. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments to reflect such Corporate Transaction
shall also be made to (i) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan and (iii)
the maximum number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year.
E. The Plan Administrator shall have the discretionary
authority to provide for the automatic acceleration of one or more outstanding
options under the Discretionary Option Grant Program upon the occurrence of a
Corporate Transaction, whether or not those options are to be assumed in the
Corporate Transaction, so that each such option shall, immediately prior to the
effect date of such Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. In addition, the Plan Administrator shall have the
discretionary authority to structure one or more of the Corporation's
repurchase rights under the Discretionary Option Grant Program so that those
rights shall not be assignable in connection with such Corporate Transaction
and shall accordingly terminate upon the consummation of such Corporate
Transaction, and the shares subject to those terminated rights shall thereupon
vest in full.
F. The Plan Administrator shall have full power and
authority, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to provide for the automatic acceleration
of one or more outstanding options under the Discretionary Option Grant Program
in the event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which
those options are assumed and do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one (1)
year period measured from the effective date of the Involuntary Termination.
In addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights shall
accordingly vest in full.
10.
<PAGE> 11
G. The Plan Administrator shall have the discretionary
authority to provide for the automatic acceleration of one or more outstanding
options under the Discretionary Option Grant Program upon the occurrence of a
Change in Control so that each such option shall, immediately prior to the
effect date of such Change in Control, become fully exercisable with respect to
the total number of shares of Common Stock at the time subject to that option
and may be exercised for any or all of those shares as fully vested shares of
Common Stock. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Discretionary Option Grant Program so that those rights shall terminate
automatically upon the consummation of such Change in Control, and the shares
subject to those terminated rights shall thereupon vest in full.
Alternatively, the Plan Administrator may condition the automatic acceleration
of one or more outstanding options under the Discretionary Option Grant Program
and the termination of one or more of the Corporation's outstanding repurchase
rights under such program upon the subsequent termination of the Optionee's
Service by reason of an Involuntary Termination within a designated period (not
to exceed eighteen (18) months) following the effective date of such Change in
Control. Each option so accelerated shall remain exercisable for fully vested
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1) year period measured from the effective date of
Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One
Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent
such dollar limitation is exceeded, the accelerated portion of such option
shall be exercisable as a Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option
holders, the cancellation of any or all outstanding options under the
Discretionary Option Grant Program (including outstanding options incorporated
from the Predecessor Plan) and to grant in substitution new options covering
the same or different number of shares of Common Stock but with an exercise
price per share based on the Fair Market Value per share of Common Stock on the
new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority to grant to selected Optionees tandem stock appreciation rights
and/or limited stock appreciation rights.
11.
<PAGE> 12
B. The following terms shall govern the grant and
exercise of tandem stock appreciation rights:
(i) One or more Optionees may be granted
the right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and the surrender of that option in exchange
for a distribution from the Corporation in an amount equal to the
excess of (a) the Fair Market Value (on the option surrender date) of
the number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator, either at
the time of the actual option surrender or at any earlier time. If
the surrender is so approved, then the distribution to which the
Optionee shall be entitled may be made in shares of Common Stock
valued at Fair Market Value on the option surrender date, in cash, or
partly in shares and partly in cash, as the Plan Administrator shall
in its sole discretion deem appropriate.
(iii) If the surrender of an option is not
approved by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the later of (a) five (5)
business days after the receipt of the rejection notice or (b) the
last day on which the option is otherwise exercisable in accordance
with the terms of the documents evidencing such option, but in no
event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and
exercise of limited stock appreciation rights:
(i) One or more Section 16 Insiders may
be granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile
Take-Over, each individual holding one or more options with such a
limited stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee
shall receive a cash distribution from the Corporation in an amount
equal to the excess of (A) the Take-Over Price of the shares of Common
Stock which are at the time vested
12.
<PAGE> 13
under each surrendered option (or surrendered portion thereof) over
(B) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the option
surrender date.
(iii) The Plan Administrator shall, at the
time the option with such limited stock appreciation right is granted
under the Discretionary Option Grant Program, pre-approve any
subsequent exercise of that right in accordance with the terms of this
Paragraph C. Accordingly, no further approval of the Plan
Administrator or the Board shall be required at the time of the actual
option surrender and cash distribution.
(iv) The balance of the option (if any)
shall remain outstanding and exercisable in accordance with the
documents evidencing such option.
13.
<PAGE> 14
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years (if any) for which the Salary
Investment Option Grant Program is to be in effect and to select the Section 16
Insiders and other highly compensated Employees eligible to participate in the
Salary Investment Option Grant Program for such calendar year or years. Each
selected individual who elects to participate in the Salary Investment Option
Grant Program must, prior to the start of each calendar year of participation,
file with the Plan Administrator (or its designate) an irrevocable
authorization directing the Corporation to reduce his or her base salary for
that calendar year by an amount not less than Ten Thousand Dollars ($10,000.00)
nor more than Fifty Thousand Dollars ($50,000.00). The Primary Committee shall
have complete discretion to determine whether to approve the filed
authorization in whole or in part. To the extent the Primary Committee
approves the authorization, the individual who filed that authorization shall
automatically be granted an option under the Salary Investment Grant Program on
the first trading day in January of the calendar year for which the salary
reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one
or more documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of
Common Stock subject to the option shall be determined pursuant to the
following formula (rounded down to the nearest whole number):
14.
<PAGE> 15
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in
the Optionee's base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall
become exercisable in a series of twelve (12) successive equal monthly
installments upon the Optionee's completion of each calendar month of Service
in the calendar year for which the salary reduction is in effect. Each option
shall have a maximum term of ten (10) years measured from the option grant
date.
D. EFFECT OF TERMINATION OF SERVICE. Should the
Optionee cease Service for any reason while holding one or more options under
this Article Three, then each such option shall remain exercisable, for any or
all of the shares for which the option is exercisable at the time of such
cessation of Service, until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Service. Should the Optionee die
while holding one or more options under this Article Three, then each such
option may be exercised, for any or all of the shares for which the option is
exercisable at the time of the Optionee's cessation of Service (less any shares
subsequently purchased by Optionee prior to death), by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the three (3)- year period measured from the date
of the Optionee's cessation of Service. However, the option shall, immediately
upon the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
III . CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Salary Investment Option Grant Program shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for any or all of those shares as fully-vested shares of
Common Stock. Each such outstanding option shall be assumed by the successor
corporation (or parent thereof) in the Corporate
15.
<PAGE> 16
Transaction and shall remain exercisable for the fully-vested shares until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service.
B. In the event of a Change in Control while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Salary Investment Option Grant Program shall automatically
accelerate so that each such option shall immediately become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. The option shall remain so exercisable
until the earlier of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service or (iii) the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each outstanding option granted him or her under the Salary
Investment Option Grant Program. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following
the surrender of the option to the Corporation. The Primary Committee shall,
at the time the option with such limited stock appreciation right is granted
under the Salary Investment Option Grant Program, pre-approve any subsequent
exercise of that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Primary Committee or the Board shall be
required at the time of the actual option surrender and cash distribution.
D. The grant of options under the Salary Investment
Option Grant Program shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
16.
<PAGE> 17
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common
Stock may also be issued under the Stock Issuance Program pursuant to share
right awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed
by the Plan Administrator, but shall not be less than one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of
Article Seven, shares of Common Stock may be issued under the Stock Issuance
Program for any of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. The Plan Administrator may issue shares of
Common Stock under the Stock Issuance Program which are fully and immediately
vested upon issuance or which are to vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. Alternatively, the Plan Administrator may issue share right awards
under the Stock Issuance Program which shall entitle the recipient to receive a
specified number of shares of Common Stock upon the attainment of one or more
performance goals established by the Plan Administrator. Upon the attainment
of such performance goals, fully-vested shares of Common Stock shall be issued
in satisfaction of those share right awards.
2. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
17.
<PAGE> 18
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent (including
the Participant's purchase-money indebtedness), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase-money
note of the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock which would otherwise occur upon the cessation of the Participant's
Service or the non-attainment of the performance objectives applicable to those
shares. Such waiver shall result in the immediate vesting of the Participant's
interest in the shares of Common Stock as to which the waiver applies. Such
waiver may be effected at any time, whether before or after the Participant's
cessation of Service or the attainment or non-attainment of the applicable
performance objectives.
6. Outstanding share right awards under the
Stock Issuance Program shall automatically terminate, and no shares of Common
Stock shall actually be issued in satisfaction of those awards, if the
performance goals established for such awards are not attained. The Plan
Administrator, however, shall have the discretionary authority to issue shares
of Common Stock in satisfaction of one or more outstanding share right awards
as to which the designated performance goals are not attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
(i) those repurchase rights are to be assigned to the successor corporation (or
18.
<PAGE> 19
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those repurchase rights
are assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
19.
<PAGE> 20
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I . OPTION TERMS
A. GRANT DATES. Option grants shall be made on the
dates specified below:
1. Each individual who is first elected or
appointed as a non-employee Board member at any time on or after the
Underwriting Date shall automatically be granted, on the date of such initial
election or appointment, a Non-Statutory Option to purchase 15,000 shares of
Common Stock, provided that individual has not previously been in the employ of
the Corporation or any Parent or Subsidiary.
2. On the date of each Annual Stockholders
Meeting held after the Underwriting Date, each individual who is to continue to
serve as an Eligible Director, whether or not that individual is standing for
re-election to the Board at that particular Annual Meeting, shall
automatically be granted a Non-Statutory Option to purchase 3,000 shares of
Common Stock, provided such individual has served as a non-employee Board
member for at least six (6) months. There shall be no limit on the number of
such annual option grants any one Eligible Director may receive over his or her
period of Board service, and non-employee Board members who have previously
been in the employ of the Corporation (or any Parent or Subsidiary) or who
first joined the Board prior to the Underwriting Date shall be eligible to
receive one or more such annual option grants over their period of continued
Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall be payable in one or
more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten
(10) years measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall
be immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. The shares
subject to each initial 15,000 share option grant shall vest, and the
Corporation's repurchase right shall lapse with
20.
<PAGE> 21
respect to those shares, as follows: (i) twenty-five percent (25%) upon
Optionee's completion of one (1) year of Board service measured from the grant
date and (ii) the balance in a series of thirty-six (36) successive equal
monthly installments upon the Optionee's completion of each additional month of
Board service over the thirty-six (36)-month period measured from the first
anniversary of the option grant date. The shares subject to each annual
3,000-share option grant shall vest, and the Corporation's repurchase right
shall lapse with respect to those shares, upon the Optionee's completion of one
(1) year of Board service measured from the grant date.
E. TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of
Optionee's death, the personal representative of the Optionee's estate
or the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares of Common Stock for which the
option is exercisable at the time of the Optionee's cessation of Board
service.
(iii) Should the Optionee cease to serve
as a Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so
that such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all or any
portion of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than death
or Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
21.
<PAGE> 22
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
F. In the event of any Corporate Transaction, the shares
of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of those Option Shares as fully-vested shares
of Common Stock and may be exercised for all or any portion of those vested
shares. Immediately following the consummation of the Corporate Transaction,
each automatic option grant shall terminate and cease to be outstanding, except
to the extent assumed by the successor corporation (or parent thereof).
G. In connection with any Change in Control, the shares
of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable for all of those Option Shares as fully-vested shares of
Common Stock and may be exercised for all or any portion of those vested
shares. Each such option shall remain exercisable for such fully-vested option
shares until the expiration or sooner termination of the option term or the
surrender of the option in connection with a Hostile Take-Over.
H. All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction or
Change in Control.
I. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each of his or her outstanding automatic option grants. The
Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to each surrendered option (whether
or not the Optionee is otherwise at the time vested in those shares) over (ii)
the aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator
shall be required in connection with such option surrender and cash
distribution.
J. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same.
22.
<PAGE> 23
K. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III . REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
23.
<PAGE> 24
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Plan Administrator shall have the sole and exclusive
authority to determine the calendar year or years (if any) the Director Fee
Option Grant Program is to be in effect. Once the Director Fee Option Grant
Program is in effect, each non-employee Board member may elect to apply all or
any portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee
Option Grant Program on the first trading day in January in the calendar year
for which the annual retainer fee which is the subject of that election would
otherwise be payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of
Common Stock subject to the option shall be determined pursuant to the
following formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
24.
<PAGE> 25
A is the portion of the annual retainer fee subject
to the non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall
become exercisable in a series of twelve (12) equal monthly installments upon
the Optionee's completion of each month of Board service over the twelve
(12)-month period measured from the grant date. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. TERMINATION OF BOARD SERVICE. Should the Optionee
cease Board service for any reason (other than death or Permanent Disability)
while holding one or more options under this Director Fee Option Grant Program,
then each such option shall remain exercisable, for any or all of the shares
for which the option is exercisable at the time of such cessation of Board
service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Board service. However, each option held by the Optionee
under this Director Fee Option Grant Program at the time of his or her
cessation of Board service shall immediately terminate and cease to remain
outstanding with respect to any and all shares of Common Stock for which the
option is not otherwise at that time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability,
then each option held by such Optionee under this Director Fee Option Grant
Program shall immediately become exercisable for all the shares of Common Stock
at the time subject to that option, and the option may be exercised for any or
all of those shares as fully-vested shares until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year period measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
25.
<PAGE> 26
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the
Optionee remains a Board member, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common
Stock. Each such outstanding option shall be assumed by the successor
corporation (or parent thereof) in the Corporate Transaction and shall remain
exercisable for the fully-vested shares until the earlier of (i) the expiration
of the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall immediately become fully exercisable with respect
to the total number of shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. The option shall remain so exercisable until the
earlier or (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each outstanding option granted him or her under the Director Fee
Option Grant Program. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock at the time subject to each
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following
the surrender of the option to the Corporation. No approval or consent of the
Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
D. The grant of options under the Director Fee Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
26.
<PAGE> 27
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
27.
<PAGE> 28
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program
or the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee or Participant exceed the sum of (i) the aggregate
option exercise price or purchase price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee or the Participant in connection with the option exercise or
share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of options or the issuance or vesting of such
shares under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion,
provide any or all holders of Non-Statutory Options or unvested shares of
Common Stock under the Plan (other than the options granted or the shares
issued under the Automatic Option Grant or Director Fee Option Grant Program)
with the right to use shares of Common Stock in satisfaction of all or part of
the Taxes incurred by such holders in connection with the exercise of their
options or the vesting of their shares. Such right may be provided to any such
holder in either or both of the following formats:
Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated
by the holder.
Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting triggering
the Taxes) with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
28.
<PAGE> 29
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant, Stock Issuance and
Automatic Option Grant Programs shall become effective on the Underwriting
Date. The Salary Investment Option Grant Program and the Director Fee Option
Grant Program shall not be implemented until such time as the Primary Committee
may deem appropriate. Options may be granted under the Discretionary Option
Grant or Automatic Option Grant Program at any time on or after the
Underwriting Date. However, no options granted under the Plan may be
exercised, and no shares shall be issued under the Plan, until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is
not obtained within twelve (12) months after the Plan Effective Time, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the
Predecessor Plan, and no further option grants or direct stock issuances shall
be made under the Predecessor Plan after the Section 12 Registration Date.
All options outstanding under the Predecessor Plan on the Section 12
Registration Date shall be incorporated into the Plan at that time and shall be
treated as outstanding options under the Plan. However, each outstanding
option so incorporated shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including
(without limitation) the option/vesting acceleration provisions of Article Two
relating to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated
from the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur
of (i) April 30, 2008 (ii) the date on which all shares available for issuance
under the Plan shall have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Should the Plan terminate on April 30, 2008, then all option
grants and unvested stock issuances outstanding at that time shall continue to
have force and effect in accordance with the provisions of the documents
evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations
with respect to stock options or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws or regulations.
29.
<PAGE> 30
B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant and Salary Investment Option Grant
Programs and shares of Common Stock may be issued under the Stock Issuance
Program that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under those programs shall be held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
stock option under the Plan and the issuance of any shares of Common Stock (i)
upon the exercise of any granted option or (ii) under the Stock Issuance
Program shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the stock options granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person) or
of the Optionee or the Participant, which rights are hereby expressly reserved
by each, to terminate such person's Service at any time for any reason, with or
without cause.
30.
<PAGE> 31
APPENDIX
The following definitions shall be in effect under the Plan:
A. ACTIVATION DATE shall mean the date on which the Automatic
Option Grant Program is activated by the Board.
B. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program that may be in effect under the Plan.
C. BOARD shall mean the Corporation's Board of Directors.
D. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. COMMON STOCK shall mean the Corporation's common stock.
G. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different
A-1.
<PAGE> 32
from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
H. CORPORATION shall mean SCC Communications Corp., a Delaware
corporation, and its successors.
I. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant that may be in effect for non-employee Board members under Article
Six of the Plan.
J. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
K. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance
with the eligibility provisions of Article One.
L. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
M. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
N. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange.
A-2.
<PAGE> 33
If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior
to the Underwriting Date, the Fair Market Value shall be determined by
the Plan Administrator, after taking into account such factors as it
deems appropriate.
O. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
P. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
Q. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation
which materially reduces his or her duties and responsibilities or the
level of management to which he or she reports, (B) a reduction in his
or her level of compensation (including base salary, fringe benefits
and target bonus under any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
A-3.
<PAGE> 34
R. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds for
the dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
S. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
T. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
U. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
V. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
W. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
X. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for purposes of the Automatic
Option Grant and Director Fee Option Grant Programs, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board member
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
Y. PLAN shall mean the Corporation's 1998 Stock Incentive Plan,
as set forth in this document.
A-4.
<PAGE> 35
Z. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to one or more classes of eligible persons, to the extent
such entity is carrying out its administrative functions under those programs
with respect to the persons under its jurisdiction.
AA. PLAN EFFECTIVE DATE shall mean the date the Plan is adopted by
the Board.
AB. PREDECESSOR PLAN shall mean the Corporation's pre-existing
Stock Option Plan in effect immediately prior to the Section 12 Registration
Date.
AC. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate
in such program.
AD. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program that may be in effect under the Plan.
AE. SECONDARY COMMITTEE shall mean a committee of one or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AF. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12 of the 1934 Act.
AG. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AH. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.
AI. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AJ. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
A-5.
<PAGE> 36
AK. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
AL. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
AM. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
AN. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those
options or the vesting of those shares.
AO. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
AP. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AQ. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.
A-6.
<PAGE> 1
EXHIBIT 10.4
SCC COMMUNICATIONS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I - PURPOSE
1.1. PURPOSE. The SCC Communications Corporation Employee Stock
Purchase Plan is intended to provide a method whereby employees of SCC
Communications Corporation and its subsidiary corporations (hereinafter
referred to, unless the context otherwise requires, as the "Company") will have
an opportunity to acquire a proprietary interest in the Company through the
purchase of shares of the Common Stock of the Company. It is the intention of
the Company to have the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
The provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
ARTICLE II - DEFINITIONS
2.1. BASE PAY. "Base Pay" shall mean regular straight-time earnings,
including shift premiums, but excluding payments for overtime, bonuses and
other special payments, commissions and other marketing incentive payments.
2.2. COMMITTEE. "Committee" shall mean the individuals described in
Article XI.
2.3. EMPLOYEE. "Employee" means any person who is customarily
employed on a regular full-time or part-time basis by the Company and is
regularly scheduled to work more than 20 hours per week.
2.4. SUBSIDIARY CORPORATION. "Subsidiary Corporation" shall mean any
present or future corporation which (i) would be a "subsidiary corporation" of
SCC Communications Corporation as that term is defined in Section 424 of the
Code and (ii) is designated as a participant in the Plan by the Committee.
ARTICLE III - ELIGIBILITY AND PARTICIPATION
3.1. INITIAL ELIGIBILITY. Any employee who is employed by the
Company on the Offering Commencement Date (as defined below) shall be eligible
to participate in such Offering.
3.2. LEAVE OF ABSENCE. For purposes of participation in the Plan, a
person on leave of absence shall be deemed to be an employee for the first 90
days of such leave of absence and such employee's employment shall be deemed to
have terminated (for purposes of this Plan only) at the close of business on
the 90th day of such leave of absence unless such employee shall have returned
to regular full-time or part-time employment (as the case may be) prior to the
close of business on such 90th day. Termination by the Company of any
employee's leave of absence,
<PAGE> 2
other than termination of such leave of absence on return to full-time or
part-time employment, shall terminate an employee's employment for all purposes
of the Plan and shall terminate such employee's participation in the Plan and
right to exercise any option.
3.3. RESTRICTIONS ON PARTICIPATION. Notwithstanding any provisions
of the Plan to the contrary, no employee shall be granted an option to
participate in the Plan:
(a) If, immediately after the grant, such employee would
own stock, and/or hold outstanding options to purchase stock, possessing 5% or
more of the total combined voting power or value of all classes of stock of the
Company (for purposes of this paragraph, the rules of Section 424(d) of the
Code shall apply in determining stock ownership of any employee); or
(b) Which permits his rights to purchase stock under all
employee stock purchase plans of the Company to accrue at a rate which exceeds
$25,000 in fair market value of the Common Stock (determined at the time such
option is granted) for each calendar year in which such option is outstanding.
3.4. COMMENCEMENT OF PARTICIPATION. An eligible employee may become
a participant by completing an authorization for a payroll deduction on the
form provided by the Company and filing it with the office of the Treasurer of
the Company on or before the date set therefor by the Committee, which date
shall be prior to the Offering Commencement Date for the Offering (as such
terms are defined below). Payroll deductions for a participant shall commence
on the applicable Offering Commencement Date when his authorization for a
payroll deduction becomes effective and shall end on the Offering Termination
Date of the Offering to which such authorization is applicable unless sooner
terminated by the participant as provided in Article VIII.
ARTICLE IV - OFFERINGS
4.1. ANNUAL OFFERINGS. The Plan will be implemented by semiannual
offerings of the Company's Common Stock (the "Offerings") beginning on the 1st
day of January and the 1st day of July in each year, and terminating on June 30
and December 31 of the same year, respectively. Notwithstanding the above, the
first Offering shall begin on March 1, 1998 and terminate on December 31, 1998,
with no Offering beginning on June 1, 1998.
As used in the Plan, "Offering Commencement Date" means the March 1,
1998, or the January 1 or July 1 date, as the case may be, on which the
particular Offering begins and "Offering Termination Date" means the June 30 or
December 31 date, as the case may be, on which the particular Offering
terminates. If an Offering period begins or terminates on a Saturday, Sunday
or legal holiday, then the first or last day of the Offering, as applicable,
shall be the first business day after that date (for Offering period
commencements) or the last business day prior to that date (for Offering period
terminations).
ARTICLE V - PAYROLL DEDUCTIONS
5.1. AMOUNT OF DEDUCTION. At the time a participant files his
authorization for payroll
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<PAGE> 3
deduction, he shall elect to have deductions made from his pay on each payday
during the time he is a participant in an Offering at the rate of 1, 2, 3, 4,
5, 6, 7, 8, 9 or 10% of his base pay in effect at the Offering Commencement
Date of such Offering. In the case of a part-time hourly employee, such
employee's Base Pay during an Offering shall be determined by multiplying such
employee's hourly rate of pay in effect on the Offering Commencement Date by
the number of regularly scheduled hours of work for such employee during such
Offering.
5.2. PARTICIPANT'S ACCOUNT. All payroll deductions made for a
participant shall be credited to his account under the Plan. A participant may
not make any separate cash payment into such account except for the period of
March 1, 1998 until the next payday or when on leave of absence (and then only
as provided in Section 5.4, below).
5.3. CHANGES IN PAYROLL DEDUCTIONS. A participant may discontinue
his participation in the Plan as provided in Article VIII, but no other change
can be made during an Offering, except that a participant may decrease the
amount of his payroll deductions for that Offering one (1) time during any
Offering.
5.4. LEAVE OF ABSENCE. If a participant goes on a leave of absence,
such participant shall have the right to elect: (a) to withdraw the balance in
his account pursuant to Section 7.2, (b) to discontinue contributions to the
Plan but remain a participant in the Plan, or remain a participant in the Plan
during such leave of absence, authorizing deductions to be made from payments
by the Company to the participant during such leave of absence and undertaking
to make cash payments to the Plan at the end of each payroll period to the
extent that amounts payable by the Company to such participant are insufficient
to meet such participant's authorized Plan deductions.
ARTICLE VI - GRANTING OF OPTION
6.1. NUMBER OF OPTION SHARES. On each Offering Commencement Date, a
participating employee shall be deemed to have been granted an option to
purchase a maximum number of shares of the Common Stock of the Company equal to
an amount determined as follows: an amount equal to (i) that percentage of the
employee's Base Pay which he has elected to have withheld (but not in any case
in excess of 10%) multiplied by (ii) the employee's Base Pay on the Offering
Commencement Date divided by (iii) 85% of the market value of the Common Stock
of the Company on the Offering Commencement Date or Offering Termination Date
(as determined pursuant to Section 6.2, below). The market value of the
Company's stock shall be determined as provided in paragraphs (a) and (b) of
Section 6.2 below. An employee's Base Pay during the period of an offering
shall be determined by multiplying his normal monthly rate of pay (as in effect
on the Offering Commencement Date) by 6, or the hourly rate by 1040, as the
case may be, provided that, in the case of a part time hourly employee, the
employee's Base Pay during the period of an Offering shall be determined by
multiplying such employee's hourly rate by the number of regularly scheduled
hours of work for such employee during such Offering. An employee's Base Pay
during the Offering with the Offering Commencement Date of November 1, 1995
shall be determined by multiplying his normal monthly rate of pay (as
determined on the Offering Commencement Date) by 8, or the hourly rate by 1387.
-3-
<PAGE> 4
6.2. OPTION PRICE. The option price of Common Stock purchased with
payroll deductions made during an Offering for a participant therein shall be
the lower of:
(a) 85% of the closing price of the Common Stock on the
Offering Commencement Date or the nearest prior business day on which trading
occurred on the NASDAQ National Market System; or
(b) 85% of the closing price of the Common Stock on the
Offering Termination Date or the nearest prior business day on which trading
occurred on the NASDAQ National Market System. If the Common Stock of the
Company is not admitted to trading on any of the aforesaid dates for which
closing prices of the Common Stock are to be determined, then reference shall
be made to the fair market value of the Common Stock on that date, as
determined on such basis as shall be established or specified for the purpose
by the Committee.
ARTICLE VII - EXERCISE OF OPTION
7.1. AUTOMATIC EXERCISE. Unless a participant gives written notice
to the Company as hereinafter provided, his option for the purchase of Common
Stock with payroll deductions made during any Offering will be deemed to have
been exercised automatically on the Offering Termination Date applicable to
such Offering, for the purchase of the number of full shares of Common Stock
which the accumulated payroll deductions in his account at that time will
purchase at the applicable option price (but not in excess of the number of
shares for which options have been granted to the employee pursuant to Section
6.1), and any excess in his account at that time will be returned to him.
7.2. WITHDRAWAL OF ACCOUNT. By written notice to the Plan
Administrator, at any time prior to the Offering Termination Date applicable to
any Offering, a participant may elect to withdraw all the accumulated payroll
deductions in his account at such time.
7.3. FRACTIONAL SHARES. Fractional shares will not be issued under
the Plan and any accumulated payroll deductions which would have been used to
purchase fractional shares will be returned to any employee promptly following
the termination of an Offering, without interest.
7.4. TRANSFERABILITY OF OPTION. During a participant's lifetime,
options held by such participant shall be exercisable only by that participant.
7.5. DELIVERY OF STOCK. As promptly as practicable after the
Offering Termination Date of each Offering, the Company will deliver to each
participant, as appropriate, a certificate representing the shares of Common
Stock purchased upon exercise of his option.
ARTICLE VIII - WITHDRAWAL
8.1. IN GENERAL. As indicated in Section 7.2, a participant may
withdraw payroll deductions credited to his account under the Plan at any time
by giving written notice to the Plan Administrator. All of
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<PAGE> 5
the participant's payroll deductions credited to his account will be paid to
him promptly after receipt of his notice of withdrawal, and no further payroll
deductions will be made from his pay during such Offering. The Company may, at
its option, treat any attempt to borrow by an employee on the security of his
accumulated payroll deductions as an election, under Section 3.2, to withdraw
such deductions.
8.2. EFFECT ON SUBSEQUENT PARTICIPATION. A participant's withdrawal
from any Offering will not have any effect upon his eligibility to participate
in any succeeding Offering or in any similar plan which may hereafter be
adopted by the Company.
8.3. TERMINATION OF EMPLOYMENT. Upon termination of the
participant's employment for any reason (but excluding retirement or death
while in the employ of the Company or during continuation of a leave of absence
for a period beyond 90 days), the payroll deductions credited to his account
will be returned to him, or, in the case of his death subsequent to the
termination of his employment, to the person or persons entitled thereto under
Section 12.1.
8.4. TERMINATION OF EMPLOYMENT DUE TO DEATH. Upon termination of the
participant's employment because of his death, his beneficiary (as defined in
Section 12.1) shall have the right to elect, by written notice given to the
Plan Administrator prior to the earlier of the Offering Termination Date or the
expiration of a period of sixty (60) days commencing with the date of the death
of the participant, either:
(a) To withdraw all of the payroll deductions credited to
the participant's account under the Plan, or
(b) To exercise the participant's option for the purchase
of stock on the Offering Termination Date next following the date of the
participant's death for the purchase of the number of full shares of stock
which the accumulated payroll deductions in the participant's account at the
date of the participant's death will purchase at the applicable option price,
and any excess in such account will be returned to said beneficiary, without
interest.
In the event that no such written notice of election shall be duly
received by the Plan Administrator, the beneficiary shall automatically be
deemed to have elected, pursuant to paragraph (b), to exercise the
participant's option.
8.5. TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. Upon termination
of the participant's employment because of his retirement, the participant
shall have the right to elect, by written notice given to the Plan
Administrator prior to the earlier of the Offering Termination Date or the
expiration of a period of sixty (60) days commencing with the date of the
retirement of the participant, either:
(a) To withdraw all of the payroll deductions credited to
the participant's account under the Plan, or
(b) To exercise the participant's option for the purchase
of stock on the Offering Termination Date next following the date of the
participant's retirement for the purchase
-5-
<PAGE> 6
of the number of full shares of stock which the accumulated payroll deductions
in the participant's account at the date of the participant's retirement will
purchase at the applicable option price, and any excess in such account will be
returned to the participant, without interest.
In the event that no such written notice of election shall be duly received by
the Plan Administrator, the participant shall automatically be deemed to have
elected to withdraw all payroll deductions pursuant to paragraph (a), above.
8.6. LEAVE OF ABSENCE. A participant on leave of absence shall,
subject to the election made by such participant pursuant to Section 5.4,
continue to be a participant in the Plan so long as such participant is on
continuous leave of absence. A participant who has been on leave of absence
for more than 90 days and who therefore is not an employee for the purpose of
the Plan shall not be entitled to participate in any offering commencing after
the 90th day of such leave of absence. Notwithstanding any other provisions of
the Plan, unless a participant on leave of absence returns to regular full time
or part time employment with the Company at the earlier of: (a) the termination
of such leave of absence, or (b) three months from the 90th day of such leave
of absence, such participant's participation in the Plan shall terminate on
whichever of such dates first occurs.
ARTICLE IX - INTEREST
9.1. NO PAYMENT OF INTEREST. No interest will be paid or allowed on
any money paid into the Plan or credited to the account of any participant
employee.
ARTICLE X - STOCK
10.1. MAXIMUM SHARES. The maximum number of shares which shall be
issued under the Plan, subject to adjustment upon changes in capitalization of
the Company as provided in Section 12.4 shall be 200,000 shares, plus an
annual increase to be added on each anniversary date of the adoption of the
Plan equal to the lesser of (i) the number of shares needed to restore the
maximum aggregate number of shares available for sale under the Plan to
200,000, or (ii) a lesser amount determined by the Board. If the total number
of shares for which options are exercised in any Offering Termination Date in
accordance with Article VI exceeds the maximum number of shares for the Plan,
the Company shall make a pro rata allocation of the shares available for
delivery and distribution in as nearly a uniform manner as shall be practicable
and as it shall determine to be equitable, and the balance of payroll
deductions credited to the account of each participant under the Plan shall be
returned to him as promptly as possible.
10.2. PARTICIPANT'S INTEREST IN OPTION STOCK. The participant will
have no interest in the shares of Common Stock covered by his option until such
option has been exercised.
10.3. REGISTRATION OF STOCK. Stock to be delivered to a participant
under the Plan will be registered in the name of the participant, or, if the
participant so directs by written notice to the Plan Administrator prior to the
Offering Termination Date applicable thereto, in the names of the participant
and one such other person as may be designated by the participant, as joint
tenants
-6-
<PAGE> 7
with rights of survivorship or as tenants by the entireties, to the extent
permitted by applicable law.
10.4. RESTRICTIONS ON EXERCISE. The Board of Directors may, in its
discretion, require as conditions to the exercise of any option that the shares
of Common Stock reserved for issuance upon the exercise of the option shall
have been duly listed, upon official notice of issuance, upon a stock exchange,
and that either:
(a) A Registration Statement under the Securities Act of
1933, as amended, with respect to said shares shall be effective, or
(b) The participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it is his
intention to purchase the shares for investment and not for resale or
distribution.
ARTICLE XI - ADMINISTRATION
11.1. APPOINTMENT OF COMMITTEE. The Board of Directors shall appoint
a committee (the "Committee") to administer the Plan, which shall consist of no
fewer than two members of the Board of Directors, none of whom are employees of
the Company. No member of the Committee shall be eligible to purchase shares of
Common Stock under the Plan. Each member of the Committee shall be a
"disinterested person" as that term is defined in Rule 16b-3 of the Securities
Exchange Act of 1934, as such rule may be amended from time to time.
11.2. AUTHORITY OF COMMITTEE. Subject to the express provisions of
the Plan, the Committee shall have plenary authority in its discretion to
interpret and construe any and all provisions of the Plan, to adopt rules and
regulations for administering the Plan, and to make all other determinations
deemed necessary or advisable for administering the Plan. The Committee's
determination on the foregoing matters shall be conclusive.
11.3. RULES GOVERNING THE ADMINISTRATION OF THE COMMITTEE. The Board
of Directors may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee may select one of
its members as its Chairman and shall hold its meetings at such times and
places as it shall deem advisable and may hold telephonic meetings. A majority
of its members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. The Committee may correct any
defect or omission or reconcile any inconsistency in the Plan, in the manner
and to the extent it shall deem desirable. Any decision or determination
reduced to writing and signed by a majority of the members of the Committee
shall be as fully effective as if it had been made by a majority vote at a
meeting duly called and held. The Committee may appoint a secretary and shall
make such rules and regulations for the conduct of its business as it shall
deem advisable.
11.4. ADMINISTRATION OF PLAN. The day to day functions of the Plan
shall be administered by a Plan Administrator who shall be appointed by the
Committee. All notices and authorizations under the Plan shall be directed to
the attention of the Plan Administrator.
-7-
<PAGE> 8
ARTICLE XII - MISCELLANEOUS
12.1. DESIGNATION OF BENEFICIARY. A participant may file a written
designation of a beneficiary who is to receive any shares of Common Stock
and/or cash distributed under the Plan. Such designation of beneficiary may be
changed by the participant at any time by written notice to the Plan
Administrator. Upon the death of a participant and upon receipt by the Company
of proof of identity and existence at the participant's death of a beneficiary
validly designated by him under the Plan, the Company shall deliver such shares
of Common Stock and/or cash to such beneficiary. 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 stock and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such stock and/or cash to the spouse or to any one or more dependents of the
participant as the Company may designate. No beneficiary shall, prior to the
death of the participant by whom he has been designated, acquire any interest
in the shares of Common Stock or cash credited to the participant under the
Plan.
12.2. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive stock under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the participant other than by will or the
laws of descent and distribution. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company
may treat such act as an election to withdraw funds in accordance with Section
7.2.
12.3. USE OF FUNDS. All payroll deductions received or held by the
Company under this Plan may be used by the Company for any corporate purpose
and the Company shall not be obligated to segregate such payroll deductions.
12.4. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) If, while any options are outstanding, the
outstanding shares of Common Stock of the Company have increased, decreased,
changed into, or been exchanged for a different number or kind of shares or
securities of the Company through reorganization, recapitalization,
reclassification, stock split, reverse stock split or similar transaction,
appropriate and proportionate adjustments may be made by the Committee in the
number and/or kind of shares which are subject to purchase under outstanding
options and on the option exercise price or prices applicable to such
outstanding options. In addition, in any such event, the number and/or kind of
shares which may be offered in the Offerings described in Article IV hereof
shall also be proportionately adjusted. No adjustments shall be made for stock
dividends. For the purposes of this paragraph, any distribution of shares to
shareholders in an amount aggregating 20% or more of the outstanding shares
shall be deemed a stock split and any distributions of shares aggregating less
than 20% of the outstanding shares shall be deemed a stock dividend.
(b) Upon the dissolution or liquidation of the Company,
or upon a
-8-
<PAGE> 9
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the holders of the Corporation's capital
stock prior to such transaction hold less than 50% of the capital stock of the
entity surviving such transaction, or upon a sale of all or substantially all
of the property or stock of the Company to another corporation, the holder of
each option then outstanding (and for which payroll deductions have been made)
under the Plan will thereafter be entitled to receive at the next Offering
Termination Date upon the exercise of such option for each share as to which
such option shall be exercised, as nearly as reasonably may be determined, the
cash, securities and/or property which a holder of one share of the Common
Stock was entitled to receive upon and at the time of such transaction. The
Board of Directors shall take such steps in connection with such transactions
as the Board shall deem necessary to assure that the provisions of this Section
12.4 shall thereafter be applicable, as nearly as reasonably may be determined,
in relation to the said cash, securities and/or property as to which such
holder of such option might thereafter be entitled to receive.
12.5. AMENDMENT AND TERMINATION. The Board of Directors shall have
complete power and authority to terminate or amend the Plan; provided, however,
that the Board of Directors shall not, without the approval of the shareholders
of the Corporation (i) increase the maximum number of shares which may be
issued under any Offering (except pursuant to Section 12.4); (ii) amend the
requirements as to the class of employees eligible to purchase stock under the
Plan or (iii) permit the members of the Committee to purchase stock under the
Plan. No termination, modification, or amendment of the Plan may, without the
consent of an employee then having an option under the Plan to purchase stock,
adversely affect the rights of such employee under such option; provided that
the Plan may be terminated at any time by the Company's Board of Directors.
Upon any termination of the Plan, all payroll deductions not used to purchase
shares of Common Stock shall be refunded.
12.6. EFFECTIVE DATE. The Plan shall become effective as of March 1,
1998, subject to approval by the holders of the majority of the Common Stock
present and represented at a special or annual meeting of the shareholders or
by consent held or executed on or before December 31, 1998. If the Plan is not
so approved, the Plan shall not become effective.
12.7. NO EMPLOYMENT RIGHTS. The Plan does not, directly or
indirectly, create any right for the benefit of any employee or class of
employees to purchase any shares under the Plan, or create in any employee or
class of employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an employee's employment at any time.
12.8. EFFECT OF PLAN. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each employee participating in the Plan, including, without
limitation, such employee's estate and the executors, administrators or
trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such employee.
12.9. GOVERNING LAW. The law of the State of Colorado will govern
all matters relating to this Plan except to the extent it is superseded by the
laws of the United States.
-9-
<PAGE> 10
As approved by the shareholders on April 1, 1998
-10-
<PAGE> 1
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and
entered into this ___ day of _____, 1998, by and between SCC COMMUNICATIONS
CORP., a Delaware corporation (the "Company"), and ____________________
("Indemnitee").
WHEREAS, Indemnitee, a member of the Board of Directors or an officer,
employee or agent of the Company, performs a valuable service in such
capacity for the Company;
WHEREAS, the stockholders of the Company have adopted Restated Bylaws
(the "Bylaws") providing for the indemnification of the officers,
directors, employees and agents of the Company to the maximum extent
authorized by the Delaware General Corporation Law, as amended (the
"DGCL");
WHEREAS, the Bylaws, the Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and the DGCL, by
their non-exclusive nature, permit contracts between the Company and
the members of its Board of Directors, officers, employees or agents
with respect to indemnification of such directors, officers, employees
or agents;
WHEREAS, in accordance with the authorization as provided by the DGCL,
the Company either has purchased and presently maintains or intends to
purchase and maintain a policy or policies of Directors and Officers
Liability Insurance ("D&O Insurance") covering certain liabilities
which may be incurred by its directors and officers in the performance
of their duties as directors and officers of the Company;
WHEREAS, as a result of developments affecting the terms, scope and
availability of D&O Insurance there exists general uncertainty as to
the extent of protection afforded members of the Board of Directors or
officers, employees or agents by such D&O Insurance and by statutory
and bylaw indemnification provisions; and
WHEREAS, in order to induce Indemnitee to continue to serve as a member
of the Board of Directors, officer, employee or agent of the Company,
the Company has determined and agreed to enter into this contract with
Indemnitee.
NOW, THEREFORE, in consideration of Indemnitee's continued service as a
director, officer, employee or agent after the date hereof, and for other good
and valid consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE> 2
1. Indemnification of Indemnitee. The Company hereby agrees to
hold harmless and indemnify Indemnitee to the fullest extent authorized or
permitted by the provisions of the DGCL, as may be amended from time to time.
2. Additional Indemnity. Subject only to the exclusions set
forth in Sections 3 and 6(c) hereof, the Company hereby further agrees to hold
harmless and indemnify Indemnitee:
(a) Against any and all expenses (including attorneys'
fees), witness fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred by Indemnitee in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including an action by or in the right of the Company) to
which Indemnitee is, was or at any time becomes a party, or is threatened to be
made a party, by reason of the fact that Indemnitee is, was or at any time
becomes a director, officer, employee or agent of the Company or any subsidiary
of the Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or 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
Indemnitee by the Company under the non-exclusivity provisions of the Bylaws of
the Company, the Certificate of Incorporation and the DGCL.
3. Limitations on Additional Indemnity.
(a) No indemnity pursuant to Section 2 hereof shall be
paid by the Company:
i) In respect to remuneration paid to Indemnitee if
it shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
ii) On account of any suit in which judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company 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;
iii) On account of Indemnitee's conduct which is
finally adjudged to have been knowingly fraudulent or deliberately dishonest or
to constitute willful misconduct;
iv) On account of Indemnitee's conduct which is the
subject of an action, suit or proceeding described in Section 6(c)(ii) hereof;
2
<PAGE> 3
v) On account of any action, claim or proceeding
(other than a proceeding referred to in Section 7(b) hereof) initiated by the
Indemnitee unless such action, claim or proceeding was authorized in the
specific case by action of the Board of Directors;
vi) If a final decision by a Court having jurisdiction
in the matter shall determine that such indemnification is not lawful (and, in
this respect, both the Company and Indemnitee 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 is,
therefore, unenforceable and that claims for indemnification should be submitted
to appropriate courts for adjudication); and
vii) Except to the extent the aggregate of losses to
be indemnified thereunder exceeds the sum of (a) such losses for which the
Indemnitee is indemnified pursuant to Section 1 hereof and (b) any additional
amount paid to the Indemnitee pursuant to any D&O Insurance purchased and
maintained by the Company.
(b) No indemnity pursuant to Section 1 or 2 hereof shall
be paid by the Company if the action, suit or proceeding with respect to which a
claim for indemnity hereunder is made arose from or is based upon any of the
following:
i) Any solicitation of proxies by Indemnitee, or by a
group of which he was or became a member consisting of two or more persons that
had agreed (whether formally or informally and whether or not in writing) to act
together for the purpose of soliciting proxies, in opposition to any
solicitation of proxies approved by the Board of Directors.
ii) Any activities by Indemnitee that constitute a
breach of or default under any agreement between Indemnitee and the Company.
4. Contribution. If the indemnification provided in Sections 1
and 2 hereof is unavailable by reason of a Court decision described in Section
3(a)(vi) hereof based on grounds other than any of those set forth in paragraphs
(i) through (v) of Section 3 (a) hereof, then in respect of any threatened,
pending or completed action, suit or proceeding in which the Company is jointly
liable with Indemnitee (or would be if joined in such action, suit or
proceeding), the Company shall contribute to the amount of expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and Indemnitee on the other hand from the transaction from which such
action, suit or proceeding arose, and (ii) the relative fault of the Company on
the one hand and of Indemnitee on the other in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of Indemnitee on the other shall be determined by reference
to, among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such expenses,
3
<PAGE> 4
judgments, fines or settlement amounts. The Company agrees that it would not be
just and equitable if contribution pursuant to this Section 4 were determined by
pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
5. Notification and Defense of Claim. Not later than thirty
(30) days after receipt by Indemnitee of notice of the commencement of any
action, suit or proceeding, Indemnitee shall, if a claim in respect thereof is
to be made against the Company under this Agreement, notify the President of the
Company of the commencement thereof; but Indemnitee's omission to notify the
Company will not relieve the Company from any liability which it may have to
Indemnitee otherwise than under this Agreement. The Company shall promptly
acknowledge the notice from the Indemnitee. With respect to any such action,
suit or proceeding as to which Indemnitee notifies the Company of the
commencement thereof:
(a) The Company will be entitled to participate therein at
its own expense.
(b) Except as otherwise provided below, to the extent that
it may wish, the Company shall, jointly with any other indemnifying party
similarly notified, be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Company to
Indemnitee of its election to assume the defense thereof, the Company will not
be liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof,
other than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ its own counsel in such action, suit
or proceeding, but the fees and expenses of such counsel incurred after notice
from the Company of the Company's assumption of the defense thereof shall be at
the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Company; (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee in
the conduct of the defense of such action; or (iii) the Company shall not in
fact have employed counsel to assume the defense of such action; in each of
which cases the fees and expenses of Indemnitee's separate counsel shall be paid
by the Company. The Company shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of the Company or as to which
Indemnitee shall have made the conclusion provided for in (ii) above.
(c) The Company shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent. The Company 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 Indemnitee without
Indemnitee's written consent. Neither the Company nor Indemnitee will
unreasonably withhold its consent to any proposed settlement.
6. Advancement and Repayment of Expenses.
4
<PAGE> 5
(a) In the event that Indemnitee employs his or her own
counsel pursuant to Sections 5(b)(i) through (iii) above, the Company shall
advance to Indemnitee, prior to any final disposition of any threatened or
pending action, suit or proceeding, whether civil, criminal, administrative or
investigative, any and all reasonable expenses (including legal fees and
expenses) incurred in investigating or defending any such action, suit or
proceeding within ten (10) days after receiving from Indemnitee copies of
invoices presented to Indemnitee for such expenses.
(b) Indemnitee agrees that Indemnitee will reimburse the
Company for all reasonable expenses paid by the Company in investigating or
defending any civil or criminal action, suit or proceeding against Indemnitee in
the event and only to the extent it shall be ultimately determined by a final
judicial decision (from which there is no right of appeal) that Indemnitee is
not entitled, under the provisions of the DGCL, the Bylaws, this Agreement or
otherwise, to be indemnified by the Company for such expenses.
(c) Notwithstanding the foregoing, the Company shall not
be required to advance such expenses to Indemnitee in respect of any action
arising from or based upon any of the matters set forth in subsection (b) of
Section 3 or if Indemnitee (i) commences any action, suit or proceeding as a
plaintiff unless such advance is specifically approved by a majority of the
Board of Directors or (ii) is a party to an action, suit or proceeding brought
by the Company and approved by a majority of the Board which alleges willful
misappropriation of corporate assets by Indemnitee, disclosure of confidential
information in violation of Indemnitee's fiduciary or contractual obligations to
the Company, or any other willful and deliberate breach in bad faith of
Indemnitee's duty to the Company or its shareholders.
7. Enforcement.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the Company
hereby in order to induce Indemnitee to continue as a director, officer,
employee or other agent of the Company, and acknowledges that Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) In the event Indemnitee is required to bring any
action to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the Company shall reimburse Indemnitee for all
Indemnitee's reasonable fees and expenses, including attorney's fees, in
bringing and pursuing such action.
8. Subrogation. In the event of payment under this agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Company effectively to bring suit to enforce such rights.
5
<PAGE> 6
9. Continuation of Obligations. All agreements and obligations
of the Company contained herein shall commence upon the date that Indemnitee
first became a member of the Board of Directors or an officer, employee or agent
of the Company, as the case may be, and shall continue during the period
Indemnitee is a director, officer, employee or agent of the Company (or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative,
by reason of the fact that Indemnitee was a director, officer, employee or agent
of the Company or serving in any other capacity referred to herein.
10. Survival of Rights. The rights conferred on Indemnitee by
this Agreement shall continue after Indemnitee has ceased to be a director,
officer, employee or other agent of the Company and shall inure to the benefit
of Indemnitee's heirs, executors and administrators.
11. Non-Exclusivity of Rights. The rights conferred on
Indemnitee by this Agreement shall not be exclusive of any other right which
Indemnitee may have or hereafter acquire under any statute, provision of the
Company's Certificate of Incorporation or Bylaws, agreement, vote of
stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office; provided,
however, that this Agreement shall supersede and replace any prior
indemnification agreements entered into by and between the Company and
Indemnitee and that any such prior indemnification agreement shall be terminated
upon the execution of this Agreement.
12. Separability. Each of the provisions of this Agreement is
a separate and distinct agreement and independent of the others, so that if any
or all of the provisions hereof shall be held to be invalid or unenforceable for
any reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof or the obligation of the Company
to indemnify the Indemnitee to the full extent provided by the Bylaws or the
DGCL.
13. Governing Law. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
14. Binding Effect. This Agreement shall be binding upon
Indemnitee and upon the Company, its successors and assigns, and shall inure to
the benefit of Indemnitee, his or her heirs, personal representatives and
assigns and to the benefit of the Company, its successors and assigns.
15. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is in
writing and is signed by both parties hereto.
6
<PAGE> 7
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
COMPANY
SCC Communications Corp.
By:
-------------------------------
George K. Heinrichs
President and Chief Executive
Officer
INDEMNITEE
-------------------------------------
George K. Heinrichs
President and Chief Executive Officer
Address: 6285 Lookout Road
Boulder, Colorado 80301
<PAGE> 1
EXHIBIT 10.22
BANK1ONE.
CHANGE IN TERMS AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL Loan Date MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,000.00 04-15-1999 75 074833 328 8760310127 00410
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BORROWER: SCC COMMUNICATIONS CORP., A DELAWARE LENDER: BANK ONE, COLORADO, N.A.
CORPORATION BOULDER
6285 LOOKOUT ROAD 1125 17TH STREET
BOULDER, CO 80301 DENVER, CO 80217
</TABLE>
THIS CHANGE IN TERMS AGREEMENT ("Agreement") is executed effective as of April
15, 1998 by SCC COMMUNICATIONS CORP. DELAWARE CORPORATION ("Borrower") and
acknowledged and agreed to by Bank One, Colorado, NA ("Lender").
WHEREAS, a loan ("Loan") was made to Borrower in the amount of
$2,000,000.00, evidenced by a promissory note (as renewed, extended or
modified, the 'Note") dated July 1, 1996, executed and delivered by
Borrower in the principal amount of the Loan; and
WHEREAS, the Note and all credit agreements, loan agreements, guaranties,
security agreements, deeds of trust, mortgages, and all other
instruments and documents executed in connection with the Note are
collectively described herein as the "Related Documents"; and
WHEREAS, Lender is the owner and holder of the Note and all other Related
Documents; and
WHEREAS, the parties hereto now propose to modify certain terms of the Note
as provided herein.
NOW THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein, and further g and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
MATURITY DATE. The maturity date of the Note shall be April 1 5, 1 999
("Maturity Date"), when the unpaid principal balance of the Note together
with all accrued but unpaid interest thereon, shall be due and payable.
INTEREST RATE. As of the effective date hereof, interest on the principal
balance of the Note from time to time remaining unpaid prior maturity shall
be payable at the following rate:
The Interest rate on this Note is subject to fluctuation based upon the
Prime Rate of interest in effect from time to time (the "Index") (which
rate may not be the lowest, best or most favorable rate of interest which
Lender may charge on loans to its customers). "Prime Rate" s mean the rate
announced from time to time by Lender as its prime rate. Each change in the
rate to be charged on this Note will become effective without notice on the
same day as the Index changes. Except as otherwise provided herein, the
unpaid principal balance of Note will accrue interest at a rate per annum
which will from time to time be equal to the sum of the Index. plus 0.000%.
NOTICE: Under no circumstances will the interest rate on this Agreement be
more than the maximum rate allowed by applicable law.
PAYMENT TERMS. The NOTE, as modified HEREBY, SHALL be PAYABLE as follows:
PAYMENT. THIS NOTE SHALL BE PAYABLE AS FOLLOWS: INTEREST SHALL BE DUE AND
PAYABLE MONTHLY AS IT ACCRUED, COMMENCING ON MAY 15, 1998 AND CONTINUING ON
THE SAME DAY OF EACH MONTH THEREAFTER DURING THE TERM OF THIS NOTE, AND THE
OUTSTANDING PRINCIPAL BALANCE OF THIS NO TOGETHER WITH ALL ACCRUED BUT
UNPAID INTEREST, SHALL BE DUE AND PAYABLE AN APRIL 15, 1999. The annual
interest rate for this Agreement computed on a 366/360 basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay
Lender at the address designated by Lender from time to time in writing. If
any payment of principal of or interest on this Agreement shall become due
on a day which is not a Business Day, such payment shall be made on the
next succeeding Business Day. As used herein, the term "Business Day shall
mean any day other than a Saturday, Sunday or tiny other day on which
national banking associations are authorized to be close. Unless otherwise
agreed to, in writing, or otherwise required by applicable law, payments
will be applied first to accrued, unpaid interest then to principal, and
any remaining amount to any unpaid collection costs, late charges and other
charges, provided, however, up delinquency or other default, Lender
reserves the right to apply payments among principal, interest, late
charges, collection costs and other charges at Its discretion. The books
and records of Lender shall be prima facie evidence of all outstanding
principal of and accrued b unpaid interest on this Agreement, This Note may
be executed in connection with a loan agreement. Any such loan agreement
may contain additional rights, obligations and terms.
Borrower hereby expressly promises to pay to the order of Lender the
principal amount of the Note and all accrued but unpaid interest no or
hereafter to becorne due and payable under the Note, as modified hereby.
CURRENT NOTE BALANCE. As of the effective date hereof, the outstanding
principal balance of the Note is $450,000.00.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
LINE OF CREDIT. This Agreement evidences a revolving line of credit. Borrower
may request advances and make payments hereunder from time to time, provided
that it is understood and agreed trial the aggregate principal amount
outstanding from time to time hereunder shall not at any time exceed the Total
Principal Amount. The unpaid principal balance of this Agreement shall increase
and decrease with each new advance or payment hereunder, as the case may be.
Subject to the terms hereof, Borrower may borrow, repay and reborrow hereunder .
Advances under this Agreement, as well as directions for payment from Borrower's
accounts, may be requested orally or in writing by Borrower or by an authorized
person. Lender may, but need not, require that all oral request be confirmed in
writing. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the Note and all other Related Documents remain unchanged and in full force and
effect. Consent by Lender to this Agreement does not waive Lender's right to
strict performance of the obligation(s) as changed, nor obligate Lender to make
any future change in terms. Nothing in this Agreement will constitute a
satisfaction of the obligation(s). It is the intention of Lender to retain as
liable parties all makers and endorsers of the original obligation(s), including
accommodation parties, unless a party is expressly released by Lender in
writing. Any maker or endorser, including accommodation makers, will not be
released by virtue of thin Agreement. If any person who signed the original
obligation does not sign this Agreement below, then all persons signing below
acknowledge that this Agreement is given conditionally, based on the
representation to Lender that the non-signing party consents to the changes and
provisions of this Agreement or otherwise will not be released by it. This
waiver applies not only to any initial extension, modification or release, but
also to all such subsequent actions. Borrower agrees that there are no claims or
offsets against, of defenses or counterclaims to, the payment of the Note.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THIS AGREEMENT AND ACKNUWLEDGES RECEIPT OF A COMPLETED
COPY OF THE AGREEMENT.
BORROWER;
SCC COMMUNICATIONS CORP., A DELAWARE CORPORATION
By: By:
----------------------------------------- -------------------------------
GEORGE HEINRICHS, PRESIDENT NANCY K. HAMILTON, CFO
ACCEPTED AND AGREED:
Bank One, Colorado, NA
BY:
------------------------------------------
Title:
---------------------------------------
<PAGE> 2
BANK1ONE.
LOAN AGREEMENT
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL Loan Date MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$2,000,000.00 04-15-1999 75 074833 328 8760310127 00410
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References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
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BORROWER: SCC COMMUNICATIONS CORP., A DELAWARE LENDER: BANK ONE, COLORADO, N.A.
CORPORATION BOULDER
6285 LOOKOUT ROAD 1125 17TH STREET
BOULDER, CO 80301 DENVER, CO 80217
</TABLE>
THIS LOAN AGREEMENT between SCC COMMUNICATIONS CORP., A DELAWARE CORPORATION
("Borrower") and Bank One, Colorado, NA ("Lender") is made and executed as of
April 15, 1998. This Agreement governs bit loans, credit facilities and/or other
financial accommodations described herein and, unless otherwise agreed to in
writing by Lender and Borrower, all other present and future loans, credit
facilities and other financial accommodations provided by Lender to Borrower.
All such loans, credit facilities and other financial accommodations, together
with all renewals, extensions and modifications thereof, are referred to in this
Agreement individually as the "Loan" and collectively as the "Loans." Borrower
understands and agrees that (a) in granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties, and agreements,
as set forth in this Agreement; and (b) all such Loans shall be and shall remain
subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of April 15, 1998, and shall continue
thereafter until all Loans and other obligations owing by Borrower to Lender
hereunder have been paid In full and Lender has no commitments or obligations to
make further Advances under the Loans to Borrower.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code as adopted in
the State of Colorado. All references to dollar amounts shall mean amounts in
lawful money of the United States of America.
Agreement. The word 'Agreement" means this Loan Agreement, as may be
amended or modified from time to time, together with all exhibits and
schedules attached hereto from time to time.
Account. The word "Account" means a trade account receivable of Borrower
for goods sold or leased or for services rendered by Borrower in the
ordinary course of its business.
Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.
Advance. The word "Advance" means any advance or other disbursement of Loan
proceeds under this Agreement. Borrower. The word "Borrower" means SCC
COMMUNICATIONS CORP., A DELAWARE CORPORATION,
Borrowing Base. The words "Borrowing Base" mean 80.000% of the aggregate
amount of Eligible Accounts.
Collateral. The word 'Collateral" means and includes without limitation all
property and assets granted as collateral for any Loan, whether real or
personal property, whether granted directly or indirectly, whether granted
now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, charter mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lion or title retention contract, lease or
consignment intended as a security device, or any other security or
Committed Sum. The words "Committed Sum" mean an amount equal to
$2,000,000.00.
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain terms and conditions acceptable to Lender
and in which Lender has a first lien security interest, less the amount of
all returns, discounts, credits, and offsets ot any nature; provided,
however, Unless otherwise agreed to by Lender in writing, Eligible Accounts
do not include:
(a)Accounts with respect to which the Account Debtor is an officer, an
employee or agent of Borrower and to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.
(b) All Accounts with respect to which Borrower has furnished a
payment and/or performance bond and that portion of any Accounts for
or representing retainage, if any, until all prerequisites to the
immediate payment of such retainage have been satisfied.
(c) Accounts with respect to which goods are placed on consignment or
subject to a guaranteed sale or other terms by reason of which the
payment by the Account Debtor may be conditional.
(d)Accounts with respect to which the Account Debtor is not a resident
of, or whose principal place of business is located outside of, the
United States or its territories, except to the, extent such Accounts
are supported by insurance, bonds or other assurances satisfactory to
Lender in its sole and absolute discretion.
(e)Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower.
(f)Accounts which are subject to dispute, counterclaim, or setoff.
(g)Accounts with respect to which all goods have not been shipped or
delivered, or all services have not been rendered, to the Account
Debtor.
(h) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account
Debtor to be unsatisfactory.
(i)Accounts of any Account Debtor who has filed or has had tiled
against it a petition in bankruptcy or an application for relief under
any provision of any state or federal bankruptcy, insolvency, or
debtor-in relief acts; or who has had appointed a trustee, custodian,
or receiver for the assets of such Account Debtor; or who has made an
assignment for the benefit of creditors or has become insolvent or
fails generally to pay its debts Including its payrolls) as such debts
become due
(i) Accounts with respect to which the Account Debtor is rise United
States government or any department or agency of the United States,
except to the extent an acknowledgement of assignment to I-ender of
any such Accounts in compliance with the Federal Assignment of Claims
Act and other applicable laws has been received by Lender.
k) Accounts which have not been paid or are not due and payable in
full within 90 DAYS days from the original invoice date.
ERISA. The word " ERISA' means the Employee Retirernent Income Security Act
of 1 9 74, as amended.
Grantor. The word "Grantor' means and includes each and all of the persons
or entities granting a Security Interest in any Collateral for any of the
Loans.
Guarantor. The word 'Guarantor" means and includes without limitation, each
and all of the guarantors, sureties, and accommodation parties fur any of
the Loans.
Indebtedness. The word 'Indebtedness" means the indebtedness evidenced by
the Note, including all principal and accrued interest thereon, together
with all other liabilities, costs and expenses for which Borrower is
responsible under this Agreement or under any of the Related Documents. In
addition, the word "Indebtedness" includes all other obligations, debts and
liabilities, plus any accrued interest thereon, owing by Borrower, or any
one or more of them, to Lender of any kind or character, now existing or
hereafter arising, as well as all present and future claims by Lender
against Borrower, or may one or more of them, and all renewals, extensions,
modifications, substitutions and rearrangements of any of the forgoing;
whether such Indebtedness arises by note, draft, acceptance, guaranty,
endorsement, letter of credit, assignment, overdraft, indemnity agreement
or otherwise; whether such indebtedness is Voluntary or involuntary, due or
not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly with
others; whether narrower may be liable primarily or secondarily or as
debtor, maker, comaker, drawer, endorser, guarantor, surety, accommodation
party or otherwise.
Lender. The word "Lender" means Bank One, Colorado, NA, its successors and
assigns.
Line of Credit. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
Note. The word "Note" means any and all promissory note or notes which
evidence Borrower's Loans in favor of Lender, as well as any amendment,
modification, renewal or replacement thereof.
RELATED DOCUMENTS. The words 'Related Documents" mean arid include without
limitation the Note and all credit agreements, loan
<PAGE> 3
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agree and documents,
whether now or hereafter existing, executed in connection with the Note,
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, cove arrangements, understandings or
(other agreements, whether created by law, contract, or otherwise,
evidencing, governing, representing creating a Security Interest.
SECURITY INTEREST. The words 'Security Interest' mean and include without
limitation any type of security interest, whether in the form o lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional as trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien inter whatsoever, whether
created by law, contract, or otherwise.
LINE OF CREDIT. Subject to the other terms and conditions herein, Lender hereby
establishes a Line of Credit for Borrower through which Lender agrees to make
advances to Borrower from time to time from the effective date of this Agreement
until the maturity date of the No evidencing the Line of Credit, provided the
aggregate amount of such advances outstanding at any time does not exceed the
lesser of t amount equal to the Borrowing Base or an amount equal to the
Committed Sum. Within the foregoing limits, Borrower may borrow, partially
wholly prepay, and reborrow under this Agreement.
BORROWING BASE COMPLIANCE. If at any time the aggregate principal amount
Outstanding under the Line of Credit shall exceed the applicable Borrowing
Base, Borrower shall pay to Lender an amount equal to the difference
between the outstanding principal balance under the Line of Credit and the
Borrowing Base.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of t definition of an Eligible
Account; and (b) All Account information listed on reports and schedules
delivered to Lender will be true a correct, subject to immaterial variance.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each request for an Advance, as
of the date of any renewal, extension (or modification of any Loan, and at all
times any Loans or Lender commitment to make Loans hereunder is outstanding:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State Delaware and is
duly qualified and in good standing in all other states in which Borrower
is doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage,
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents to which Borrower is a party ha been duly
authorized by all necessary action by Borrower; do not require the consent
or approval of any other person, regulatory authority or governmental body;
and do riot conflict with. result in a violation of, or constitute a
default under (a) any provision of its articles incorporation or
organization, or bylaws, or any agreement or other instrument binding upon
Borrower or (b) any law, government regulation, court decree, or order
applicable to Borrower. Borrower has all requisite power and authority to
execute and deliver fail Agreement and all other Related Documents to which
Borrower is it party.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely discloses Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement and all other Related Documents to which
Borrower is a party constitute legal, valid and binding obligation of
Borrower enforceable against Borrower in accordance with their respective,
terms, except as limited by bankruptcy, insolvency or similar laws at
general application relating to the enforcement of creditors' rights and
except to the extent specific remedies may generally b limited by equitable
principles,
PROPERTIES. Except for Permitted Lions, Borrower Is the sole owner of, and
has good title to, all of Borrower's properties free and clear of a
Security Interests, and has not executed any security documents or
financing statements relating to such properties All of Borrower'
properties are titled in Borrower's legal name, and Borrower has not used,
or filed a financing statement under, any other name for at lea the last
six 16) years.
COMPLIANCE. Except as disclosed in writing to Lender (a) Borrower is
conducting Borrower's businesses In material compliance with a applicable
federal, state and local laws, statutes, ordinances, rules, regulations,
orders, determinations and court decisions, including without limitation,
those pertaining to health or environmental matters, and (b) Borrower
otherwise does not have any known material contingent liability in
connection with the release into the environment, disposal or the improper
storage of any toxic or hazardous substance or solid waste.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes against
Borrower is pending or threatened, and no other event has occurred which
may in any one case or in the aggregate material adversely affect
Borrower's financial condition or properties, other than litigation,
claims, or other events, if any, that have been disclose to and
acknowledged by Lender in writing.
TAXES. All tax returns and reports of Borrower that are, or were required
to be filed, have been filed, and all taxes, assessments and other
governmental charges have been paid in full, except those that have been
disclosed in writing to Lender which are presently being or to be contested
by Borrower in good faith in the ordinary course of business and for which
adequate reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to and approved by
Lender in writing, Borrower has not entered into any Security Agreements,
granted a Security Interest or permitted the filing or allactinit3nt of any
Security Interests on or affecting any of the Collateral except in favor of
Lender.
LICENSES, TRADEMARKS AND PATENTS. Borrower possesses and will continue to
possess all permits, licenses, trademarks, patents and right thereto which
are needed to conduct Borrower's business and borrower's business does not
conflict with or violate any valid rights o others with respect to the
foregoing.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes approved by Lender and such
proceeds will not be used for the purchasing or carrying of "margin stock"
as defined in Regulation U issued by the Board 0 Governors of the Federal
Reserve System.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with at applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii)Borrower has not withdrawn from any such plan or
initiated steps to do so, (fit) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's chief executive office if Borrower has more than one place of
business, is located at 6285 LOOKOUT ROAD, BOULDER, CO 80301. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrowur keeps it4 records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by emitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending the Loans to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect during the
term of this Agreement.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that,
while this Agreement is in effect, Borrower will;
DEPOSITORY RELATIONSHIP. Establish and maintain its primary operating
account(s) with Lender.
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor, arid (c) the creation, occurrence or assumption
by Borrower of any actual or contingent liabilities not permitted under
this Agreement.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine, audit and make and take away copies or
reproductions of Borrower's books and records at all reasonable times. If
Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software
programs for the generation of Such records) in the possession of a third
party, Borrower, upon request of Lender
<PAGE> 4
shall notify such party to permit Lender free access to such records at all
reasonable times and to provide Lender with copies of records it may request,
all at Borrower's expense.
Financial Statements. Furnish Lender with, as soon as available, but in no event
later than one hundred twenty 11 20) days after the an each fiscal year,
Borrower's balance sheet, income statement, and statement of changes in
financial position for the year ended, audited a certified public accountant
satisfactory to Lender, arid, as soon as available, but in no event later than
thirty five (35) days after the of each month, Borrower's balance sheet, income
statement, and statement of changes in financial position for the period ended,
prep and certified, subject to year-enti review adjustments, as correct to the
best knowledge and belief by Borrower's chief financial office other officer or
person acceptable to Lender. All financial reports require.1 to be provided
under this Agreement shall be prepare accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by Borrower
as being true correct.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables payables, inventory
schedules, budgets, forecasts, tax returns, and other reports with respect to
Borrower's financial condition business operations as Lender may request from
time to time.
Insurance. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect Borrower's
properties and operations, in form, amounts, coverages and with insurance
companies reasonably acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in turm satisfactory Lender, including stipulations that coverages
will not lie cancelled or diminished without at least thirty (30) days' prior
written notice Lender. In connection with all policies covering assets in which
Lender holds or is offered a Security Interest tot the Loans, Borrower provide
Lender with such loss payable or other endorsements as Lender may requires
Insurance Reports. Furnish to tender, upon request of Lender, reports on each
existing insurance policy showing such information Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) amount of the policy: (d) the properties
insured; (e) the then current property values on the basis of which insurance
has been obtained and the manner of determining those values; and (f) the
expiration date of the policy.
Other Agreements. Comply with all terms and conditions of all other agreements,
whether now of hereafter existing, between Burro and any other party and notify
Lender immediately in writing of any, default in connection with any other such
agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender in writing.
TAXES, CHARGES AND LIONS. Pay and discharge when due all of its indebtedness and
obligations, including without limitation assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any Borrower's properties, income, or profits; provided however, Borrower
will not be required to pay and discharge any such assessment, tax charge, levy,
lien or claim so long as (a) the legality of the same shall be contested in good
faith by appropriate proceedings, and ( Borrower shall have established on)its
books adequate reserves with respect to such contested assessment, tax, charge,
levy, lien, or claim in accordance with generally accepted accounting
principles. Borrower, report demand of Lender, will furnish to Lender evidence
payment of the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver t Lender at any time
a written statement of any assessments, taxes, charges, levies, liens and claims
against Borrower's properties, incom or profits.
PERFORMANCE. PERFORM and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in timely manner, and
promptly notify Lender it Borrower learns of the occurrence of any event which
constitutes an Event of Default und this Agreement or under any of the Related
Documents.
OPERATIONS. Conduct its business affairs in a reasonable and prudent manner and
in compliance with all applicable federal, state an municipal laws, ordinances,
rules and regulations respecting its properties, charters, businesses and
operations, including without limitation compliance with the Americans With
Disabilities Act. all applicable environmental statutes, rules, regulations and
ordinances and with a minimum funding standards and other requirements of ERISA
and other laws applicable to Borrower's employee benefit plans.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender 35
DAYS OF EACH MONTH with, a certificate executed b Borrower's chief financial
officer, or other officer or person acceptable to Lender, (a) certifying that
the representations and warranties so forth in this Agreement are true and
correct as of the date of the certificate arid that, as of the date of the
certificate, no Event of Default exists under this Agreement, and (b)
demonstrating compliance with all financial covenants set forth in this
Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respect with
all federal, state and local environmental laws, statutes regulations and
ordinances; not cause or permit to exist, as a result of an intentional or
unintentional action or omission on its part or on the part of any third party,
on property owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental activity is
pursuant to and in compliance with the conditions of a permit issued by the
appropriate federal, state or local governmental authorities; and furnish to
Lender promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning any
intentional or unintentional action or omission on Borrower's part in connection
with any environmental activity whether o not there is damage to the environment
and/or other natural resources.
BORROWING BASS CERTIFICATE. Within 35 days after each MONTH, Borrower shall
deliver to Lender a borrowing base certificate, in form an detail Satisfactory
to Lender, along with such supporting documentation as Lender may request,
including without limitation, an account receivable aging report and/or a list
or schedule of Borrower's accounts receivable, inventory and/or equipment.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of Trust, security agreements financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence an secure the Loans and to perfect till Security
Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender;
MAINTAIN BASIC BUSINESS, Engage in any business activities substantially
different than those in which Borrower is presently engaged,
MAINTAIN BASIC BUSINESS, Engage in any business activities substantially
different than those in which BORROWER is PRESENTLY engaged.
CONTINUITY OF OPERATIONS. Cease operations, liquidate, dissolve or merge or
consolidate with OR INTO ANY OTHER ENTITY.
INDEBTEDNESS. Create, incur or assume additional indebtedness for borrowed
money, including capital leases, or guarantee any indebtedness owing by
others, other than (a) current unsecured trade debt incurred in the
ordinary course of business, (b) indebtedness owing to Lender, (c)
borrowings outstanding as of the date hereof and disclosed to Lender in
writing, and (d) any borrowings otherwise approved by Lender in writing.
LIENS. Mortgage, assign, pledge, grant a security interest in or otherwise
encumber Borrower's assets, except as allowed as a Permitted Lien.
DIVIDENDS. Pay any dividends on Borrower's capital stock or purchase,
redeem, retire or otherwise acquire any of Borrower's capital stock or
alter or amend Borrower's capital STRUCTURE.
CONDITIONS PRECEDENT TO ADVANCES. Lender's obligation to make any Advances or to
provide any other financial accommodations to or for the benefit of Borrower
hereunder or shall be subject to the conditions precedent that as of the date of
such advance or disbursement and after giving effect thereto (a) all
representations and warranties made to Tender in this Agreement and the Related
Documents shall be true and correct as of and as if made on such date, (b) no
material adverse change in the financial condition of Borrower (if any Guarantor
since the effective date of the most recent financial statements furnished to
Lender, or in the value of any Collateral, shall have occurred and be
continuing, (c) no event has occurret.1 and is continuing, or would result from
the requested advance or disbursement, which with notice or lapse of time, or
both, would constitute an Event of Default, (d) no Guarantor has sought, claimed
or otherwise attempted to limit, modify or revoke such Guarantor's guaranty of
any Loan, and (e) Lender has received all Related Documents appropriately
executed by Borrower and all other proper parties.
EXHIBIT "A". An exhibit, titled 'EXIIIBIT 'A',' is attached to this Agreement
and by this reference is made a part of this Agreement just as if all the
provisions, terms and conditions of the Exhibit had been fully set forth in this
Agreement.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would tender a
nontaxable account taxable, Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or any other
account), including without limitation all accounts held jointly with someone
else and all accounts Borrower may open in the future. Borrower authorizes
Lender, tu the extent permitted liy applicable law, to charge or setoff all sums
owing on the indebtedness against any and all such accounts. EVENTS OF DEFAULT.
Each of the following shall constitute an Event (if Default under this
Agreement:
<PAGE> 5
Default on Indebtedness. Failure of Borrower to make any payment when due on any
of the Indebtedness.
Other Defaults. Failure of Borrower, any Guarantor or any Grantor to comply
with or to Perform when due any other term, obligation covenant or
condition contained in this Agreement, the Note or in any of the other
Related Documents, or failure of Borrower to co with or to perform any
other term, obligation, covenant or condition contained in any other
agreement now existing or hereafter art between Lender and Borrower.
False Statements. Arty warranty, representation or statement made or
furnished to Lender under this Agreement or the Related Documents is false
or misleading In any material respect.
Default to Third Party. The occurrence of any event which permits the
acceleration of the maturity of any Indebtedness owing Borrower, Grantor or
any Guarantor to any third party under any agreement or undertaking.
Bankruptcy or Insolvency. If the Borrower, Grantor or any Guarantor: (if
becomes insolvent, or makes a transfer in fraud of creditors, makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts as they become due; (II) generally is paying its debts as
such debts become due; (iii) has a receiver, trustee or custodian appointed
for, or take possession of, all substantially all of the assets of such
party or any of the Collateral, either in a proceeding brought by such
party of in a proceeding brought against such party and such appointment is
not discharged or such possession is not terminated within sixty 160) days
after the effect date thereof or such party consents to or acquiesces in
such appointment or possession; (iv) files a petition far relief under II)a
United States Bankruptcy Code or any other present or future federal or
state insolvency, bankruptcy or similar laws (all of the forego hereinafter
collectively called "Applicable Bankruptcy Low") or an involuntary petition
for relief is filed against such party under Applicable Bankruptcy Law and
such involuntary petition is not dismissed within sixty (60) days after the
filing thereof, or an order for re naming such party is entered under any
Applicable Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or of relief of debtors now or hereafter existing is
requested or consented to by such party; (v) fails to have discharged
within a period of sixty (60) days any attachment, sequestration or similar
writ levied upon any property of such party; or (vi) fails to pay within
thirty (30) day final money judgment against such party.
Liquidation, Death and Related Events. If Borrower, Grantor or any
Guarantor is an entity, the liquidation, dissolution. merger consolidation
of any such entity or, if any of such parties is an individual, the death
or legal incapacity of any such individual.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-he
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing Indebtedness, or by any
governmental agency.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, Lender may,
at its option, without further notice or demand, (a) terminate all commitments
and obligations of Lender to make Loans to Borrower, if any, (b) declare all
Loans and any other Indebtedness immediately due and payable, (c) refuse to
advance any additional amounts under the Note or to provide any other financial
accommodation under this Agreement, or (d) exercise all the rights and remedies
provided in the Note or in any of the Related Documents or available at law,
equity, or otherwise; provided, however, if any Event of Default of the type
described in the "Bankruptcy or Insolvency" subsection above shall occur, all
Loans and any other Indebtedness shall automatically become due and payable,
without any notice, demand or action by Lend Except as may be prohibited by
applicable law, all of Lender's rights and remedies shall be cumulative and may
be exercised singularly concurrently. Election by Lender to pursue any remedy
shall not exclude pursuit if any other remedy, and an election to make
expenditures to take action to perform an obligation of Borrower or of any
Grantor shall not affect Lender's right to declare a default and to exercise its
rig and remedies.
MISCELLANEOUS PROVISIONS.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the panties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Colorado. Subject to the provision on arbitration,
this Agreement shall be governed by and construed in accordance with the
laws of the State of Colorado without regard t any conflict of laws of
provisions thereof.
JURY WAIVER. THE UNDERSIGR4ED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCARL AND UNCONDITIONALLY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPO
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG TIIE UNDERSIGNED AND LENDER
ARISING OUT OF OR IN ANY WA RELATED TO THIS DOCUMENT OR ANY OTHER RELATED
DOCUMENT. TITIS PROVISION IS A MATERIAL INDIJCEMENT TO LENDER T PROVIDE THE
FINANCING DESCRIBED HEREIN OR IN THE OTHER RELATEE) I)OCUMENTS.
ARBITRATION. Lender and Borrower agree that upon the written demand of
either party, whether made before or after the institution o any legal
proceedings, but prior to the renderirig of arty judgment in that
proceeding, all disputes, claims and controversies between them whether
individual, joint, or class in nature, arising from this Agreement, any
Related Document or otherwise, including without limitation contract
disputes and tort claims, shall be arbitrated pursuant to the Commercial
Rules of the American Arbitration Association. Any arbitration proceeding
held pursuant to this arbitration provision shall be conducted in the city
nearest the Borrower's address having a AAA regional office, or at any
other place selected by mutual agreement of the parties. No act to take or
dispose of any Collateral shall constitute a waiver of this arbitration
agreement or be prohibited by this arbitration agreement. This arbitration
provision shall not limit the right of either party during any dispute,
claim or controversy to seek, use, and employ ancillary, provisional or
preliminary rights an/or remedies, judicial or otherwise, for the purposes
of realizing upon, preserving, protecting, foreclosing upon or proceeding
under forcible entry and detainer for possession of, any real or personal
property, and any Such action shall not be deemed an Election of remedies.
This includes, without limitation, obtaining injunctive relief or a
temporary restraining order, invoking a power of sale under any deed of
trust or mortgage, obtaining a writ of attachment or imposition of a
receivership, or exercising any rights relating to personal property,
including taking or disposing of such property with or without judicial
process pursuant to Article 9 of the Uniform Commercial Code. Any disputes,
claims. or controversies concerning the lawfulness or reasonableness of any
act, or exercise of any right or remedy, concerning an Collateral,
including any claim to rescind, reform, or otherwise modify any agreement
relating to the Collateral, shall also be arbitrated; provided however that
no arbitrator shall have the right or the power to enjoin or restrain any
act of either flurry. Judgment upon any award rendered by any arbitrator
may be entered in at any court having jurisdiction. Nothing in this
arbitration provision shall preclude either party from seeking equitable
relief from a court of competent jurisdiction. The statute of limitations,
estoppel, waiver, laches and similar doctrines which would otherwise be
applicable in an action brought by a party shall be applicable in any
arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purpose. The
Federal Arbitration Act (Title 9 of the United States Code) shall apply to
the construction, interpretation, and enforcement of this arbitration
provision.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or
transfer, whether now or later, of one or more participation interests in the
Loans to one or more purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it i-nay have with respect to such matters.
Borrower additionally waives any and a11 notices of sale of participation
interests, as well as all notices of any repurchase of such participation
interests.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's expenses,
including attorneys' tees, incurred in connection with the preparation,
execution, enforcement, modification and collection of this Agreement or in
connection with the Loans made pursuant to this Agreement. Lender may hire one
or more attorneys to help collect the Indebtedness it Borrower does not pay, and
Borrower will pay Lender's reasonable attorneys' fees.
NOTICES. All notices required to be given under this agreement often be given in
writing, and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address. To
the extent permitted by applicable law, if there is more than one Borrower,
notice to any Borrower constitute notice to all Borrowers, For notice purposes,
Borrower will keep Lender informed at all times of Borrower's current
addressees),
SEVERABILITY. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, it the offending provision cannot be so modified, it shall be stricken
and ail other provisions of this Agreement in all other respects shall remain
valid and enforceable.
COUNTERPARTS. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which
<PAGE> 6
together shall constitute the same document. Signature pages may be detached
from the counterparts to a single copy of this Agreement to physically form one
document.
Successors and Assigns. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the benefit
of Lender, its successors and assigns. Borrower shall not, however, have the
right to assign its rights under this Agreement or any interest therein, without
the prior written consent of Lender.
Survival. All warranties, representations, and covenants made try Borrower in
this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender or on Lender's
behalf.
Time Is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission oil the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to dernand strict compliance with that provision or any other
provision c)f this Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Borrower, or between Lender and any Grantor or
Guarantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the granting of
such consent by I-ender in any instance shall not constitute continuing consent
in subsequent instances where such consent is required, and in all cases such
consent may be granted or withheld in the sole discretion of Lender.
Ms.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS.
THIS AGREEMENT IS EXECUTED AS OF THE DATE SET FORTH ABOVE.
BORROWER;
SCC COMMUNICATIONS, CORP., A DELAWARE CORPORATION
By; By
LENDER:
or
C3.OVLI
LASCR PRO, R.9 U
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and all references to our Firm) included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado
May 21, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,177,000
<SECURITIES> 0
<RECEIVABLES> 2,971,000
<ALLOWANCES> 32,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,545,000
<PP&E> 23,866,000
<DEPRECIATION> 9,092,000
<TOTAL-ASSETS> 20,828,000
<CURRENT-LIABILITIES> 8,876,000
<BONDS> 9,642,000
14,774,000
0
<COMMON> 2,000
<OTHER-SE> (13,987,000)
<TOTAL-LIABILITY-AND-EQUITY> 20,828,000
<SALES> 0
<TOTAL-REVENUES> 7,902,000
<CGS> 0
<TOTAL-COSTS> 4,951,000
<OTHER-EXPENSES> 1,989,000
<LOSS-PROVISION> (18,000)
<INTEREST-EXPENSE> 331,000
<INCOME-PRETAX> 661,000
<INCOME-TAX> 46,000
<INCOME-CONTINUING> 615,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 615,000
<EPS-PRIMARY> .20
<EPS-DILUTED> .07
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