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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO ________________
Commission file no. 0-23477
ICON CMT CORP.
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(Exact name of Registrant as Specified in Its Charter)
Delaware 13-3603128
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(State or Other Jurisdiction of
Incorporation or Organization) (IRS Employer Identification No.)
1200 Harbor Boulevard, Weehawken, New Jersey 07087
----------------------------------------------------------
(Address of Principal Executive Offices with Zip Code)
Registrant's Telephone Number Including Area Code: (201) 601-2000
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes No
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of common stock outstanding as of October 29, 1998 was
15,895,288
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<PAGE>
ICON CMT CORP.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 1998 (unaudited)
and December 31, 1997...........................................................................3
Condensed Consolidated Statement of Operations for the Three and Nine Months
ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited).........................4
Condensed Consolidated Statement of Cash Flows for the Nine Months
ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited).........................5
Notes to Condensed Consolidated Financial Statements (unaudited) ...............................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................18
Item 2. Changes in Securities and Use of Proceeds......................................................18
Item 4. Submission of Matters to a Vote of Security Holders............................................18
Item 6. Exhibits and Reports on Form 8-K...............................................................19
SIGNATURES.......................................................................................................20
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
ICON CMT CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
September 30, December 31,
1998 1997
---------------- --------------
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 10,026 $ 1,410
Accounts receivable, net of allowance of
$523 and $455, respectively............................... 11,926 10,237
Unbilled costs and accrued revenue........................... 1,743 1,119
Inventories.................................................. 851 104
Prepaid expenses and other current assets.................... 2,385 2,381
------------ --------------
Total current assets...................................... 26,931 15,251
Fixed assets, net................................................ 14,049 6,675
Other noncurrent assets.......................................... 108 231
------------ --------------
Total assets.............................................. $ 41,088 $ $22,157
============ ==============
Liabilities, Mandatorily Redeemable Convertible
Preferred Stock and Stockholders' Equity
Current liabilities:
Accounts payable............................................. $ 11,178 $ 9,124
Accrued expenses............................................. 4,956 4,542
Deferred revenue............................................. 1,368 658
Note payable................................................. -- 1,000
------------ --------------
Total current liabilities................................. 17,502 15,324
Long term obligations............................................ 128 --
------------ --------------
Total liabilities......................................... 17,630 15,324
------------ --------------
Mandatorily Redeemable 10% PIK Series B Convertible Participating Preferred
Stock ($.01 par value, 415,000 shares
authorized, none issued and outstanding at September 30,
1998, 180,240 shares issued and outstanding at December
31, 1997)................................................. -- 16,628
Mandatorily Redeemable Series A Convertible Participating Preferred Stock ($.01
par value, 450,000 shares authorized,
none issued and outstanding at September 30, 1998, 422,607
shares issued and outstanding at December 31, 1997)....... -- 10,601
Stockholders' equity:
Preferred stock ($.01 par value; 1,000,000 shares authorized) -- --
Common stock ($.001 par value; 50,000,000 shares authorized,
15,884,378 and 7,273,779 shares issued and outstanding,
respectively)............................................. 16 8
Additional paid-in-capital................................... 62,537 533
Accretion of mandatorily redeemable preferred stock.......... -- (388)
Accumulated deficit.......................................... (39,095) (20,549)
------------ --------------
Total stockholders' equity (deficit)...................... 23,458 (20,396)
------------ --------------
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' equity............ $ 41,088 $ 22,157
============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
<TABLE>
<CAPTION>
ICON CMT CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net
Services:
Professional............................. $9,249 $6,108 $24,996 $15,948
Communications........................... 3,812 1,760 9,875 3,931
Media.................................... -- -- 14 77
---------- ---------- ----------- -----------
Total services revenues............ 13,061 7,868 34,885 19,956
---------- ---------- ----------- -----------
Products....................................... 7,577 4,626 24,104 14,306
---------- ---------- ----------- -----------
Total revenues, net....................... 20,638 12,494 58,989 34,262
---------- ---------- ----------- -----------
Cost of revenues:
Services....................................... 9,727 5,560 24,878 13,651
Products....................................... 6,723 3,771 21,059 11,676
---------- ---------- ----------- -----------
Total costs of revenues................... 16,450 9,331 45,937 25,327
---------- ---------- ----------- -----------
Gross profit....................................... 4,188 3,163 13,052 8,935
---------- ---------- ----------- -----------
Operating expenses:
Sales and marketing............................ 3,912 2,814 12,511 7,351
General and administrative..................... 5,754 2,814 14,509 8,227
Research and development....................... 445 361 1,612 920
Depreciation and amortization.................. 482 220 1,279 633
Special transaction related charges............ 827 -- 1,921 --
----------- ------------------------ -------------
Total operating expenses.................. 11,420 6,209 31,832 17,131
---------- ---------- ----------- -----------
Loss from operations............................... (7,232) (3,046) (18,780) (8,196)
---------- ---------- ----------- -----------
Other income (expense):
Interest income................................ 194 45 680 68
Interest expense............................... (11) (60) (68) (363)
Other, net..................................... -- -- (125) --
---------- ---------- ----------- -----------
Total other income (expense) 183 (15) 487 (295)
---------- ---------- ----------- -----------
Loss before income taxes........................... (7,049) (3,061) (18,293) (8,491)
Provision for income taxes......................... -- -- -- 256
---------- ---------- ----------- -----------
Net loss........................................... $(7,049) $ (3,061) $ (18,293) $ (8,747)
========== ========== =========== ===========
Basic and diluted loss per share................... $(0.44) $ (0.48) $ (1.28) $ (1.31)
========== ========== =========== ===========
Weighted average shares outstanding used for
basic and diluted loss per share............... 15,882 7,274 14,478 7,274
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ICON CMT CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
------------------------------------
Cash flows from operating activities: 1998 1997
--------------- ---------------
<S> <C> <C>
Net Loss............................................................. $ (18,293) $ (8,747)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization..................................... 3,288 1,516
Deferred taxes and other.......................................... -- 295
Changes in assets and liabilities, net............................... 80 (1,336)
--------------- ---------------
Net cash used in operating activities........................... (14,925) (8,272)
--------------- ---------------
Cash flows from investing activities:
Capital expenditures................................................. (10,503) (2,773)
Other................................................................ 125 --
--------------- ---------------
Net cash used in investing activities........................... (10,378) (2,773)
--------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of common stock........................... 34,337 --
Net proceeds from exercise of stock options.......................... 834 --
Borrowings of short-term notes....................................... 1,772 7,323
Repayments of short-term notes....................................... (2,772) (8,617)
Net proceeds from issuance of preferred stock........................ -- 16,508
Other................................................................ (252) (110)
--------------- ---------------
Net cash provided by financing activities....................... 33,919 15,104
--------------- ---------------
Net increase in cash..................................................... 8,616 4,059
Cash and cash equivalents at beginning of period......................... 1,410 722
--------------- ---------------
Cash and cash equivalents at end of period...............................$ 10,026 $ 4,781
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ICON CMT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. Basis of Presentation
The accompanying unaudited financial statements for the three and nine
month periods ended September 30, 1998 and 1997 have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Annual Report on Form 10-K of
Icon CMT Corp. ("Icon" or the "Company") for the year ended December 31, 1997.
2. Initial Public Offering
On February 18, 1998, the Company completed its initial public offering
(the "IPO"), selling 3,850,000 shares of common stock at a price of $10.00 per
share, providing gross proceeds to the Company of $38,500 and net proceeds,
after deducting underwriting discounts, commissions and estimated offering
expenses payable by the Company, of approximately $34,337.
Upon the closing of the IPO, all outstanding shares of the Company's
Series A and Series B Preferred Stock converted into an aggregate of 4,629,831
shares of common stock.
3. Discontinued Product Line
In March 1998, the Company discontinued its media services product
offerings. The Company generated revenues of $14 and $77 from selling
advertising space on its media properties for the nine months ended September
30, 1998 and 1997, respectively. The cost of revenues associated with media
services for the three months ended September 30, 1997 and the nine months ended
September 30, 1998 and 1997 was $669, $548 and $1,723, respectively.
4. Acquisition of Frontier Media Group, Inc.
On May 27, 1998, the Company acquired all of the issued and outstanding
shares of common stock of Frontier Media Group, Inc. ("Frontier"), in exchange
for 728,325 shares of the Company's common stock. For accounting purposes, the
acquisition has been accounted for using the pooling of interests method and
prior periods have been restated to include the results of Frontier on a
comparable basis. In connection with the acquisition of Frontier, the Company
accrued $1,094 of transaction and other costs during the second quarter of 1998
associated with the business combination.
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<PAGE>
5. Loss Per Common Share
Effective December 31, 1997, the Company adopted Financial Accounting
Standard No. 128, "Earnings per Share" ("FAS 128"), which requires presentation
of basic earnings per share ("Basic EPS") and diluted earnings per share
("Diluted EPS") by all entities that have publicly traded common stock or
potential common stock (i.e., options, warrants, convertible securities or
contingent stock arrangements). Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period. The computation of
Diluted EPS does not assume conversion, exercise or contingent exercise of
securities that would have an antidilutive effect on earnings.
The computation of basic and diluted loss per share for the three and
nine months ended September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net Loss $(7,049) $(3,061) $(18,293) $(8,747)
Accrued dividends on Series A
Preferred and Series B Preferred Stock........... -- (423) (202) (811)
------------- ------------ ------------ -----------
Loss available to common stockholders............... $(7,049) $ (3,484) $(18,495) $(9,558)
============= ============ ============ ===========
Weighted average shares outstanding used
for basic and diluted loss per share............. 15,882,000 7,274,000 14,478,000 7,274,000
Basic and diluted loss per share.................... $ (0.44) $ (0.48) $ (1.28) $ (1.31)
============= ============ ============ ===========
</TABLE>
At September 30, 1998, outstanding options to purchase 1,474,505 shares
of common stock, with exercise prices ranging from $6.02 to $18.50 have been
excluded from the computations of diluted loss per share as they are
antidilutive. At September 30, 1998, outstanding warrants to purchase 1,683,350
shares of common stock, with exercise prices ranging from $0.01 to $12.00, were
also antidilutive and excluded from the computations of diluted loss per share .
6. Merger Agreement with Qwest Communications International Inc.
On September 13, 1998, the Company agreed, subject to stockholders and
regulatory approval, to merge with Qwest Communications International Inc.
("Qwest"). Under the terms of the merger agreement, each share of the
outstanding common stock of the Company will be exchanged for no less than 0.32
shares of Qwest common stock (if Qwest's average per share stock price exceeds
$37.50) or no more than 0.4444 shares of Qwest common stock (if Qwest's average
per share stock price is less than $27.00). The final ratio of exchange will be
determined by dividing $12 by a 15-day volume weighted average of consecutive
trading prices of Qwest common stock prior to the three business days before the
Company's stockholders meeting that will be called to approve the transaction.
If the merger is terminated prior to consummation the Company will be required,
under certain circumstances, to pay a $7,000 termination fee.
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<PAGE>
Pursuant to the merger agreement, on September 28, 1998, the Company
and Qwest entered into a credit facility, maturing January 31, 2000, whereby
Qwest will lend the Company, commencing January 31, 1999, up to an aggregate of
$15,000 to fund working capital and for other corporate purposes. In connection
with the credit facility, the Company has issued to Qwest warrants to purchase
an aggregate of 750,000 shares of the Company's common stock. The exercise price
of the warrants is $12.00 per share. In connection with the merger agreement,
the Company's three founders and principal stockholders entered into agreements
with Qwest to vote to approve the merger so long as a "superior proposal" (as
defined in the merger agreement) has not been accepted by the Company's Board of
Directors, and to grant Qwest an option to purchase their shares at $12.00 per
share.
Also, pursuant to the merger agreement, the Company entered into a
private line service agreement and related master collocation license agreement
for the use of certain of Qwest's communications related facilities.
In connection with the merger agreement the Company has incurred $827
through September 30, 1998 of transaction related costs.
On September 15, 1998, a putative class action complaint was filed
against the Company, its directors and Qwest. The complaint alleges, among other
things, that the members of the Company's Board of Directors violated their
fiduciary duties by failing to auction the Company or to seek other potential
bidders. The Company considers the action to be without merit, intends to
vigorously defend the action and believes that the outcome will not have a
material adverse effect on the operations or the financial position of the
Company.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion should be read in conjunction with the
Financial Statements included elsewhere in this Report. This discussion contains
forward-looking statements based on current expectations that involve risks and
uncertainties. Actual results and the timing of certain events may differ
significantly from those projected in such forward-looking statements due to a
number of factors, including those set forth at the end of this Item.
Overview
Integration Consortium, Inc. ("ICI"), the predecessor of Icon CMT
Corp., ("Icon" or the "Company"), was incorporated in New York in February 1991.
The Company was incorporated in Delaware in February 1995, and ICI was merged
with and into Icon in December 1995. ICI was primarily engaged in the design,
marketing, installation and on-going support of high-end network-based
information management systems. ICI also focused on developing, customizing and
integrating both third-party and proprietary software applications.
In 1995, recognizing the emergence of internet protocol ("IP") as a
data transmission standard, the Company's management redefined the Company's
strategy to provide end-to-end solutions that enable corporate customers to
implement their Internet, intranet and extranet strategies. The Company's
revenues are primarily derived from the following services and products: (i) a
range of professional services, including custom application and website
development and design, systems integration and maintenance and support
services; (ii) communications services including high-quality Internet access
and related services, such as web/server hosting and management; and (iii)
product resales, including hardware and software sold as an integral part of
systems design and integration and as a means to sell integrated communications
and professional services and establish customer relationships.
On May 27, 1998, the Company acquired all of the issued and outstanding
shares of common stock of Frontier Media Group, Inc. ("Frontier"), in exchange
for 728,325 shares of the Company's common stock. For accounting purposes, the
acquisition has been accounted for using the pooling of interests method and
prior periods have been restated to include the results of Frontier on a
comparable basis. In connection with the acquisition of Frontier, the Company
accrued $1.1 million of transaction and other costs during the second quarter of
1998 associated with the business combination.
On September 13, 1998, the Company agreed, subject to stockholders and
regulatory approval, to merge with Qwest Communications International Inc.
("Qwest"). If the transaction with Qwest is consummated, the Company will become
a wholly-owned subsidiary of Qwest and will cease to report separate financial
results. Under the terms of the merger agreement each share of the outstanding
common stock of the Company will be exchanged for no less than 0.32 shares of
Qwest common stock (if Qwest's average per share stock price exceeds $37.50) or
no more than 0.4444 shares of Qwest common stock (if Qwest's average per share
stock price is less than $27.00). The final ratio of exchange will be determined
by dividing $12 by a 15-day volume weighted average of consecutive trading
prices of Qwest common stock prior to the three business days before the
Company's stockholders' meeting that will be called to approve the transaction.
If the merger is terminated prior to consummation the Company will be required,
under certain circumstances, to pay a $7.0 million termination fee.
In connection with the merger agreement, the Company's three founders
and principal stockholders entered into agreements with Qwest to vote to approve
the merger so long as a "superior proposal" (as defined
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<PAGE>
in the merger agreement) has not been accepted by the Company's Board of
Directors and to grant Qwest an option to purchase their shares for $12.00 per
share.
Statement of Operations
The Company provides professional services to its customers to
facilitate the delivery of their information and applications over Icon's
communications infrastructure, including development, design and integration
services and maintenance and support services. Revenues from development, design
and systems integration contracts are recognized on a percentage-of-completion
basis. Maintenance and support services are typically provided in accordance
with annual agreements that are renewable at the discretion of the customer and
subject to change annually. Maintenance and support revenues are recognized
ratably over the term of the respective agreement.
Revenues from communications services are generated by providing
Internet access and related services, such as web/server hosting and management.
Communications services are generally provided based on service agreements with
terms ranging from one to five years, which are renewable at the discretion of
the customer. Communications services revenues are recognized ratably over the
term of the respective service agreement.
The Company generates products revenues through the reselling of
computer and networking hardware and software, including network servers,
routers, firewall software, and database management software. Products revenues
are recognized upon shipment.
Historically, the Company generated limited media revenues from selling
advertisement space on its new- media properties, including Word and Charged.
The Company had experienced operating losses in connection with the ongoing
operation of its media properties and, in March 1998, the Company discontinued
their ongoing operations. In April 1998, Zapata Corporation ("Zapata") purchased
all of the assets of Word and Charged from the Company in exchange for Zapata's
commitment to purchase no less than $2 million in communications and
professional services over the next four years.
Historically the Company has experienced relatively stable gross
margins on product sales. Over the same periods, gross margins on services have
fluctuated as cost of revenues, particularly on communications services, have
increased in advance of revenue growth for such services. The Company
anticipates that in the future communications services will provide greater
opportunities for increased gross margins.
Professional services cost of revenues consists of the labor and
overhead costs for the personnel performing the service including the cost of
project management, quality control and project review. Cost of communications
services revenues consists primarily of the cost to maintain and operate the
Company's communications infrastructure and customers' hosted web servers,
access charges from Local Exchange Carriers and network and related
communications facilities costs, depreciation of network equipment and rental
expenses for equipment pursuant to operating leases. The Company expects its
costs of services to continue to increase in dollar amount, while declining as a
percentage of services revenue as the Company expands its customer base and more
fully utilizes its communications infrastructure. Cost of revenues for products
consists primarily of the Company's acquisition cost of computer and networking
hardware and software that is purchased from the manufacturers' distributors.
Sales and marketing expenses consist primarily of personnel expenses,
including salary, benefits, commissions, overhead costs and the cost of
marketing programs, such as advertising, trade shows and public
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<PAGE>
relations. The Company expects sales and marketing expenses to continue to
increase in dollar amount in future years as the Company's business grows and as
it increases its presence at trade shows, increases the size of its sales force
and develops additional materials to reach a larger audience, but to decrease
over time as a percentage of total net revenues.
General and administrative expenses consist primarily of personnel
expense and professional fees, as well as rent and operating costs of the
Company's facilities. The Company expects general and administrative expenses to
increase in dollar amount, reflecting the continued growth of its operations and
the costs associated with being a publicly held entity, but to decrease in
future years as a percentage of total net revenues.
Research and development expenses consist primarily of personnel and
related costs associated with the development of the Company's technologies. The
Company's expectations of significant revenue growth are not dependent upon the
success of ongoing future research and development activities. In July 1998, the
Company reorganized its research and development group by reallocating
development personnel from the research and development group to support the
Company's professional services and communications services groups. In light of
this, the Company expects to continue to reduce its expenditures in connection
with the ongoing development of proprietary technologies, although it expects to
continue to use its products and/or expertise developed to date to augment its
other service offerings and to continue its related research activities.
Other
In order to provide nationwide communications services including
Internet access, the Company entered into a three-year agreement in June 1995
with MFS Datanet, Inc. ("MFS") to access MFS' nationwide communications
facilities and related communications products and services. MFS was
subsequently acquired by WorldCom, Inc., which subsequently acquired MCI
Communications Corporation. The terms of the agreement provide for the Company
to pay MCI WorldCom primarily based on the average bandwidth of the Company's
traffic transmitted over MCI WorldCom's communications facilities. The Company
has extended the term of the agreement through September 1999. In connection
with the extension, the Company agreed to commit to pay MCI WorldCom annual
recurring revenues equal to the greater of (i) 110% of the annual recurring
revenue paid by the Company to MCI WorldCom under the agreement for the period
from October 1, 1997 through September 30, 1998; and (ii) $6.6 million. The
agreement provides that if the Company fails to pay the annual recurring revenue
amount contemplated above, then the Company must pay an assessment equal to 15%
of the difference between the committed amount and the actual amounts paid for
such period.
The Company has experienced delays in the provisioning of its Internet
access installation service orders by MCI WorldCom. As a result, the Company has
entered into a private line service agreement and related collocation license
agreement for the use of certain of Qwest's communications related facilities to
address its expanding bandwidth and facilities requirements. In the event the
merger with Qwest is consummated, the Company intends to acquire most of its
communications facilities from Qwest. In the event that the merger with Qwest is
not consummated, the Company intends to enter into an agreement with another
supplier or suppliers to replace or augment the services it is currently
purchasing from MCI WorldCom.
The Company, which had been profitable prior to 1995, has incurred net
losses and negative cash flow from operations since transitioning its strategy
to provide end-to-end Internet solutions and expects to continue
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<PAGE>
to operate at a loss and experience negative cash flow from operations at least
through 1999. The Company's attainment of profitability and positive cash flow
from operations is dependent upon its ability to substantially grow its revenue
base and achieve related operating efficiencies.
The Company will continue to focus on growing its professional services
and communications services businesses, which could require it to significantly
increase its expenses for personnel and marketing.
The Company has historically served major customers in information
intensive industries, such as financial services, telecommunications, media and
the pharmaceutical industry. Revenues attributable to Bear Stearns & Co. Inc.
comprised 45% and 42%, respectively, of the Company's total net revenues for the
three and nine months ended September 30, 1998, respectively, compared to 49%
and 45% for the same periods in the prior year, and in each period represented a
significant component of services and products revenues. No other customers
represented over 10% of the Company's total net revenues in the same time
periods. Management expects revenue concentration to decline as the Company
grows its services revenues.
Historically, the Company has marketed and sold its services and
products through its direct sales force and through indirect channels. In May
1996, the Company entered into an arrangement with Bell Atlantic Internet
Solutions, Inc. ("Bell Atlantic Internet Solutions"), whereby Bell Atlantic
Internet Solutions agreed to provide billing services in connection with the
offering of the Company's communications services to requesting Bell Atlantic
Internet Solutions customers in Bell Atlantic's southern region for both
dedicated and switched access, including residential customers. Revenues from
customers acquired through Bell Atlantic Internet Solutions represented 44% and
40%, respectively, of communications services revenues for the three and nine
months ended September 30, 1998. The Company believes that revenues from this
arrangement will continue to grow at least until such time that Bell Atlantic
Internet Solutions or its affiliates receives regulatory relief from the FCC
from various regulations that affect the development of advanced
telecommunications services by the Regional Bell Operating Companies ("RBOCs")
and that this relationship will represent a significant element of the Company's
distribution strategy in Bell Atlantic's southern region. In October 1997, the
Company extended its arrangement by entering into an updated Global Service
Provider agreement (the "GSP Agreement") with Bell Atlantic Internet Solutions
to continue to make its services available in the traditional Bell Atlantic
southern region for switched and dedicated services and to expand the Company's
reach with respect to dedicated services into the Bell Atlantic northern region
(previously NYNEX) through October 1999. The Company's agreement with Bell
Atlantic Internet Solutions contemplates a service offering to requesting Bell
Atlantic Internet Solutions customers in the Bell Atlantic northern region,
subject to Bell Atlantic Internet Solutions' receipt of certain regulatory
approvals. To date, Bell Atlantic Internet Solutions has not received such
approvals. In July 1998, Bell Atlantic, an affiliate of Bell Atlantic Internet
Solutions, announced it would acquire GTE Corp. The transaction is subject to
regulatory approval. The Company cannot predict what effect, if any, the
proposed transaction will have with respect to the Company's existing business
with Bell Atlantic Internet Solutions. In August 1998, the Company extended the
GSP Agreement through January 2001. The Company also has agreements with
Fiberlink Communications Corp., TotalTel, Inc. and other resellers to resell the
Company's communications services.
The Company has incurred losses in 1995, 1996, 1997 and the first nine
months of 1998 that have generated net operating loss carry forwards of
approximately $36.7 million at September 30, 1998 for federal and state income
tax purposes. These carry forwards are available to offset future taxable income
and expire in 2011 through 2018 for federal income tax purposes.
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<PAGE>
Results of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Revenues. Total net revenues were $20.6 million for the three months
ended September 30, 1998, a $8.1 million, or 65%, increase over total net
revenues of $12.5 million for the three months ended September 30, 1997.
Professional services revenues were $9.2 million and $6.1 million for
the three months ended September 30, 1998 and 1997, respectively, representing
an increase in 1998 of 51%. This increase was attributable to the growing demand
for professional services in the Company's existing customer base and the
acquisition of several new customers, a high renewal rate of existing
maintenance contracts, an increased number of systems engineers available to
perform these services and a higher average billing rate per systems engineer.
Communications services revenues were $3.8 million and $1.8 million for
the three months ended September 30, 1998 and 1997, respectively, representing
an increase in 1998 of 117%. This increase was primarily attributable to the
acquisition of new customers and the arrangement with Bell Atlantic Internet
Solutions under which the Company began providing service in the third quarter
of 1996. Revenues derived from the Bell Atlantic Internet Solutions arrangement
comprised 44% of communications revenues for the three months ended September
30, 1998.
Products revenues were $7.6 million and $4.6 million for the three
months ended September 30, 1998 and 1997, respectively, representing an increase
of 64%. The Company has been in a transition from its historical focus as a
value-added reseller to that of providing IP network related services, and
product resales have become a secondary component of its end-to-end internet
solutions strategy.
Cost of revenues. Total cost of revenues were $16.5 million and $9.3
million for the three months ended September 30, 1998 and 1997, respectively,
representing 80% and 75% of total net revenues, respectively.
Services cost of revenues were approximately $9.7 million and $5.6
million for the three months ended September 30, 1998 and 1997, respectively.
This growth was primarily attributable to the hiring of additional professional
services personnel and contractors and the continued expansion of the Company's
communications infrastructure. Such costs increased to 74% as a percentage of
services revenues in the three months ended September 30, 1998 from 71% in the
three months ended September 30, 1997, primarily due to the increasing costs
associated with expanding and maintaining the Company's communications services
infrastructure. In the three months ended September 30, 1997 services cost of
revenues included $0.7 million in costs associated with the Company's
discontinued media services product offerings.
Products cost of revenues were $6.7 million and $3.8 million for the
three months ended September 30, 1998 and 1997, respectively, representing 89%
and 82% of products revenues for the three months ended September 30, 1998 and
1997, respectively.
Sales and marketing. Sales and marketing expenses were $3.9 million and
$2.8 million for the three months ended September 30, 1998 and 1997,
respectively. The 39% increase in the three months ended September 30, 1998
reflected hiring of additional sales and marketing personnel and increased
spending on advertising and trade shows. Sales and marketing expenses as a
percentage of total net revenues decreased to 19% in the three months ended
September 30, 1998 from 23% in the three months ended September 30, 1997.
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<PAGE>
General and administrative. General and administrative expenses were
$5.8 million and $2.8 million for the three months ended September 30, 1998 and
1997, respectively. This higher level of expenses reflected an increase in
personnel and professional fees necessary to manage the financial, legal and
administrative aspects of the business, as well as rent and operating costs of
the Company's facilities. General and administrative expenses as a percentage of
total net revenues increased to 28% for the three months ended September 30,
1998 from 23% for the three months ended September 30, 1997.
Research and development. Research and development expenses were $0.4
million for each of the three month periods ended September 30, 1998 and 1997.
In July 1998, the Company reorganized its research and development group by
reallocating development personnel from the research and development group to
support the Company's professional services and communications services groups.
In light of this, the Company expects to reduce its expenditures in connection
with the ongoing development of proprietary technologies, although it expects to
continue to use its products and/or expertise developed to date to augment its
other service offerings and to continue its related research activities.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Revenues. Total net revenues were $59.0 million for the nine months
ended September 30, 1998, an increase of $24.7 million, or 72%, over total net
revenues of $34.3 million for the nine months ended September 30, 1997.
Professional services revenues were $25.0 million and $15.9 million for
the nine months ended September 30, 1998 and 1997, respectively, representing an
increase in 1998 of 57%. This increase was attributable to the growing demand
for professional services in the Company's existing customer base and the
acquisition of several new customers, a high renewal rate of existing
maintenance contracts, an increased number of systems engineers available to
perform these services and a higher average billing rate per systems engineer.
Communications services revenues were $9.9 million and $3.9 million for
the nine months ended September 30, 1998 and 1997, respectively, representing an
increase in 1998 of over 151%. This increase was primarily attributable to the
acquisition of new customers and the arrangement with Bell Atlantic Internet
Solutions under which the Company began providing service in the third quarter
of 1996. Revenues derived from the Bell Atlantic Internet Solutions arrangement
comprised 40% of communications revenues for the nine months ended September 30,
1998.
Products revenues were $24.1 million and $14.3 million for the nine
months ended September 30, 1998 and 1997, respectively, representing an increase
of 68%.
Cost of revenues. Total cost of revenues were $45.9 million and $25.3
million for the nine months ended September 30, 1998 and 1997, respectively,
representing 78% and 74% of total net revenues, respectively.
Services cost of revenues were approximately $24.9 million and $13.7
million for the nine months ended September 30, 1998 and 1997, respectively.
Such costs increased to 71% as a percentage of services revenues in the nine
months ended September 30, 1998 from 68% in the nine months ended September 30,
1997, due to the continued expansion of the Company's communications
infrastructure. Service costs include $0.5 million and $1.7 million in the nine
months ended September 30, 1998 and 1997, respectively, associated with the
Company's discontinued media services product offerings.
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<PAGE>
Products cost of revenues were $21.1 million and $11.7 million for the
nine months ended September 30, 1998 and 1997, respectively, representing 87%
and 82% of products revenues for the nine months ended September 30, 1998 and
1997, respectively.
Sales and marketing. Sales and marketing expenses were $12.5 million
and $7.4 million for the nine months ended September 30, 1998 and 1997,
respectively. The 70% increase in the nine months ended September 30, 1998
reflected hiring of additional sales and marketing personnel and increased
spending on advertising and trade shows. Sales and marketing expenses as a
percentage of total net revenues remained at 21% for the nine months ended
September 30, 1998 and 1997.
General and administrative. General and administrative expenses were
$14.5 million and $8.2 million for the nine months ended September 30, 1998 and
1997, respectively. This higher level of expenses reflected an increase in
personnel and professional fees necessary to manage the financial, legal and
administrative aspects of the business, as well as rent and operating costs of
the Company's facilities. General and administrative expenses as a percentage of
total net revenues increased to 25% during the nine months ended September 30,
1998 from 24% in the nine months ended September 30, 1997.
Research and development. Research and development expenses were $1.6
million and $0.9 million for the nine months ended September 30, 1998 and 1997,
respectively. This higher level of expense reflected an overall increase in the
number of personnel required to develop new technologies that enhance the
performance and reliability of the Company's network. In July 1998, the Company
reorganized its research and development group by reallocating development
personnel from the research and development group to support the Company's
professional services and communications services groups. In light of this, the
Company expects to reduce its expenditures in connection with the ongoing
development of proprietary technologies, although it expects to continue to use
its products and/or expertise developed to date to augment its other service
offerings and to continue its related research activities.
Liquidity and Capital Resources
The Company had an accumulated deficit of $39.1 million at September
30, 1998 and has used cash of $28.5 million in the aggregate to fund operations
during 1996, 1997 and the nine month period ended September 30, 1998. Prior to
consummation of the Company's initial public offering (the "IPO") on February
18, 1998, the Company had satisfied its cash requirements primarily through the
sale of preferred stock and borrowings under credit agreements. The Company's
principal uses of cash are to fund operations, working capital requirements and
capital expenditures. At September 30, 1998 the Company had $10.0 million in
cash and cash equivalents and working capital of $9.4 million. Net cash used in
operating activities for the nine months ended September 30, 1998 and 1997 was
$14.9 million and $8.3 million, respectively. Net cash used in investing
activities for the nine months ended September 30, 1998 and 1997 was $10.4
million and $2.8 million, respectively. For the nine months ended September 30,
1998 and 1997, cash of $33.9 million and $15.1 million, respectively, was
provided by financing activities. Cash provided by financing activities for the
nine months ended September 30, 1998 includes $34.3 million in net proceeds from
the issuance of common stock from the Company's IPO.
The Company maintains a secured line of credit with The CIT
Group/Business Credit, Inc. ("CIT") for $10.0 million, which automatically
renewed on August 13, 1998 and expires on August 13, 1999. Borrowings under this
line are secured by substantially all of the assets of the Company and are
limited to a specific percentage of qualifying accounts receivable less
outstanding obligations of the Company owed to CIT, including outstanding
letters of credit. Under this secured line of credit, the Company may not, among
other things, pay cash dividends, pledge any of its assets to third parties,
borrow money from third parties or merge or consolidate
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<PAGE>
with third parties without CIT's prior written consent. Borrowings under this
line amounted to $1.0 million at December 31, 1997. There were no borrowings
under the line of credit at September 30, 1998. Interest expense amounted to
$0.1 and $0.4 million for the nine months ended September 30, 1998 and 1997,
respectively. Interest is payable monthly at an annual rate equal to the prime
rate plus one percent. Following a change in the prime rate, the rate adjusts on
the first of the month following any change. As of September 30, 1998, there was
approximately $5.6 million available under this line.
On September 28, 1998, the Company and Qwest entered into a credit
facility, maturing January 31, 2000, whereby Qwest has agreed to lend the
Company, commencing January 31, 1999, up to an aggregate of $15.0 million to
fund working capital and other corporate purposes. In connection with the credit
facility, the Company has issued to Qwest warrants to purchase an aggregate of
750,000 shares of the Company's common stock. The exercise price of the warrants
is $12.00 per share.
The Company's merger agreement with Qwest requires the Company to pay
Qwest a termination fee of $7.0 million if either the Company or Qwest
terminates the merger agreement for certain reasons. The merger agreement also
requires the Company to purchase from Qwest products and services for an
aggregate purchase price of $30.0 million if the Company consummates an
alternative business combination with another person within 12 months following
the termination of the merger agreement for any reason other than Qwest's
material breach of the merger agreement.
As of September 30, 1998, trade payables and accrued expenses to a
vendor in the amount of $5.0 million were secured by a lien on substantially all
of the Company's assets.
The Company has made capital investments in its network, network
operating centers and other capital assets totaling $10.5 million in the nine
months ended September 30, 1998. The Company expects to make additional capital
investments approximating $1.5 million during the remainder of 1998 to expand
and enhance its operations. The foregoing expectation with respect to capital
investment is a forward-looking statement that involves risks and uncertainties
and the actual amount of capital investment could vary materially as a result of
a number of factors.
In the IPO, 3.85 million shares of the Company's common stock were sold
at a price of $10.00 per share, providing gross proceeds to the Company of $38.5
million and net proceeds, after deducting underwriting discounts, commissions
and offering expenses paid by the Company, of approximately $34.3 million. Since
the Company expects to incur additional operating losses, the Company intends to
continue to use the net proceeds from the IPO to meet its short-term capital
requirements. The Company currently believes that proceeds from the IPO,
combined with borrowings available under the secured line of credit with CIT,
will be sufficient to meet its anticipated cash needs for working capital and
for the acquisition of capital equipment to either the availability date of the
Qwest credit facility or to the consummation of the merger with Qwest. However,
there can be no assurance that the Company will not require additional financing
within this timeframe or that such additional financing will be available on
commercially reasonable terms, or at all.
The Company's forecast of the period of time through which its
financial resources will be adequate to support its operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary. The Company may be required to raise additional funds
through public or private financing, strategic relationships or other
arrangements. There can be no assurance that such additional financing, if
needed, will be available on commercially reasonable terms, or at all.
Furthermore, any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may involve restrictive covenants. Strategic
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<PAGE>
arrangements, if necessary to raise additional funds, may require the Company to
relinquish its rights to certain of its technologies.
Recently Issued Accounting Standards
In June 1997, the FASB issued Financial Accounting Standards No. 131,
"Disclosure About Segments of an Enterprise and Related Information" ("FAS
131"), which establishes standards for the way that public business enterprises
report information about operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. FAS 131 is effective for fiscal years beginning after December 31,
1997. The adoption of the provisions of FAS 131 is not expected to have a
material impact on the Company's existing disclosures.
Year 2000
As reasonably necessary and appropriate, the Company is in the process
of modifying or replacing software components that it uses so that such software
will properly recognize dates beyond December 31, 1999 ("Year 2000 Compliance").
The Company expects to complete the internal review of its Year 2000 Compliance
status shortly. The cost for such modifications and replacements is not
currently expected to be material. If the Company is not successful in
implementing the necessary Year 2000 changes, it expects to then develop
contingency plans to address any matters not corrected in a timely manner. The
Company has initiated formal communications with its significant vendors and
certain of its customers to determine the extent that Year 2000 Compliance
issues of such parties may affect the Company. To the extent that responses to
such communications with the Company's vendors are unsatisfactory, the Company
expects to take steps to ensure that its vendors' products have demonstrated
Year 2000 Compliance. The Company has recently compiled information concerning
the Year 2000 Compliance of certain of its significant customers' systems and
expects to contact other customers. There can be no guarantee that the systems
of the Company's vendors and customers will be timely converted or that such
conversion will be compatible with the Company's systems without a material
adverse effect on the Company's business, financial condition or results of
operations.
Disclosure Regarding Forward-Looking Information
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are typically
identified by the words "believe," "expect," "intend," "estimate" and similar
expressions. Those statements appear in a number of places in this report and
include statements regarding the intent, belief or current expectation of the
Company or its directors or officers with respect to, among other things, trends
affecting the Company's financial conditions and results of operations and the
Company's business and growth strategies. Such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those projected, expressed or implied in the
forward-looking statements as a result of various factors, including but not
limited to the following ("Cautionary Statements"): (i) the Company's limited
operating history and history of negative cash flow and operating losses, (ii)
potential fluctuations in the Company's quarterly operating results, (iii) the
Company's concentration of revenues, (iv) challenges facing the Company as it
experiences rapid growth and (v) its dependence on a limited number of
suppliers. The accompanying information contained in this report, including the
information set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," identifies important factors that could
cause such differences. Such forward-looking statements speak only as of the
date of this report, and the Company cautions potential investors not to place
undue reliance on such statements. The Company undertakes no obligation to
update or revise any forward-looking statements. All subsequent written or oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
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<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On September 15, 1998, a putative class action complaint was filed
against the Company, its directors and Qwest in the Court of Chancery of the
State of Delaware in and for New Castle County (the "Court"). In the suit, the
plaintiff alleges that consummation of the merger with Qwest will subject the
Company's stockholders to the control of Mr. Philip F. Anschutz, the majority
stockholder of Qwest, who will continue to be the majority stockholder of Qwest
after the merger. The plaintiff further alleges that the merger constitutes a
change in control of the Company and imposes heightened fiduciary duties on the
members of the Company's board of directors (the "Board") to maximize
stockholder value. The plaintiff also alleges that the members of the Board
violated their fiduciary duties by failing to auction the Company or to
undertake an active "market check" for other potential bidders. The plaintiff
seeks, among other things, to have the Court declare the suit a proper class
action, enjoin the merger and require the members of the Board to auction the
Company and/or conduct a "market check," and award monetary damages, together
with costs and disbursements. The Company considers the action to be without
merit and intends to vigorously defend the action.
Item 2. Changes in Securities and Use of Proceeds
On February 12, 1998 (the "Effective Date"), the Securities and
Exchange Commission declared effective the Company's Registration Statement on
Form S-1 (File No. 333-38339). From the Effective Date through September 30,
1998, net offering proceeds of: (i) $9.7 million was paid for construction of
plant, buildings and facilities; (ii) $1.8 million was used for repayment of
indebtedness; and (iii) $16.7 million was used for working capital and general
corporate purposes. Such payments, except for compensation pursuant to their
employment by the Company, were direct or indirect payments to persons other
than directors, officers or persons owning 10% or more of the Company's Common
Stock.
Item 4. Submission of Matters to a Vote of Security Holders.
On September 17, 1998, the Company's annual meeting of stockholders was
held (the "Meeting"). At the Meeting, the stockholders approved the following
matters:
First, the election of Messrs. Scott A. Baxter and Wayne B. Weisman as
Class I directors of the Company to serve until the Annual Meeting of
stockholders scheduled to be held in the year 2001 and until their successors
shall have been duly elected and qualified. The number of votes cast for or
withheld was as follows:
<TABLE>
<CAPTION>
Votes
-----
Nominee For Withheld
- ------- --- --------
<S> <C> <C>
Scott A. Baxter......................................... 11,717,604 9,908
Wayne B. Weisman........................................ 11,717,304 10,608
</TABLE>
Second, the approval of an amendment to the Company's 1995 Stock Option
Plan (the "1995 Option Plan") to permit the grant of stock options to
non-employee directors of the Company. There were 11,658,764 votes cast "for"
the matter, 69,148 votes cast "against" the matter and 4,156,466 abstentions and
broker non- votes.
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<PAGE>
Third, the approval of an amendment to the 1995 Option Plan to increase
the number of shares for which options may be granted thereunder. There were
9,732,469 votes cast "for" the matter, 221,901 votes cast "against" the matter
and 5,930,008 abstentions and broker non-votes.
Fourth, the ratification and approval of the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
fiscal year ending December 31, 1998. There were 11,715,939 votes cast "for" the
matter, 11,973 votes cast "against" the matter and 4,156,466 abstentions and
broker non-votes.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit Description
------- -----------
10.1 Form of each Indemnification Agreement between the
Company and its directors and executive officers
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
A Current Report on Form 8-K/A dated May 27, 1998 (date of earliest
event reported) was filed by the Company on August 10, 1998 and provided the
financial statements of Frontier Media Group, Inc. ("Frontier') for the years
ended December 31, 1997 and 1996 as well as pro forma condensed financial
information relative to Frontier for the three months ended March 31, 1997 and
1998 and for the years ended December 31, 1997, 1996 and 1995.
A Current Report on Form 8-K dated September 13, 1998 (date of earliest
event reported) was filed by the Company on September 16, 1998 and announced the
execution of a merger agreement between the Company, Qwest and a wholly-owned
subsidiary of Qwest.
A Current Report on Form 8-K dated September 29, 1998 (date of earliest
event reported) was filed by the Company on September 30, 1998 and included the
Company's audited consolidated financial statements for the year ended December
31, 1997, which were restated for the registrant's acquisition of Frontier.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 3, 1998
ICON CMT CORP.
By: /s/ Scott A. Baxter
---------------------------------
Scott A. Baxter,
President, Chief Executive
Officer and Chairman of the Board
By: /s/ Kenneth J. Hall
---------------------------------
Kenneth J. Hall,
Senior Vice President, Chief
Financial Officer and Treasurer
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<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
10.1 Form of each Indemnification Agreement between the
Company and its directors and executive officers
27.1 Financial Data Schedule
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Exhibit 10.1
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement dated as of _______ __, 1998, between
Icon CMT Corp., a Delaware corporation with its principal office located at 1200
Harbor Boulevard, Weehawken, New Jersey 07087 (the "Corporation"), and [Name of
Individual], an [officer and/or director] of the Corporation residing at
_________________________ (the "Indemnitee").
W I T N E S S E T H:
WHEREAS, the Corporation seeks to attract and retain the most capable
persons available to serve as its directors and officers; and
WHEREAS, such persons require substantial protection against personal
liability arising out of their faithful service to the Corporation; and
WHEREAS, the Corporation and the Indemnitee believe it desirable to
enter into agreements to reflect indemnification and advancement of expenses
arrangements; and
WHEREAS, in recognition of the Corporation's desire to retain the
services of the Indemnitee and in furtherance of the Corporation's policy and in
accordance with Article V, Paragraph Eleventh of the Corporation's By-laws, the
Corporation desires to provide the Indemnitee with the right to indemnification
and advancement of expenses and the Indemnitee desires to receive such right,
all upon the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing premises, the
Indemnitee's continued service to the Corporation and the mutual covenants
contained herein, the parties hereby agree as follows:
1. Certain Terms Defined. As used in this Agreement,
the following terms shall have the following meanings:
(a) The term "Action" shall mean any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, and including one by or in the right of the
Corporation or by or in the right of any other Entity which the Indemnitee
served in any capacity at the request of the Corporation.
(b) The term "Agreement" shall mean this
Indemnification Agreement, as the same
may be amended from time to time.
(c) The term "Board" shall mean the Board of
Directors of the Corporation.
(d) The term "Entity" shall mean any corporation of
any type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise.
<PAGE>
2. Right to Indemnification; Limitations. Subject to the terms
set forth in this Agreement, the Corporation shall indemnify the Indemnitee if
the Indemnitee was or is a party or is threatened to be made a party to any
Action by reason of the fact that the Indemnitee (or the Indemnitee's testator
or intestate) is or was a director or officer of the Corporation, or served
another Entity in any capacity, against judgments, fines, amounts paid in
settlement actually and reasonably incurred in connection with such Action and
expenses, including attorneys' fees, incurred as a result of such Action.
(a) The Indemnitee shall be entitled to
indemnification under this Section 2 only to the extent that (i) with respect to
any and all Actions, the Indemnitee acted in good faith and in a manner the
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Corporation, and (ii) with respect to any criminal Action, the Indemnitee
did not have reasonable cause to believe that the Indemnitee's conduct was
unlawful.
(b) Notwithstanding Sections 2(a) and (b), above,
to the extent required by law, no indemnification shall be made in respect of
any Action as to which the Indemnitee shall have been adjudged to be liable to
the Corporation unless and only to the extent that the Delaware Court of
Chancery or the court in which such Action was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the Action, the Indemnitee is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
3. Advances of Expenses. At the written request of the
Indemnitee, the Corporation will advance to the Indemnitee the expenses
(including attorneys' fees) incurred by the Indemnitee in defending any Action
in advance of the final disposition of such Action.
(a) The Indemnitee hereby agrees and undertakes
to repay such advanced amounts (or appropriate portions thereof) as to which it
ultimately is determined that the Indemnitee was not entitled; provided that
this undertaking shall be effective only if and to the extent that, by law, it
must be enforced as a condition to the receipt by the Indemnitee of advanced
expenses under this Section.
4. Payment by Corporation. The Corporation shall pay the
indemnification requested under Section 2 and advance the expenses requested
under Section 3 promptly following receipt by the Corporation of the
Indemnitee's written request therefor and, in any event, no later than thirty
(30) days after such receipt (in the case of requested indemnification) or
fifteen (15) days after such receipt (in the case of requested advanced
expenses).
5. Enforcement.
(a) The right of the Indemnitee to
indemnification and advancement of expenses provided by this Agreement shall be
enforceable by the Indemnitee in any court of competent jurisdiction. In such an
enforcement action, the burden shall be on the Corporation to prove that the
indemnification and advancement of expenses being sought are not appropriate.
Neither the failure of the Corporation to determine whether indemnification or
the advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation thereon adverse to the Indemnitee shall
constitute a defense to the action or create a presumption that the Indemnitee
is not so entitled.
(b) Without limiting the scope of indemnification
to which the Indemnitee is entitled under this Agreement, (i) if the Indemnitee
has been successful on the merits or otherwise in the defense of an Action, the
Indemnitee shall be entitled to indemnification as authorized in Section 2, and
(ii) the
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<PAGE>
termination of any Action by judgment, order, settlement, conviction or plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the Indemnitee has not met the standard of conduct required for
indemnification under this Agreement.
(c) The Indemnitee's reasonable expenses incurred
in connection with successfully establishing the Indemnitee's right to
indemnification or advancement or expenses, in whole or in part, in any such
proceeding under this section also shall be indemnified by the Corporation.
6. Non-Exclusivity. Nothing contained in this Agreement shall
limit the right to indemnification and advancement of expenses to which the
Indemnitee would be entitled by law in the absence of this Agreement, or shall
be deemed exclusive of any other rights to which the Indemnitee in seeking
indemnification or advancement of expenses may have or hereafter be entitled
under any law, provision of the Certificate of Incorporation, By-law, agreement
approved by or resolution of disinterested members of the Board, resolution of
Shareholders of the Corporation or otherwise.
7. Subrogation.
(a) The Corporation shall not be liable under
this Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise actually received payment
(under any insurance policy, By-law or otherwise) of the amounts otherwise
subject to indemnification or expense advance under this Agreement.
(b) In the event of payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee other than from the Corporation, and the
Indemnitee shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the Corporation effectively to bring suit to enforce such
rights.
8. Notice of Claim. As a condition precedent to the right to
be indemnified under this Agreement, the Indemnitee shall give the Corporation
written notice as soon as practicable of any claim made against the Indemnitee
for which indemnification or expense advances will or could be sought under this
Agreement. In addition, the Indemnitee shall give the Corporation such
information and cooperation as the Corporation reasonably may require.
9. Severability. If this Agreement or any portion hereof shall
be invalidated or held unenforceable on any ground by any court of competent
jurisdiction, the Corporation nevertheless shall indemnify the Indemnitee to the
fullest extent permitted by any applicable portion of this Agreement that shall
not have been so invalidated or held unenforceable.
10. Continuity of Rights. The right of the Indemnitee to
indemnification and advancement of expenses under this Agreement shall (a)
continue after the Indemnitee has ceased to serve in a capacity which would
entitle the Indemnitee to indemnification or advancement of expenses pursuant to
this Agreement with respect to acts or omissions occurring prior to such
cessation, (b) inure to the benefit of the heirs, executors and administrators
of the Indemnitee, (c) apply with respect to acts or omissions occurring prior
to the execution and delivery of this Agreement to the fullest extent permitted
by law, and (d) survive any restrictive amendment or termination of this
Agreement with respect to events occurring prior thereto.
-3-
<PAGE>
11. Proceedings Initiated by Indemnitee. Other than to the
extent provided in Section 5(c), above, the Indemnitee shall not be entitled to
indemnification or advancement of expenses under this Agreement with respect to
any Action initiated by the Indemnitee, but shall be entitled to indemnification
and advancement of expenses with respect to any counterclaim or third-party
claim in any such Action.
12. Binding Effect. This Agreement shall be binding upon all
successors and assigns of the Corporation (including any transferee of all or
substantially all of its assets and any successor by merger or operation of law)
and shall inure to the benefit of the heirs, personal representatives,
successors, representatives and estate of the Indemnitee.
13. Governing Law. Except with respect to matters required to
be governed by, and construed and enforced in accordance with, the corporate
laws of the State of Delaware, this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York
applicable to con tracts made and to be performed in such state, without giving
effect to the principles of conflicts of laws.
14. Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction hereof.
15. Notices. Any notice, request or other communication
hereunder to or on behalf of the Corporation or the Indemnitee shall be in
writing and shall be delivered to the other party hereto at the address shown on
the first page hereof (in the case of the Corporation, addressed to the
attention of the Board, with a copy delivered to Parker Chapin Flattau & Klimpl,
LLP, 1211 Avenue of the Americas, New York, New York 10036, addressed to Michael
Weinsier, Esq.). Any such notice, request or other communication shall be deemed
delivered one business day after sent by Federal Express, Express Mail or
similar overnight delivery service or, if sent otherwise, then upon the receipt
thereof at that address.
Either address referred to in the preceding subsection may be changed
from time to time in the manner specified in the preceding subsection, and
thereafter notices, requests and other communications shall be delivered to the
most recent address so furnished.
16. Counterparts. This Agreement may be executed in any number
of counterparts. Each counterpart of an agreement so executed shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument. In making proof of this Agreement, it shall not be necessary to
produce or account for more than one counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
Icon CMT Corp.
By:
Name:
Title:
[Name of Individual]
-4-
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