<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO. 333-38339
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ICON CMT CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7373 13-3603128
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1200 HARBOR BLVD.
WEEHAWKEN, NEW JERSEY 07087
(201) 601-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SCOTT A. BAXTER
PRESIDENT
ICON CMT CORP.
1200 HARBOR BLVD.
WEEHAWKEN, NEW JERSEY 07087
(201) 601-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
MICHAEL WEINSIER, ESQ. KRIS F. HEINZELMAN, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP CRAVATH, SWAINE & MOORE
1211 AVENUE OF THE AMERICAS WORLDWIDE PLAZA
NEW YORK, NEW YORK 10036 825 EIGHTH AVENUE
TELEPHONE NO.: (212) 704-6000 NEW YORK, NEW YORK 10019
FACSIMILE NO.: (212) 704-6288 TELEPHONE NO.: (212) 474-1000
FACSIMILE NO.: (212) 474-3700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
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, 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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share................................. 4,427,500 $14.00 $ 61,985,000 $18,783.33
Previously filed...................................................................................... $18,783.33
Amount due............................................................................................ $ 0.00
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 6, 1998
3,850,000 Shares
[Logo]
Common Stock
($.001 par value)
------------------
All of the shares of Common Stock, par value $.001 per share (the 'Common
Stock'), of Icon CMT Corp. (the 'Company') offered hereby (the
'Offering') are being sold by the Company except that certain
stockholders of the Company (the 'Selling Stockholders') named
herein under 'Principal and Selling Stockholders' have
granted the Underwriters an option to purchase shares solely
to cover over-allotments, if any. The Company will
not receive any of the proceeds from the shares
sold, if any, by the Selling Stockholders.
Prior to the Offering, there has been no public market for the Common Stock. It
is anticipated that the initial public offering price will be between $12.00
and $14.00 per share. For information relating to the factors to be
considered in determining the initial public offering price, see
'Underwriting'.
The Common Stock has been approved for listing on The Nasdaq Stock
Market's National Market ('NNM') under the symbol 'ICMT',
subject to official notice of issuance.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE 'RISK FACTORS' BEGINNING ON PAGE 8
HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS COMPANY(1)
--------------- --------------- ---------------
<S> <C> <C> <C>
Per share................................................ $ $ $
Total (2)................................................ $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Company estimated at
$ .
(2) The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable by Credit Suisse First Boston Corporation for 30 days
from the date of this Prospectus, to purchase a maximum of 346,500
additional shares from the Company and an aggregate of 231,000 additional
outstanding shares from the Selling Stockholders to cover over-allotments of
shares. If the option is exercised in full, the total Price to Public will
be $ , Underwriting Discounts and Commissions will be
$ , Proceeds to Company will be $ and total proceeds
to the Selling Stockholders will be $ .
The shares are offered by the several Underwriters when, as and if issued
by the Company, delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that the shares
will be ready for delivery on or about , 1998, against payment in
immediately available funds.
CREDIT SUISSE FIRST BOSTON
BANCAMERICA ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Prospectus dated , 1998.
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.
<PAGE>
<PAGE>
[LOGO]
Icon CMT Corp. provides single-source, end-to-end Internet solutions to
corporate customers.
News organizations at CBS-affiliated television stations across the country
access information from the CBS News extranet designed, built and managed by
Icon.
Bear Stearns engaged Icon on projects to integrate Bear Stearns' document
management system into an IP-network through a web gateway and to design,
develop and implement its Correspondence System Project.
Employees at Comedy Central can better manage their daily operations by using an
intranet designed and developed by Icon.
Today, many customers in the Bell Atlantic calling region use Icon's high-speed
ATM back-bone to access the Internet.
Online shoppers can now purchase designer apparel from Nicole Miller's virtual
store designed and deployed by Icon.
Consumers can plan and confirm travel on Swissair by using a website designed
and deployed by Icon.
Application has been made by the Company for the trademarks 'Icon CMT
Corp.,' 'IconFeed,' 'IconCache,' 'IconChat,' 'Word' and 'Charged'. All other
tradenames and trademarks appearing in this Prospectus are the property of their
respective holders.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE 'UNDERWRITING'.
[logo]
Combining a value-added communications infrastructure with professional services
to deliver single-source, end-to-end solutions to corporate customers.
WEBSITE DESIGN AND DEVELOPMENT
Award-winning design staff
Online branding
Integration of technologies, such as streaming audio and video
INTEGRATION WITH LEGACY SYSTEMS
Staff is trained and certified in Sun Solaris, Netscape, Microsoft NT, Cisco
Systems
Installation and configuration of systems, including networks and hardware
Third-party software expertise, including databases, operating systems and
firewalls
CUSTOM SOFTWARE APPLICATION DEVELOPMENT
Design and development of software applications tailored for customer needs
Browser-based gateway development to access and distribute corporate information
and data
Staff is trained in technologies such as C, C++ and Java
MAINTENANCE AND SUPPORT OF CUSTOMER IT INFRASTRUCTURE
Hardware and software maintenance to support customer IT infrastructure 24 hours
a day, 7 days a week
Services include call-in support, troubleshooting, software and hardware
updates, on-site helpdesk and general support personnel
HOSTING AND MANAGEMENT SOLUTIONS
Maintenance and management of mission-critical websites and applications
Network Operations Center, staffed 24 hours a day, 7 days a week
ACCESS SOLUTIONS
Nationwide Tier I ATM backbone
Bandwidth ranging from 56kbps to 45Mbps
Peered at major peering points
Icon-developed intelligent network technologies, including wide-area data
caching
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements
(including the notes thereto) (the 'Financial Statements') appearing elsewhere
in this Prospectus. Unless otherwise indicated, all information contained in
this Prospectus (i) assumes that the Underwriters' over-allotment option is not
exercised, (ii) has been adjusted to give effect to a decrease in the number of
shares of the Common Stock through a 1-for-2.75 reverse split of the
Common Stock that was effected in December 1997, (iii) assumes the automatic
conversion of the Company's Series A Convertible Participating Preferred Stock
(the 'Series A Preferred Stock') and 10% PIK Series B Convertible Participating
Preferred Stock (the 'Series B Preferred Stock') upon consummation of the
Offering and (iv) reflects the filing of the Restated Certificate of
Incorporation of the Company and the adoption of the Restated By-laws of the
Company, both of which will occur prior to the consummation of the Offering.
Certain terms used herein are defined under 'Glossary'. All references to the
Company contained in this Prospectus, unless otherwise noted, include the
Company's predecessor, Integration Consortium, Inc. ('ICI').
THE COMPANY
Icon CMT Corp. ('Icon' or the 'Company') is an Internet solutions provider
that offers a comprehensive range of services and products that enable corporate
customers to implement their Internet, intranet and extranet strategies. Icon's
mission is to provide end-to-end solutions to its customers by facilitating the
distribution of the customers' information and applications over Icon's
communications infrastructure as well as access to such information and
applications.
In order to provide end-to-end solutions, Icon offers services and products
in three key areas: (i) communications services, including high quality Internet
access and web/server hosting and management, enhanced by the Company's
proprietary technologies; (ii) a range of professional services, including
custom application and website development and design, systems integration and
maintenance and support services; and (iii) product resales, including hardware
and software, which are an integral component of systems design and integration.
Icon differentiates itself by integrating its services and products in order to
provide customized turnkey solutions for the needs of corporate customers.
Unlike many of Icon's competitors who focus on a single service or product, the
Company continuously expands the breadth of its services and its engineering
expertise to optimize its end-to-end solutions.
The emergence of the Internet and the widespread adoption of Internet
Protocol ('IP') as a data transmission standard has resulted in an increasing
number of corporations exploring opportunities to provide IP-based applications
and services within their organization, and to their customers and business
partners. The broad range of business applications, combined with security and
performance requirements, have resulted in demand for high bandwidth networked
systems and for integration and custom application development services.
Revenues generated by the Internet communications services market in the
United States, comprised of access and hosting, are expected to increase from
$1.4 billion in 1996 to $28.1 billion in 2000 according to Forrester Research,
Inc. while the worldwide Internet-related professional services market is
expected to grow from $2.5 billion in 1996 to $13.8 billion in 2000 according to
International Data Corporation. Icon focuses on the corporate market due to its
high growth, low customer turnover and demand for a broad range of higher
value-added Internet services and products.
The Company's communications infrastructure is a key element of its
end-to-end solutions. The Company maintains a nationwide Asynchronous Transfer
Mode ('ATM') backbone that incorporates certain proprietary technologies and is
managed to deploy and distribute information and applications. The Company
manages its network to achieve utilization levels that enable it to operate in a
reliable and high performance manner. The Company controls its network and
provides hosting and management services from its state-of-the-art network
operations center ('NOC'). By controlling its
3
<PAGE>
<PAGE>
own network, the Company can develop, select and integrate appropriate
technologies that enhance the speed, security, reliability, flexibility and
overall performance of its communications infrastructure, enabling the Company
to compete effectively and meet increasingly demanding customer requirements.
Icon's growth strategy is based on leveraging its capability to provide
end-to-end Internet solutions, which is often a decisive factor in attracting
new customers, as well as generating additional revenue from the existing
customer base. Icon's relationships with several customers, such as The
Associated Press. Bear, Stearns & Co. Inc. ('Bear Stearns') and CBS, Inc.
('CBS'), demonstrate how single service or product offerings evolved into
broader solutions opportunities encompassing multiple communications and
professional services and products. To maintain its competitive advantage,
Icon intends to: (i) maintain its reliable and high performance communications
infrastructure; (ii) expand the bandwidth and reach of its network; (iii)
expand and integrate professional services offerings; (iv) continue to build
efficient distribution of services and products through direct and indirect
sales channels; and (v) potentially strengthen its market position through
acquisitions.
Icon's distribution strategy depends on a direct sales force, which has
increased from 25 to 33 sales staff during the first nine months of 1997,
dedicated to large accounts with significant revenue generating potential, and
on indirect distribution channels, such as significant relationships with
telecommunications providers like Bell Atlantic Internet Solutions, Inc. ('Bell
Atlantic Internet Solutions') and Fiberlink Communications Corp. ('Fiberlink'),
that extend the Company's reach without substantial costs. Bell Atlantic
Internet Solutions makes Icon's communications services available to requesting
corporate and residential customers and represents a rapidly growing revenue
stream for Icon. In November 1997, Icon entered into a joint venture agreement
with Teleway Corporation ("Teleway") that will extend the reach of the Company's
network into Japan. Recently, Kokusai Denshain Denwa Co. Ltd. announced that
it is in negotiations to acquire Teleway. The Company cannot predict the
effect, if any, such acquisition would have on the joint venture.
Icon serves major corporations, predominantly in the financial services,
media, telecommunications and travel industries, including ABC Radio Network,
ACC Long Distance Corp. Alliance Capital Management LP, The Associated Press,
Barnes and Noble.com Inc., Bear Stearns, Bell Atlantic Internet Solutions,
Bloomberg Financial Markets, CBS, C-NET: The Computer Network, Comedy Central
Network, Daiwa Securities America, Inc., Deutsche Morgan Grenfell, Eastman Kodak
Company, Fiberlink, Galileo International, Merrill Lynch & Co. Inc.,
Metropolitan Life Insurance Co., Moore Capital Management, Inc., Kobra
International (Nicole Miller), Nomura Securities Co. Ltd., Omnipoint
Communications, Swissair, Swissotel, Tudor Investment Company and John Wiley &
Sons, Inc.
ICI, the Company's predecessor, was incorporated in New York in February
1991. Icon was incorporated in Delaware in February 1995, and ICI was merged
with and into Icon in December 1995. The Company's principal executive offices
are located at 1200 Harbor Blvd., Weehawken, New Jersey 07087, and its telephone
number is (201) 601-2000. The Company also maintains an office at 1700 Broadway,
New York, New York 10019. Icon's e-mail address is [email protected], and its
website, which is not a part of this Prospectus, is http://www.icon.com.
4
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby............................. 3,850,000 shares(a)
Common Stock to be outstanding after the Offering....... 15,025,285 shares(b)
Use of proceeds......................................... Expansion and upgrade of the Company's communications
infrastructure and for working capital and general
corporate purposes, including acquisitions. See 'Use of
Proceeds'.
Dividend policy......................................... The Company has not paid any dividend to stockholders
and does not anticipate such dividends in the
foreseeable future. See 'Dividend Policy'.
Proposed NNM symbol..................................... ICMT
</TABLE>
- ------------
(a) In addition, the Company and the Selling Stockholders have granted the
Underwriters an option to purchase 346,500 and 231,000 shares of Common
Stock, respectively, solely to cover over-allotments, if any. Any shares of
Common Stock purchased pursuant to the exercise of such option will be
purchased first from the Selling Stockholders and thereafter from the
Company.
(b) Does not include (i) 2,181,818 shares of Common Stock reserved for issuance
under the Company's Amended and Restated 1995 Stock Option Plan pursuant to
which options to purchase 1,251,741 shares have been granted and (ii)
948,891 shares of Common Stock reserved for issuance upon exercise of
outstanding warrants. See 'Management -- 1995 Option Plan' and
'Description of Capital Stock -- Warrants'.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should consider carefully the risk factors and other
information set forth in this Prospectus before making an investment in the
Common Stock offered hereby. See 'Risk Factors'.
5
<PAGE>
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data for each of the years in the
three-year period ended December 31, 1996 and the nine-month period ended
September 30, 1997 are derived from, and are qualified by reference to, the
Company's audited Financial Statements included elsewhere herein. The following
summary financial data for each year in the two-year period ended December 31,
1993 are derived from, and are qualified by reference to, the Company's audited
financial statements not included herein. The summary financial data for the
nine-month period ended September 30, 1996 are derived from the unaudited
financial statements of the Company included elsewhere herein and, in the
opinion of management, include all adjustments, consisting of normal recurring
accruals necessary for a fair presentation of the data presented. The summary
financial data for each three-month period in the 21-month period ended
September 30, 1997 are derived from, and are qualified by reference to, the
Company's unaudited financial statements not included herein. The results for
the nine months ended September 30, 1997 are not necessarily indicative of
results for the full year. The pro forma share and per share information for the
year ended December 31, 1996 and the nine months ended September 30, 1997 are
derived from, and are qualified by reference to, certain unaudited pro forma
finanical information included elsewhere herein. The information presented below
should be read in conjunction with 'Management's Discussion and Analysis of
Financial Condition and Results of Operation' and the Financial Statements
included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Services:
Professional..................... $ 611 $ 996 $ 1,914 $ 4,397 $ 6,570 $ 3,936 $11,988
Communications................... -- -- -- 189 1,268 685 3,931
Media............................ -- -- -- 202 529 353 77
------ ------- ------- ------- ------- ------- -------
Total services revenues........ 611 996 1,914 4,788 8,367 4,974 15,996
------ ------- ------- ------- ------- ------- -------
Products............................ 3,066 10,605 17,083 21,424 29,741 22,341 14,306
------ ------- ------- ------- ------- ------- -------
Total revenues, net................... 3,677 11,601 18,997 26,212 38,108 27,315 30,302
------ ------- ------- ------- ------- ------- -------
Cost of revenues:
Services............................ 222 382 758 2,596 6,842 4,333 11,521
Products............................ 2,521 9,596 14,132 17,653 24,607 18,406 11,676
------ ------- ------- ------- ------- ------- -------
Total cost of revenues................ 2,743 9,978 14,890 20,249 31,449 22,739 23,197
------ ------- ------- ------- ------- ------- -------
Gross profit.......................... 934 1,623 4,107 5,963 6,659 4,576 7,105
------ ------- ------- ------- ------- ------- -------
Operating expenses:
General and administrative.......... 378 652 1,548 2,435 7,006 5,049 7,577
Selling and marketing............... 345 742 1,393 3,450 6,504 4,390 6,546
Research and development............ 40 69 501 411 969 598 920
Depreciation and amortization....... 36 75 94 228 460 311 601
------ ------- ------- ------- ------- ------- -------
Total operating expenses.............. 799 1,538 3,536 6,524 14,939 10,348 15,644
------ ------- ------- ------- ------- ------- -------
Income (loss) from operations......... 135 85 571 (561) (8,280) (5,772) (8,539)
Net income (loss)..................... 89 44 291 (440) (8,038) (5,553) (9,088)
Pro forma net loss per common
share(a)............................ $(0.80) $(0.88)
======= =======
Pro forma weighted average common
shares outstanding(a)............... 10,109,279 10,311,285
OTHER DATA:
Capital expenditures.................. $ 98 $ 153 $ 232 $ 1,000 $ 3,701 $ 3,017 $ 2,679
(footnote on following page)
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(b)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 4,556 $ 50,253
Working capital....................................................................... 5,090 50,787
Total assets.......................................................................... 18,262 63,959
Total liabilities..................................................................... 8,074 8,074
Mandatorily redeemable preferred stock................................................ 26,626 --
Stockholders' (deficit) equity........................................................ (16,438) 55,884
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1996 1996 1997 1997
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Services:
Professional....................... $ 1,203 $ 1,062 $ 1,671 $ 2,634 $ 3,207 $ 4,268
Communications..................... 147 185 353 583 938 1,233
Media.............................. 124 113 116 176 77 --
--------- -------- ------------- ------------ --------- --------
Total services revenues.......... 1,474 1,360 2,140 3,393 4,222 5,501
--------- -------- ------------- ------------ --------- --------
Products............................. 7,281 7,328 7,732 7,400 4,795 4,885
--------- -------- ------------- ------------ --------- --------
Total revenues, net.................... 8,755 8,688 9,872 10,793 9,017 10,386
--------- -------- ------------- ------------ --------- --------
Cost of revenues:
Services............................. 1,270 1,237 1,826 2,509 3,137 3,592
Products............................. 6,157 5,865 6,384 6,201 3,813 4,092
--------- -------- ------------- ------------ --------- --------
Total cost of revenues................. 7,427 7,102 8,210 8,710 6,950 7,684
--------- -------- ------------- ------------ --------- --------
Gross profit........................... 1,328 1,586 1,662 2,083 2,067 2,702
Operating expenses..................... 2,566 3,873 3,909 4,591 4,652 5,269
Loss from operations................... (1,238) (2,287 ) (2,247) (2,508) (2,585) (2,567)
Net loss............................... (1,169) (2,205 ) (2,179) (2,485) (2,950) (2,734)
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Services:
Professional....................... $ 4,513
Communications..................... 1,760
Media.............................. --
-------------
Total services revenues.......... 6,273
-------------
Products............................. 4,626
-------------
Total revenues, net.................... 10,899
-------------
Cost of revenues:
Services............................. 4,792
Products............................. 3,771
-------------
Total cost of revenues................. 8,563
-------------
Gross profit........................... 2,336
Operating expenses..................... 5,723
Loss from operations................... (3,387)
Net loss............................... (3,404)
</TABLE>
- ------------
(a) For information concerning the computation of pro forma net loss per share
of Common Stock and pro forma weighted average common shares of Common
Stock outstanding, see Notes 3 and 12 to the Financial Statements.
(b) Gives effect to (i) the conversion of 422,607 shares of Series A Preferred
Stock and 180,240 shares of Series B Preferred Stock into 1,637,061 and
2,992,770 shares of Common Stock, respectively, upon consummation of the
Offering and (ii) the sale of Common Stock offered hereby, net of expenses,
at an assumed initial public offering price of $13.00 per share (the
mid-point of the range indicated on the front cover of this Prospectus).
RECENT DEVELOPMENTS
The following table sets forth certain preliminary unaudited Statement
of Operations Data for the three month period ended December 31, 1997 and
for the year ended December 31, 1997, as well as such preliminary operations
data as a percentage of the Company's total net revenues (except where otherwise
indicated). Audited financial statements for the year ended December 31, 1997
are not yet available. The unaudited financial data set forth below are derived
from, and are qualified by reference to, the Company's unaudited financial
statements not included herein. In the opinion of management, the unaudited
financial data set forth below includes all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the data
presented. The operating results set forth below are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997
-------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues, net:
Services:
Professional....................... $ 5,154 30.9% $17,140 36.5%
Communications..................... 2,047 12.3 5,979 12.7
Media.............................. 12 0.1 89 0.2
------ ----- ------ -----
Total services revenues.......... 7,213 43.3 23,208 49.4
------ ----- ------ -----
Products............................. 9,461 56.7 23,769 50.6
------ ----- ------ -----
Total revenues, net.................... 16,674 100.0% 46,977 100.0%
------ ----- ------ -----
----- -----
Cost of revenues:
Services(a).......................... 5,479 76.0%(a) 17,001 73.3%(a)
Products(b).......................... 7,725 81.7 (b) 19,401 81.6 (b)
------ ------
Total cost of revenues................. 13,204 79.2 36,402 77.5
------ ------
Gross profit........................... 3,470 20.8 10,575 22.5
------ ----- ------ -----
Operating expenses..................... 7,404 44.4 23,048 49.1
Loss from operations................... (3,934) (23.6) (12,473) (26.6)
Net loss............................... (3,909) (23.4) (12,997) (27.7)
</TABLE>
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(a) As a percentage of total services revenues.
(b) As a percentage of products revenues.
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RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should consider carefully the following risk
factors, in addition to the other information set forth in this Prospectus,
before making an investment in the Common Stock offered hereby.
This Prospectus contains forward-looking statements, which are typically
identified by the words 'believe,' 'expect,' 'intend,' 'estimate' and similar
expressions. Those statements appear in a number of places in this Prospectus
and include statements regarding the intent, belief or current expectation of
the Company or its directors or officers with respect to, among other things:
(i) trends affecting the Company's financial condition or results of operations;
and (ii) the Company's business and growth strategies. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected, expressed or implied in the
forward-looking statements as a result of various factors ('Cautionary
Statements'). The accompanying information contained in this Prospectus,
including the information set forth below and under 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and 'Business,'
identifies important factors that could cause such differences. Such
forward-looking statements speak only as of the date of this Prospectus, and the
Company cautions potential investors not to place undue reliance on such
statements. Neither the Company nor the Underwriters undertakes any 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
behalf of the Company are expressly qualified in their entirety by the
Cautionary Statements.
LIMITED OPERATING HISTORY; HISTORY OF NEGATIVE CASH FLOW AND OPERATING LOSSES;
GOING CONCERN EXPLANATORY PARAGRAPH IN ACCOUNTANTS' REPORT
The Company was founded in 1991, and consequently there is only a limited
operating history upon which an evaluation of the Company and its prospects can
be based. Although the Company has experienced revenue growth in recent years,
it has not been profitable for the last two years and the Company's recent
growth rate may not be sustainable and may not be indicative of future operating
results. To date, the Company has incurred negative cash flow from operations
and substantial and increasing net losses. Net cash used in operations for the
years ended December 31, 1995 and 1996 and the nine months ended September 30,
1996 and 1997 was $1.3 million, $5.0 million, $4.4 million and $8.6 million,
respectively. Losses from operations for the years ended December 31, 1995 and
1996 and the nine months ended September 30, 1996 and 1997 were $0.6 million,
$8.3 million, $5.8 million and $8.5 million, respectively. The Company had an
accumulated deficit at September 30, 1997 of $17.2 million. The Company expects
to continue to incur significant losses at least through 1998. The report of
independent accountants on the Financial Statements contains an explanatory
paragraph stating that the Financial Statements have been prepared assuming that
the Company will continue as a going concern while expressing substantial doubt
about the Company's ability to do so. The Company's present ability to continue
as a going concern is dependent on its ability to generate sufficient cash flow
to meet its obligations as they become due. The Company's significant operating
losses, expected additional losses and increasing cash and working capital
requirements (see Note 2 to the Financial Statements) raise substantial doubt
about the Company's ability to continue as a going concern.
There can be no assurance that the Company will be successful in attracting
new customers or retaining current customers or continue to increase revenues or
generate profits. There can be no assurance that the Company will ever achieve
profitability. Furthermore, the Company will rely to a great extent on resellers
to market certain of its Internet access services. A substantial portion of such
services is currently resold by a limited number of such resellers. There can be
no assurance that any such resellers will continue to actively market the
Company's services. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development, particularly companies in new and rapidly evolving
markets. To address these risks, the Company must, among other things, respond
to competitive developments, continue to attract, retain and motivate qualified
persons and continue to upgrade its technologies and commercialize services and
products incorporating such technologies. There can be no assurance that the
Company will be successful in addressing such risks.
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POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have in the past and may in the
future vary significantly depending upon factors such as the timing and
installation of significant orders, which in the past have been, and will in the
future be, delayed from time to time by delays in the provisioning of
telecommunications services and products by subcontractors. Additional factors
contributing to variability of quarterly operating results include the pricing
and mix of services and products sold by the Company, terminations of service,
new service and product introductions by the Company and its competitors, market
acceptance of new and enhanced versions of the Company's services and products,
changes in pricing or marketing policies by its competitors and the Company's
responses thereto, the Company's ability to obtain sufficient supplies of sole
source or limited source components, changes in the Company's communications
infrastructure costs, as a result of demand variation or otherwise, the
lengthening of the Company's sales cycle, access to capital and the timing of
the expansion of the Company's communications infrastructure.
CONCENTRATION OF REVENUES
The Company in the past has derived, and, in the future, expects to derive,
a significant portion of its revenue from a relatively limited number of
customers. In 1994, 1995, 1996 and the first nine months of 1997, the Company
derived 25%, 28%, 30% and 49%, respectively, of its revenues from a single
customer, Bear Stearns. In 1994, 1995 and 1996, the Company derived 11%, 15% and
13%, respectively, of its revenues from a second customer, Nomura Securities Co.
Ltd. ('Nomura Securities'). In 1995, the Company derived 10% of its revenues
from a third customer, Merrill Lynch & Co. Inc. ('Merrill Lynch'). In 1996 and
the first nine months of 1997, the Company's top ten customers (in terms of
revenues to the Company) accounted for approximately 66% and 74% of its
revenues, respectively. A substantial majority of sales to Bear Stearns is
attributable to purchase orders issued from time to time and written agreements
with a duration of one year. The Company expects that revenues from Bear Stearns
will decrease as a percentage of revenues in future periods; however revenues
derived from a limited number of current and future customers are expected to
continue to represent a significant portion of the Company's revenues. As a
result, the loss of any of such customers could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, there can be no assurance that revenues from customers that have
accounted for significant revenues in past periods, individually or as a group,
will continue, or if continued, will reach or exceed historical levels in any
future period. See 'Business -- Customers'.
MANAGEMENT OF GROWTH
The Company is currently experiencing rapid growth that could strain the
Company's managerial and other resources. During the 12 months ended September
30, 1997, the number of the Company's employees increased from 161 to 229
full-time employees, and further significant increases are anticipated during
the balance of 1997 and in 1998. The Company's ability to manage its growth
effectively will require it to continue to improve its operational, financial
and other internal systems, and to train, motivate, manage and retain its
current employees and attract new employees. Any inability of the Company's
management to manage growth effectively could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF SUPPLY
The Company relies on other companies to supply certain key components of
its communications infrastructure, including telecommunications services and
networking equipment that, in the quantities and quality demanded by the
Company, are available only from sole or limited sources. MFS Datanet, Inc.
('MFS') is the primary provider to the Company of data communications facilities
and capacity and leases to the Company physical space for switches, modems and
other equipment. The Company has entered into an agreement with MFS that allows
the Company access to MFS communications facilities, including facilities at
any future sites. Such agreement may be terminated as early as December 1998, is
not exclusive and is subject to early termination under certain circumstances.
MFS
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can enter into similar arrangements with the Company's competitors regarding its
backbone. In 1996, MFS merged with UUNET Technologies, Inc. ('UUNET'), a
competitor of the Company in the area of Internet access. MFS has been acquired
by WorldCom, Inc. ('WorldCom'), which is also a supplier of network services to
Icon. WorldCom has reached an agreement to acquire MCI Communications
Corporation ('MCI'), which is a major provider of Internet backbone services.
The combination of MFS, UUNET, WorldCom and MCI means that one of the Company's
major suppliers is also one of its most formidable competitors in providing
Internet services. The Company is also dependent upon LECs to provide
telecommunications services to the Company and its customers. The Company has
from time to time experienced delays in receiving telecommunications services,
and there can be no assurance that the Company will be able to obtain such
services on the scale and within the time frames required by the Company at an
acceptable cost, or at all. Any failure to obtain such services on a timely
basis at an acceptable cost, including termination or non-renewal of the
Company's relationship with MFS, would have a material adverse effect on the
Company's business, financial condition and results of operations.
Certain of the Company's suppliers, including the RBOCs and other LECs,
currently are subject to tariff controls and other price constraints that in the
future may be changed. In addition, regulatory proposals are pending that may
affect the prices charged by the RBOCs and other LECs to their customers,
including the Company. Any such regulatory changes could result in increased
prices for services to the Company, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
The routers, switches and modems used in the Company's communications
infrastructure are currently supplied solely by Cisco Systems Inc. ('Cisco').
The Company purchases these components pursuant to purchase orders placed from
time to time, does not carry significant inventories of these components and has
no guaranteed supply arrangements with Cisco. Cisco sells products to the
Company's competitors and may in the future become a competitor of the Company.
There can be no assurance that Cisco will not enter into exclusive arrangements
with the Company's competitors or that Cisco will continue to sell its products
or components to the Company at commercially reasonable prices, or at all. The
Company from time to time has experienced delays in receiving components from
Cisco. Expansion of communications infrastructures by the Company and others is
placing, and will continue to place, a significant demand on the Company's
suppliers, some of whom have limited resources and production capacity. In
addition, certain of the Company's suppliers, in turn, rely on sole or limited
sources of supply of components included in their products. Failure of the
Company's suppliers to meet such increasing demand may prevent them from
continuing to supply components and products in the quantities and quality and
at the times required by the Company, or at all. The Company's inability to
obtain sufficient quantities of sole or limited source components or to develop
alternative sources, if required, could result in delays and increased costs in
expanding, and overburdening of, the Company's communications infrastructure,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE UPON COMMUNICATIONS INFRASTRUCTURE
The Company is dependent on its suppliers' ability to provide necessary
products and components that comply with various Internet and telecommunications
standards and that interoperate with products and components from other vendors.
Any failure of the Company's sole or limited source suppliers to provide
products or components that comply with evolving Internet and telecommunications
standards or that interoperate with other products or components used by the
Company in its communications infrastructure could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's success will depend upon the capacity, reliability and
security of its communications infrastructure, including the facilities and
capacity leased from suppliers, including MFS. The Company must continue to
expand and adapt its communications infrastructure as the number of users and
the amount of information they wish to transport increases and to meet changing
customer requirements. The expansion and adaptation of the Company's
communications infrastructure will require substantial financial, operational
and management resources. There can be no assurance that the Company will be
able to expand or adapt its communications infrastructure to meet additional
demand or its customers'
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changing requirements on a timely basis and at a commercially reasonable cost,
or at all. Any failure of the Company to expand its communications
infrastructure on a timely basis or adapt it either to changing customer
requirements or to evolving industry standards could have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL; ATTRACTION AND RETENTION OF EMPLOYEES
The Company's performance is substantially dependent on the performance of
its executive officers and key employees. In particular, the future success of
the Company is dependent upon the personal efforts of the Company's founders,
Scott A. Baxter, Richard M. Brown and Scott Harmolin, each of whom is a director
and an executive officer of the Company. In the past 12 months, the Company has
hired several executives, including Kenneth J. Hall, Frank C. Cicio, Jr., Robert
J. Thalman, Jr. and Michael J. Gold. There can be no assurance these individuals
will remain with the Company or be successful. The loss of the services of any
of its executive officers or other key employees could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company does not maintain, nor is it currently contemplating obtaining, 'key
man' life insurance policies on any of its employees. See 'Management'.
The Company's professional services business is labor intensive. The
Company's success will depend in large part upon its ability to attract,
develop, motivate and retain highly skilled technical employees, particularly
project managers and other senior personnel. Qualified project managers are in
great demand and are likely to remain a limited resource for the foreseeable
future. There can be no assurance that the Company will be able to attract and
retain sufficient numbers of highly skilled technical employees and project
managers. The loss of some or all of the Company's project managers and other
senior personnel could have a material adverse effect on the Company, including
its ability to secure and complete projects. While project managers and most
other senior personnel have not entered into employment agreements with the
Company, substantially all the Company's key employees and independent
contractors are parties to nonsolicitation, confidentiality and noncompetition
agreements with the Company. However, no assurance can be given that such
agreements will be honored or that the Company will be able to effectively
protect its rights to its unpatented trade secrets and know-how.
COMPETITION
The markets served by the Company are extremely competitive. The Company
expects competition to persist, intensify and increase in the future. Because
there are no substantial barriers to entry, an influx of new market entrants is
expected to continue in response to the growing demand for information and data
communication technology services and products. Most of the Company's current
and potential competitors enjoy a greater market presence and possess
substantially greater technical, financial and marketing resources than the
Company.
COMMUNICATIONS SERVICES
The Company's current and prospective competitors in the Internet
communications services sector generally may be divided into the following five
groups: (i) telecommunications companies, such as AT&T Corp. ('AT&T'), MCI,
Sprint Corp. ('Sprint'), WorldCom, Intermedia Telecommunications Inc.
('Intermedia'), GTE Corporation ('GTE') and LECs; (ii) online services
providers, such as America Online Inc. ('America Online'),The Microsoft Network
('MSN') of Microsoft Corporation and Prodigy Services Company ('Prodigy'); (iii)
Internet service providers ('ISPs'), such as NETCOM On-Line Communications
Services, Inc. ('NETCOM'), PSINet, Inc. ('PSI'), Concentric Network Corporation
('Concentric') and other national and regional providers; (iv) cable modem
connectivity providers such as @Home Networks, Inc. ('@Home'); and (v) data
center providers such as Exodus Communications ('Exodus'). Most of these
competitors have greater market presence, engineering and marketing
capabilities, and financial, technological and personnel resources than those
available to the Company. As a result, they may be able to develop and expand
their communications infrastructures more quickly, adapt more swiftly to new or
emerging technologies and changes in customer
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requirements, take advantage of acquisitions and other opportunities more
readily, and devote greater resources to the marketing and sale of their
services than can the Company.
Although most of the established online services companies and
telecommunications companies currently offer only limited Internet access
services, many of these companies have announced plans to offer expanded
Internet access services. In addition, the combination of MFS, UUNET, WorldCom
and MCI means that one of the Company's major suppliers is also one of its most
formidable competitors in providing Internet services. In addition, the Company
believes that new competitors, including large computer hardware and software,
media and telecommunications companies, such as the RBOCs, may enter or expand
their presence in the Internet access market, resulting in even greater
competition for the Company.
The Company believes that competitive factors in the communications
services market include market presence, capacity, reliability, security of
communications infrastructure, quality of technical personnel, price, customer
support, new services and enhancements and conformity with industry standards.
There can be no assurance that the Company will have the financial resources,
technical expertise or marketing and support capabilities to compete
successfully in the communications services market. See
'Business -- Competition'.
PROFESSIONAL SERVICES
The professional services market is highly fragmented. The Company
currently encounters competition from mid-sized and regional consulting, design
and systems integration firms such as Cambridge Technology Partners, Inc.
('Cambridge Technology Partners') and Technology Solutions Co. ('Technology
Solutions'), and increasingly competes with large-scale systems integrators,
such as EDS Corp. ('EDS'). The Company's design group also competes with a
variety of interactive design firms including agency.com, Razorfish, USWeb and
CKS Group. The Company believes that the primary competitive factors at work in
this market are price, the ability to fashion and deliver efficient solutions to
customer needs, the quality of service, including project management and ongoing
support and maintenance, and the availability and quality of hardware and
software. Accordingly, the Company competes on the basis of its reputation,
personnel, technical sophistication and ability to provide single-source,
end-to-end solutions, including hardware and software product resales and
communications services. There can be no assurance that the Company will have
the financial resources, personnel, technical expertise or marketing and support
capabilities to continue to compete successfully in the professional services
market. See 'Business -- Competition'.
PRODUCT RESALES
The product resales market in which the Company competes is a high volume,
low margin business with minimal barriers to entry. Product resellers such as
the Company purchase information technology hardware and software products from
OEMs or wholesale distributors and resell the products to its customers. The
Company's current and prospective competitors generally can be divided into
three groups: (i) national and regional VARs, such as EJV Bridge Networks, Bell
Technology Group Ltd. ('Bell Technology') and LANCOM; (ii) national and regional
systems integrators, such as EDS, Sapient, Computer Associates International,
Inc. ('Computer Associates') and The Ergonomics Group; and (iii) hardware
distributors, such as CHS Electronics and ITOCHU Corporation ('ITOCHU'). Growing
product complexity, shorter product life cycles and an increasing number of
information technology products due to the emergence of open systems
architectures and the recognition of certain industry standards have led
resellers to depend on wholesale distributors for more of their product,
marketing and technical support needs. In addition, resellers increasingly rely
on wholesale distributors for inventory management and credit to avoid stocking
large inventories and maintaining credit lines to finance their working capital
needs. The need for resellers to implement high volume/low cost operations is
imperative in light of ongoing price competition and the increasing demand for
value-added services.
The product resales industry is intensely competitive and such competition
is based primarily on price, product availability, speed and accuracy of
delivery, effectiveness of sales and marketing
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programs, credit availability, ability to tailor specific solutions to customer
needs, quality and breadth of product lines and services, and availability of
technical and product information. Resellers are experiencing additional
pressures from manufacturers that have been successful in selling directly to
the end-user, without the use of resellers. There can be no assurance that
resellers will not lose market share, or that they will not be forced in the
future to reduce prices in response to the actions of competitors and thereby
experience a further reduction in gross margins. As a result of intense price
competition in the product sales industry, reseller margins have continued to
narrow. To the Company, these narrow margins magnify the impact on operating
results of variations in operating costs. Recognizing the challenging dynamics
of the product resales market, the Company has de-emphasized its previous
product resales focus. However, the Company will continue to participate in the
product resales business, which the Company expects will be a source of
significant revenues for the foreseeable future, in order to include OEM
hardware and software in its comprehensive, end-to-end Internet solutions.
DEPENDENCE ON DISTRIBUTION AND MARKETING AGREEMENTS
The Company believes that its success in penetrating markets for its
services depends in large part on its ability to maintain and develop additional
relationships with leading technology and communications companies and to
cultivate alternative relationships if distribution channels change. In May
1996, the Company and Bell Atlantic Internet Solutions entered into an
arrangement whereby Bell Atlantic Internet Solutions agreed to provide billing
services in connection with the selection by its customers of the Company's
communications services for both dedicated and switched access. In October 1997,
the Company extended its arrangement by entering into an updated global service
provider ('GSP') agreement with Bell Atlantic Internet Solutions. Also during
1996, the Company entered into agreements with each of Access Graphics, Inc.
('Access Graphics') and Merisel Americas, Inc. ('Merisel'), whereby these
companies agreed to distribute the Company's services and products to the
Company's resellers.
The Company's distribution and marketing agreements, as well as the
arrangement with Bell Atlantic Internet Solutions, are non-exclusive, and many
of the companies with which the Company has such agreements also have similar
agreements with the Company's competitors or potential competitors.
Additionally, the Company's arrangement with Bell Atlantic Internet Solutions is
subject to regulatory scrutiny by federal and state authorities. See
'Business -- Government Regulation'. There can be no assurance that the
Company's distributors and OEM partners, most of which have significantly
greater financial and marketing resources than the Company, will not develop and
market products in competition with the Company in the future, discontinue their
relationships with the Company or form additional competing arrangements with
the Company's competitors. If certain of these agreements were discontinued or
renegotiated in a manner adverse to the Company, it could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISK OF SYSTEMS FAILURE
The Company's operations are dependent upon its ability, and the ability of
its suppliers, such as MFS, to protect its communications infrastructure against
damage from fire, earthquakes, power loss, telecommunications failures and
similar events. Despite taking precautions, other Internet access providers have
suffered interruptions as a result of natural disasters and other unanticipated
problems, and in the future such events could cause interruptions in the
services provided by the Company. In addition, failure of the Company's
telecommunications vendors to provide the data communications capacity required
by the Company as a result of operational disruption or for any other reason
could cause interruptions in the services provided by the Company. Any damage or
failure 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.
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SECURITY RISKS
Despite the implementation of security measures, any communications
infrastructure is vulnerable to computer viruses and other disruptive problems.
Other Internet access providers have in the past experienced, and the Company
may in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. Unauthorized use could also potentially jeopardize the
security of confidential information stored in the computer systems of the
Company and its customers, which may result in liability of the Company to its
customers and also may deter potential subscribers. Although the Company intends
to continue to implement industry-standard security measures, such measures have
been circumvented in the past, and there can be no assurance that measures
implemented by the Company will not be circumvented in the future. Eliminating
computer viruses and alleviating other security problems may require
interruptions, delays or cessation of service to the Company's customers, all of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON PROPRIETARY TECHNOLOGIES
The Company's success and ability to compete is dependent in part upon its
proprietary technologies. While the Company relies on patent, trademark,
contract, trade secret and copyright law to protect its proprietary
technologies, it is possible for a third party to copy or otherwise obtain and
use the Company's technologies without authorization, or to develop similar
technologies independently. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries. Policing
unauthorized use of the Company's technologies is difficult. Certain of the
Company's software products are currently accessible over the Internet. Such
accessibility to such products increases the likelihood that third parties will
misappropriate them. There can be no assurance that the steps taken by the
Company will prevent misappropriation of its technologies. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights or to protect the Company's trade secrets. Such litigation 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.
Although the Company does not believe that its services or products
infringe the proprietary rights of any third parties, there can be no assurance
that third parties will not assert such claims against the Company in the future
or that such claims will not be successful. Additionally, the Company could
incur liability from alleged infringements of third party proprietary rights by
the Company's customers. The Company could incur substantial costs and diversion
of management resources with respect to the defense of any claims relating to
proprietary rights, which could materially adversely affect the Company's
business, financial condition and results of operations. Parties making such
claims could secure a judgment awarding substantial damages, as well as
injunctive or other equitable relief that could effectively block the Company's
ability to use or exploit the affected products in the United States or abroad.
Such a judgment could have a material adverse effect on the Company's business,
financial condition and results of operations. See 'Business -- Proprietary
Rights'.
Certain technologies used in the Company's solutions are licensed or leased
from third parties, generally on a non-exclusive basis. The termination of any
of these licenses or leases may have a material adverse effect on the Company's
business, financial condition and results of operations. Replacement of certain
technologies licensed or leased by the Company could be costly and could result
in delays that could have a material adverse effect on the Company's business,
financial condition and results of operations. While it may be necessary or
desirable in the future to obtain other licenses or leases relating to one or
more of the Company's services or products or relating to current or future
technologies, there can be no assurance that the Company will be able to do so,
if at all, on commercially reasonable terms.
TECHNOLOGICAL CHANGE; MARKET ACCEPTANCE OF EVOLVING STANDARDS
The markets the Company serves are subject to rapid technological change,
changing customer requirements, frequent new product introductions and evolving
industry standards that may render existing services and products obsolete. As a
result, the Company's position in its existing markets or
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other markets that it may enter could be eroded rapidly by product advancements
by competitors. The life cycles of the Company's services and products are
difficult to estimate. The Company's future success will depend, in part, upon
its ability to enhance existing services and products and to develop new
services and products on a timely basis. In addition, its services and products
must keep pace with technological developments, conform to evolving industry
standards, particularly client/server and Internet communications and security
protocols, and publishing formats, and address increasingly sophisticated
customer needs. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of services and products, or that new services and
products and enhancements will meet the requirements of the marketplace and
achieve market acceptance. If the Company is unable to develop and introduce
services and products in a timely manner in response to changing market
conditions or customer requirements, the Company's business, financial condition
and results of operations could be materially and adversely affected.
DEPENDENCE UPON GROWTH OF THE INTERNET
The markets that the Company serves with its services and products are in
the early stage of development and dependent on the Internet. Since the markets
are relatively new and the level of competition is increasing, it is difficult
to anticipate the market growth rate and potential saturation. Sales of the
Company's services and products will depend in large part upon a robust industry
and infrastructure for providing commercial Internet access and carrying
Internet traffic and upon increased commercial use of the Internet. The Internet
may not prove to be a viable commercial marketplace or may develop at a slower
rate than would support the Company's continued growth because of inadequate
development of the necessary infrastructure, such as a reliable network, or
timely development of complementary products, such as high speed modems. There
can be no assurance that the infrastructure or complementary products necessary
to make the Internet a viable commercial marketplace will be developed or
available to the Company on reasonable terms. If the necessary infrastructure or
complementary products are not developed or are not made available to the
Company on reasonable terms, or if the Internet and related markets do not
become a significant commercial marketplace, the Company's business, financial
condition and results of operations and will be materially adversely affected.
See 'Business -- Market and Industry Overview'.
RISKS ASSOCIATED WITH ACQUISITIONS
As part of its growth strategy, the Company intends to pursue acquisitions
of businesses or customer bases, and investments in, and strategic alliances
with, entities that complement or expand the Company's current operations or
capabilities. The Company is continuously evaluating potential investment
opportunities, but no assurance can be given that the Company will enter into
any understandings, commitments or agreements with respect to any acquisition,
investment, strategic alliance or related effort. Any acquisitions, investments,
strategic alliances or related effort will be accompanied by the risks commonly
encountered in such transactions or efforts. Such risks include, among others,
the failure to identify appropriate candidates, the inability to assimilate
operations and personnel of the respective entities, the potential disruption of
the Company's ongoing business, the inability of management to capitalize on the
opportunities presented by acquisitions, investments, strategic alliances or
related efforts, the failure to successfully incorporate licensed or acquired
technology and rights into the Company's services, the inability to maintain
uniform standards, controls, procedures and policies and the impairment of
relationships with employees and customers as a result of changes in management
or otherwise. Additionally, the Company may incur substantial additional
indebtedness in any acquisition, investment, strategic alliance or related
effort. Such indebtedness could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company would be successful in overcoming these risks or any
other difficulties encountered with respect to such acquisitions, investments,
strategic alliances or related efforts.
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GOVERNMENT REGULATION
The Company believes it is not currently subject to direct regulation by
the FCC or any other governmental agency, other than regulations applicable to
businesses generally. To date, the Federal Communications Commission (the 'FCC')
has not actively sought to regulate the provision of Internet access and related
services. Under current law, operators of 'enhanced' services are exempt from
FCC regulation, but operators of 'basic' services are not similarly exempt. The
FCC has not yet addressed whether providing transport services, including
Internet telephony, to customers over an IP-based network is an enhanced
service. A determination by the FCC that providing Internet transport or
telephony services to customers over an IP-based network is subject to
regulation could adversely impact the Company's ability to provide various
existing and planned services, to provide Bell Atlantic Internet Solutions'
customers with the option to purchase the Company's communications and other
services, and could have a material adverse effect on the Company's business,
financial condition and results of operations.
In February 1996, the Telecommunications Act of 1996 was signed into law by
the President of the United States. Changes in the regulatory environment
relating to the Internet access industry, including regulatory changes that
directly or indirectly affect the regulatory status of Internet services, affect
telecommunications costs, including the application of access charges to
Internet services, or increase the likelihood or scope of competition from
regional telephone companies or others, could also have a material adverse
effect on the Company's business, financial condition and results of operations.
Due to the increase in Internet use and publicity, it is possible that laws and
regulations may be adopted with respect to the Internet, including with respect
to privacy, pricing and characteristics of services or products. Certain other
legislative initiatives, including those involving taxation of Internet services
and transactions, Internet regulation and universal service contribution
requirements for Internet providers, have also been proposed. The Company cannot
predict the impact, if any, that those or other future laws and regulations or
legal or regulatory changes may have on its business.
In addition, Bell Atlantic Corporation ("Bell Atlantic") has filed a
petition with the FCC seeking relief from various regulations that affect the
deployment of advanced telecommunications services by RBOCs. The petition asks
the FCC to approve Bell Atlantic's (i) provision of high-speed broadband
services without regard to current geographic restrictions, (ii) development of
new services without current pricing, unbundling or separations restrictions and
(iii) sale of new services unrestricted by otherwise applicable price cap and
separate afiiliate rules. If the FCC approves the petition, Bell Atlantic
Internet Solutions may be able to undertake many of the functions that the
Company currently performs for Bell Atlantic Internet Solutions' customers. The
FCC has invited public comment on Bell Atlantic's request.
Recently the FCC proposed to eliminate the requirement that RBOCs must file
comparably efficient interconnection plans and obtain approval for those plans
prior to providing new enhanced services. Elimination of this requirement could
lessen certain regulatory burdens currently imposed on Bell Atlantic Internet
Solutions. Furthermore, on December 31, 1997, a Federal District Court Judge
declared several provisions of the Telecommunications Act of 1996 (the
"Telecommunications Act") unconstitutional. If upheld on appeal, this decision
may allow Bell Atlantic to offer certain services, which Bell Atlantic Internet
Solutions and its affiliates have been prohibited from offering under the
Telecommunications Act, without the FCC finding Bell Atlantic to be in
compliance with the network unbundling and other competitive requirements set
out in the Telecommunications Act. The Company currently provides such services
for Bell Atlantic Internet Solutions' customers; and if the decision is upheld
on appeal, Bell Atlantic Internet Solutions or its affiliates may provide such
services directly to their customers.
Bell Atlantic Internet Solutions' relationship with the Company is subject
to review and regulation by state and federal authorities, including the FCC.
Although the Company understands that Bell Atlantic Internet Solutions has
received the requisite approvals to provide service and make the Company's
services available to those of Bell Atlantic Internet Solutions' customers who
request them (which has only included customers in the traditional Bell Atlantic
southern region through the date of this Prospectus), a petition submitted by
MFS in July 1996 for reconsideration of such FCC approvals is currently pending
before the FCC. Additionally, the extension of the Company's service offerings
into the Bell Atlantic northern (NYNEX) region is subject to approvals at the
state and federal levels. There can be no assurance that Bell Atlantic Internet
Solutions will be successful in maintaining or procuring the requisite
regulatory approvals. Failure of Bell Atlantic Internet Solutions to maintain or
prospectively procure such approvals at the federal or state level could
adversely affect the Company's existing agreements with Bell Atlantic Internet
Solutions, and, as a result, the Company's business, financial condition and
results of operations.
Federal and state laws and regulations relating to the liability of online
services companies and Internet access providers for information carried on or
disseminated through their networks is currently unsettled. Several private
lawsuits seeking to impose such liability upon online services companies and
Internet access providers are currently pending. In addition, legislation has
been enacted and new legislation has been proposed that imposes liability for or
prohibits the transmission on the Internet of certain types of information. The
imposition upon the Company and other Internet access providers of potential
liability for information carried on or disseminated through their systems could
require the Company to implement measures to reduce its exposure to such
liability, which may require the expenditure of substantial resources, or to
discontinue certain service or product offerings. The increased attention
focused upon liability issues as a result of these lawsuits and legislative
actions and proposals could impact the growth of Internet use. While the Company
carries professional liability insurance, it may not be adequate to compensate
or may not cover the Company in the event the Company becomes liable for
information carried on or disseminated through its networks. Any costs not
covered by insurance incurred as a result of such liability or asserted
liability could have a material adverse effect on the Company's business,
financial condition and results of operations.
16
<PAGE>
<PAGE>
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that the net proceeds from the Offering,
the existing credit facility and funds from operations will be sufficient to
meet its anticipated working capital and capital expenditure requirements at
least through the end of 1998. The Company may need to raise additional funds
through public or private debt or equity financings or by contracting for an
expanded credit facility in order to meet its working capital and capital
expenditure requirements through the end of 1998, to take advantage of
unanticipated opportunities, including more rapid international expansion or
significant acquisitions of complementary businesses or technologies, or to
develop new products or otherwise respond to unanticipated competitive
pressures. Certain covenants under the Company's secured line of credit restrict
the Company, under certain conditions, from, among other things, incurring
additional borrowing or merging with another company. The Company's inability to
borrow additional funds could result in the Company seeking alternative forms of
equity financing, and there can be no assurance that the Company would be
successful in obtaining such financing. If additional funds are raised through
the issuance of equity securities, the percentage ownership of then current
stockholders of the Company may be reduced and such equity securities may have
rights, preferences or privileges senior to those of the holders of the Common
Stock. Any such equity financing may be dilutive to the Company's stockholders.
It is likely that any debt financing or credit facility would restrict the
Company's ability to make acquisitions, borrow from other sources or pay
dividends to stockholders in certain cases. The terms of any such debt or equity
financing could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not currently
have any commitments for any additional equity or debt financing, and there can
be no assurance that any financing will be available to the Company or, if
available, that it can be obtained on terms acceptable to the Company. If
adequate funds are not available or are not available on acceptable terms, the
Company may not be able to take advantage of unanticipated opportunities,
develop new technologies or otherwise respond to unanticipated competitive
pressures, or fund its operations. Such inability 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 -- Liquidity and Capital Resources'.
CONTINUING CONTROL BY CURRENT MANAGEMENT AND EXISTING STOCKHOLDERS
Upon completion of the Offering, Scott A. Baxter, the Company's President,
Chief Executive Officer and Chairman of the Board of Directors, Richard M.
Brown, the Company's Vice President -- Information Technologies and Secretary,
and Scott Harmolin, the Company's Senior Vice President and Chief Technology
Officer, each of whom is a director of the Company, will beneficially own, in
the aggregate, approximately 44% of the issued and outstanding shares of Common
Stock. As a result, these stockholders, if they were to act in concert, would
have effective control over the Company and on the outcome of any matters
submitted to the Company's stockholders for approval, which influence might not
be consistent with the interests of other stockholders. In addition, if they
were to act in concert, they may be able to deter or cause a change in control
of the Company and otherwise generally control the Company's affairs.
BROAD DISCRETION IN APPLICATION OF PROCEEDS
A substantial portion of the estimated net proceeds from the Offering will
be allocated to the Company's working capital and general corporate purposes.
Due to the number and variability of factors that will be analyzed before the
Company determines how to use such net proceeds, the Company will have broad
discretion in allocating a significant portion of the net proceeds from the
Offering without any action or approval of the Company's stockholders.
Accordingly, investors will not have the opportunity to evaluate the economic,
financial and other relevant information that will be considered by the Company
in determining the application of such net proceeds. See 'Use of Proceeds'.
DILUTION
Purchasers of the Common Stock offered hereby will suffer immediate and
substantial dilution in the amount of $9.28 per share in the net tangible book
value per share of the Common Stock as of
17
<PAGE>
<PAGE>
September 30, 1997 (assuming that the initial public offering price of the
Common Stock is the mid-point of the range indicated on the front cover of this
Prospectus). See 'Dilution'.
BENEFITS OF OFFERING TO CURRENT STOCKHOLDERS
Upon consummation of the Offering, the Company's existing stockholders will
receive substantial benefits, including the creation of a public trading market
for their shares of Common Stock (although the holders of more than 10.7 million
shares of Common Stock have agreed that, for a period of 180 days after the date
of this Prospectus, they will not, among other things, sell such shares without
the prior written consent of Credit Suisse First Boston Corporation), the
corresponding facilitation of such sales in the secondary market and an
immediate increase in net tangible book value of $2.81 per share (based upon the
difference between the adjusted net tangible book value per share at September
30, 1997 and the mid-point of the range indicated on the front cover of this
Prospectus). If the Underwriters exercise their option to purchase 231,000
shares of Common Stock from the Selling Stockholders, such Selling Stockholders
will realize $2.8 million (after deducting underwriting discounts and
commissions and assuming the initial public offering price of the Common Stock
is the mid-point of the range on the cover of this Prospectus).
NO DIVIDENDS
The Company has not paid dividends on the Common Stock and does not
anticipate paying any dividends to its stockholders in the foreseeable future.
The declaration and payment of any dividends in the future will be determined at
the discretion of the Board of Directors, and will depend upon the Company's
earnings, capital requirements, financial condition and other relevant factors.
The payment of cash dividends by the Company is prohibited under its revolving
line of credit. In addition, any future bank or other financing may restrict the
Company's ability to declare and pay dividends. See ' -- Future Capital Needs;
Uncertainty of Additional Financing'.
NO PRIOR MARKET; POSSIBLE VOLATILITY
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined by
negotiations among the Company, the Selling Stockholders and the Representatives
of the Underwriters. See 'Underwriting' for a discussion of the factors to be
considered in determining the initial public offering price. There can be no
assurance that an active public market will develop or be sustained after the
Offering or that the market price of the Common Stock will not decline below the
initial public offering price. Future announcements concerning the Company or
its competitors, quarterly variations in operating results, announcements of
technological innovations, the introduction of new services or products or
changes in services or products pricing policies by the Company or its
competitors, proprietary rights or other litigation, changes in earnings
estimates by analysts or other factors could cause the market price of the
Common Stock to fluctuate substantially. In addition, stock prices for many
technology companies fluctuate widely for reasons which may be unrelated to
operating results. These fluctuations, as well as general economic, market and
political conditions such as recessions or military conflicts, may materially
and adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Common Stock by existing stockholders pursuant to
Rule 144 ('Rule 144') promulgated under the Securities Act or otherwise could
have an adverse effect on the price of the shares of the Common Stock. Upon
completion of the Offering, the Company will have 15,025,285 shares of Common
Stock outstanding (15,371,785 shares if the over-allotment option is exercised
in full). In addition, the Company has reserved for issuance 2,181,818 shares of
Common Stock upon exercise of options granted under the Company's Amended and
Restated 1995 Stock Option Plan (the '1995 Option Plan') and
948,891 shares of Common Stock upon exercise of outstanding warrants.
The 3,850,000 shares of Common Stock offered hereby (4,427,500 if the
over-allotment option is exercised in full) will be freely transferable without
restriction or further registration under the Securities Act except for any
shares purchased by an 'affiliate' of the Company within the meaning of Rule
144. The remaining 11,175,285 shares of Common Stock will be 'restricted
securities' as that term is defined in Rule 144, and may only be sold pursuant
to a registration statement under the Securities
18
<PAGE>
<PAGE>
Act or an applicable exemption from registration thereunder, including
exemptions provided by Rule 144 and Rule 701. No prediction can be made as to
the effect that future sales of Common Stock, or the availability of shares of
Common Stock for future sales, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital through the future sale of equity securities. See 'Management,'
'Principal and Selling Stockholders,' 'Shares Eligible for Future Sale' and
'Underwriting'.
In addition, after the Offering, the holders of 4,629,831 shares of Common
Stock and 948,891 warrants will be entitled to certain rights with respect to
registration of such securities and/or securities underlying such securities
under the Securities Act. Registration of such securities under the Securities
Act would result in such securities becoming freely tradeable under the
Securities Act (except for securities purchased by affiliates of the Company)
immediately upon the effectiveness of such registration. See 'Description of
Capital Stock -- Registration Rights of Certain Holders'.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Restated Certificate of Incorporation and
Restated By-laws could make it more difficult for a third party to acquire,
and could discourage a third party from attempting to acquire, control of the
Company. Certain of these provisions allow the Company to issue preferred stock
with rights senior to those of the Common Stock without any further vote or
action by the stockholders and other requirements which could make it more
difficult for stockholders to effect certain corporate actions. Such provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Common Stock and may have the effect of delaying or
preventing a change in control of the Company. The issuance of preferred stock
also could decrease the amount of earnings and assets available for distribution
to the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In addition,
certain provisions of the Delaware General Corporation Law prevent certain
stockholders from engaging in business combinations with the Company, subject to
certain exceptions. See 'Description of Capital Stock -- Certain Anti-Takeover
Charter Provisions and Statutory Provisions'.
LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation limits the liability of directors
of the Company for breach of difuciary duty as a director except for (i) breach
of the duty of loyalty to the Company or its stockholders, (ii) acts not in
good faith, involving intentional misconduct or knowing violation of law,
(iii) certain violations of the Delaware General Corporation Law and (iv)
transactions hwere the director derived an improper benefit. In addition, the
Restated Certificate of Incorporation requires the Company to indemnify
directors, officers, employees and agents of the Company to the fullest extent
permitted by such law. The foregoing provisions may reduce the likelihood of
derivative litigation against directors and officers and may discourage or deter
stockholders or management from suing directors or officers for breaches of
their duties to the Company, even though such an action, if successful, might
otherwise benefit the Company and its stockholders. See 'Description of Capital
Stock -- Limitations on Liability and Indemnification of Officers and
Directors'.
LIMITATION ON USE OF NET OPERATING LOSS CARRYFORWARDS
Upon consummation of the Offering, there will be an 'ownership change' in
the Company within the meaning of Section 382 of the Internal Revenue Code of
1986, as amended (the 'Code'), which limits the ability of the Company to use
its net operating losses in a given year. Following an 'ownership change,' the
amount of available net operating loss carryforwards and credit equivalents from
periods before the ownership change that may be used by the Company in any tax
year following the change cannot exceed the 'long-term tax-exempt rate' at the
time of the Offering (which rate is 5.27% as of the date of this Prospectus)
multiplied by the value of the Company at the time of the Offering (with certain
adjustments).
19
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $45.7 million ($49.9 million if the over-allotment option is
exercised in full) after deducting underwriting discounts and commissions and
estimated expenses of the Offering payable by the Company.
The Company intends to use approximately $7.5 million of the net proceeds
for upgrade and expansion of its communications infrastructure. The balance of
the net proceeds ($38.2 million) will be used to fund working capital
requirements and for other general corporate purposes, including acquisitions.
Although the Company is continuously evaluating potential investment
opportunities, it does not have, nor can any assurance be given that it will
have, any understanding, commitment or agreement with respect to any
acquisition. If the over-allotment option is exercised in full, additional net
proceeds ($4.2 million) will be added to the Company's working capital.
The amounts of the Company's expected expenditures described herein are
estimates and are subject to change. Unforeseen developments may require that
the Company reallocate a portion of the net proceeds. Pending application of the
proceeds of the Offering, the Company intends to invest the proceeds in
marketable, investment grade, interest-bearing instruments.
DIVIDEND POLICY
The Company has not paid any cash dividend to stockholders and does not
anticipate paying such dividends in the foreseeable future, as the Company's
Board of Directors intends to retain earnings for use in the development and
continued expansion of the Company's business. The payment of cash dividends by
the Company is prohibited under its revolving line of credit. Any future
determination concerning the payment of dividends will be within the sole
discretion of the Board of Directors and will depend upon the existence of such
restriction, the Company's financial condition, the Company's results of
operations and such other factors as the Board of Directors deems relevant.
20
<PAGE>
<PAGE>
DILUTION
Dilution is the amount by which the initial public offering price paid by
the purchasers of shares of Common Stock in the Offering exceeds the net
tangible book value per share of Common Stock after the Offering. The net
tangible book value per share of Common Stock is determined by subtracting the
total liabilities of the Company from the total book value of the tangible
assets of the Company and dividing the difference by the pro forma number of
shares of Common Stock deemed to be outstanding on the date as of which such
book value is determined.
The net tangible book value of the Common Stock as of September 30, 1997
was $0.91 per share. After giving effect to the sale by the Company of the
3,850,000 shares of Common Stock offered hereby and the application of the net
proceeds therefrom of $45.7 million, the pro forma as adjusted net tangible book
value of the Company at September 30, 1997 would have been $55.9 million, or
$3.72 per share (assuming that the initial public offering price of the Common
Stock is the mid-point of the range indicated on the front cover of this
Prospectus). This represents an immediate increase in the net tangible book
value of $2.81 per share to existing holders of Common Stock and an immediate
dilution of $9.28 per share to new investors. The following table illustrates
this per share dilution (assuming that the initial public offering price of the
Common Stock is the mid-point of the range indicated on the front cover of this
Prospectus):
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................................... $13.00
Net tangible book value before the Offering............................ $0.91
Increase attributable to new investors................................. 2.81
As adjusted net tangible book value after the Offering...................... 3.72
------
Dilution to new investors................................................... $ 9.28
------
------
</TABLE>
If the over-allotment option is exercised in full, the pro forma net
tangible book value per share of Common Stock after giving effect to the
Offering would be $3.91 per share, the increase in the net tangible book value
per share would be $3.00 and the dilution to persons who purchase shares of
Common Stock in the Offering would be $9.09 per share (assuming that the initial
public offering price of the Common Stock is the mid-point of the range
indicated on the front cover of this Prospectus).
The following table summarizes, as of September 30, 1997, the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share paid by the existing stockholders (including
holders of shares of Series A Preferred Stock and Series B Preferred Stock, all
of which will automatically convert into shares of Common Stock upon
Consummation of the Offering) and new investors, adjusted to give effect to the
sale of the shares of Common Stock offered hereby (assuming that the initial
public offering price of the Common Stock is the mid-point of the range
indicated on the front cover of this Prospectus) and before deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company:
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 11,175,285 74.4% $28,183,421 36.0% $ 2.52
New investors........................... 3,850,000 25.6 50,050,000 64.0 13.00
---------- ------- ----------- -------
Total......................... 15,025,285 100.0% $78,233,421 100.0%
---------- ------- ----------- -------
---------- ------- ----------- -------
</TABLE>
As of September 30, 1997, there were outstanding options to purchase an
aggregate of 1,186,176 shares of Common Stock at a weighted average exercise
price of $6.83 per share and warrants to purchase 948,891 shares of Common Stock
exercisable at a weighted average exercise price of $5.59 per share. Since
September 30, 1997, the Company has granted options to purchase an additional
96,832 shares of Common Stock, each at an exercise price of $13.00.
In addition, options to purchase 31,627 shares of Common Stock, all with an
exercise price of $6.02 per share, were forfeited after September 30, 1997. To
the extent these options or warrants are exercised, there will be further
dilution to new investors. See 'Management -- 1995 Option Plan' and
'Description of Capital Stock -- Warrants'.
21
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the actual cash position and capitalization
of the Company at September 30, 1997, and as adjusted to give effect to the
conversion of the Company's Series A Preferred Stock and Series B Preferred
Stock, the Offering and the application of the estimated net proceeds therefrom.
The table should be read in conjunction with the Financial Statements appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(A)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................. $ 4,556 $ 50,253
-------- --------------
-------- --------------
Credit facility(b).................................................................... $ -- $--
Mandatorily redeemable 10% PIK Series B Convertible Participating Preferred Stock
($.01 par value; 415,000 shares authorized, 180,240 issued and outstanding actual,
none issued and outstanding pro forma as adjusted).................................. 16,205 --
Mandatorily redeemable Series A Convertible Participating Preferred Stock ($.01 par
value; 450,000 shares authorized, 422,607 issued and outstanding actual, none issued
and outstanding pro forma as adjusted).............................................. 10,421 --
Stockholders' equity:
Preferred Stock ($.01 par value; 1,000,000 shares authorized, 865,000 designated
as mandatorily redeemable Series A and B Preferred Stock, none issued or
outstanding pro forma as adjusted).............................................. -- --
Common Stock ($.001 par value; 50,000,000 shares authorized, 6,545,454 issued and
outstanding actual; 15,025,285 shares issued and outstanding pro forma as
adjusted)(c).................................................................... 7 15
Additional paid-in capital....................................................... 1,104 73,030
Accretion of mandatorily redeemable preferred stock.............................. (388) --
Accumulated deficit.............................................................. (17,161) (17,161)
-------- --------------
Total stockholders' (deficit) equity........................................ (16,438) 55,884
-------- --------------
Total capitalization................................................... $ 10,188 $ 55,884
-------- --------------
-------- --------------
</TABLE>
- ------------
(a) Gives effect to the conversion of (i) 422,607 shares of Series A Preferred
Stock and 180,240 shares of Series B Preferred Stock into 1,637,061 and
2,992,770 shares of Common Stock, respectively, upon consummation of the
Offering and (ii) the sale of Common Stock offered hereby, net of expenses,
at an assumed initial public offering price of $13.00 per share (the
mid-point of the range set forth on the cover of this Prospectus).
(b) As of September 30, 1997, the Company had a $10 million secured line of
credit. Borrowings under this line are limited to a specified percentage of
qualifying accounts receivable less outstanding obligations of the Company
owed to the lending institution. As of September 30, 1997, there was $2.5
million available under the line. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources'.
(c) Excludes 2,181,818 shares of Common Stock reserved for issuance under the
1995 Option Plan, under which options covering 1,251,741 shares at a
weighted average exercise price of $7.33 per share are outstanding and (ii)
948,891 shares of Common Stock reserved for issuance pursuant to
outstanding Warrants at exercise prices ranging from $0.01 to $6.02 per
share. See 'Management -- 1995 Option Plan' and 'Description of Capital
Stock -- Warrants'.
22
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the
three-year period ended December 31, 1996 and the nine-month period ended
September 30, 1997 are derived from, and are qualified by reference to, the
audited Financial Statements included elsewhere herein. The following selected
financial data for each year in the two-year period ended December 31, 1993 are
derived from, and are qualified by reference to, the Company's audited financial
statements not included herein. The selected financial data for the nine-month
period ended September 30, 1996 are derived from the unaudited financial
statements of the Company included elsewhere herein and, in the opinion of
management, include all adjustments, consisting of normal recurring accruals
necessary for a fair presentation of the data presented. The results for the
nine months ended September 30, 1997 are not necessarily indicative of results
for the full year. The pro forma share and per share information for the year
ended December 31, 1996 and the nine months ended September 30, 1997 are derived
from, and are qualified by reference to, certain unaudited pro forma financial
information included elsewhere herein. The information presented below should be
read in conjunction with 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the Financial Statements included
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Services:
Professional.............. $ 611 $ 996 $ 1,914 $ 4,397 $ 6,570
Communications............ -- -- -- 189 1,268
Media..................... -- -- -- 202 529
------ ------- ------- ------- -------
Total services
revenues............ 611 996 1,914 4,788 8,367
------ ------- ------- ------- -------
Products.................... 3,066 10,605 17,083 21,424 29,741
------ ------- ------- ------- -------
Total revenues, net........... 3,677 11,601 18,997 26,212 38,108
------ ------- ------- ------- -------
Cost of revenues:
Services.................... 222 382 758 2,596 6,842
Products.................... 2,521 9,596 14,132 17,653 24,607
------ ------- ------- ------- -------
Total cost of revenues........ 2,743 9,978 14,890 20,249 31,449
------ ------- ------- ------- -------
Gross profit.................. 934 1,623 4,107 5,963 6,659
------ ------- ------- ------- -------
Operating expenses:
General and
administrative.......... 378 652 1,548 2,435 7,006
Selling and marketing..... 345 742 1,393 3,450 6,504
Research and
development............. 40 69 501 411 969
Depreciation and
amortization............ 36 75 94 228 460
------ ------- ------- ------- -------
Total operating expenses...... 799 1,538 3,536 6,524 14,939
------ ------- ------- ------- -------
Income (loss) from
operations.................. 135 85 571 (561) (8,280)
Total other income
(expense)................... -- 2 9 (62) 32
Provision (benefit) for income
taxes....................... 46 43 289 (183) (210)
------ ------- ------- ------- -------
Net income (loss)............. $ 89 $ 44 $ 291 $ (440) $(8,038)
------ ------- ------- ------- -------
------ ------- ------- ------- -------
Pro forma net loss per
common share(a)(b).......... $ (0.80)
-------
-------
Pro forma weighted average
common shares
outstanding(a)(b)........... 10,109,279
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents..... $ 430 $ 74 $ 82 $ 620 $ 515
Working capital
(deficiency)................ 246 212 423 (712) (1,900)
Total assets.................. 1,351 1,967 4,510 8,611 13,292
Total liabilities............. 981 1,553 3,805 8,213 11,543
Mandatorily redeemable
preferred stock............. -- -- -- -- 9,881
Stockholders'equity
(deficit)................... 370 414 705 398 (8,132)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1997
------- --------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Services:
Professional..............$3,936 $11,988
Communications............ 685 3,931
Media..................... 353 77
------- --------
Total services
revenues............ 4,974 15,996
------- --------
Products....................22,341 14,306
------- --------
Total revenues, net...........27,315 30,302
------- --------
Cost of revenues:
Services.................... 4,333 11,521
Products....................18,406 11,676
------- --------
Total cost of revenues........22,739 23,197
------- --------
Gross profit.................. 4,576 7,105
------- --------
Operating expenses:
General and
administrative.......... 5,049 7,577
Selling and marketing..... 4,390 6,546
Research and
development............. 598 920
Depreciation and
amortization............ 311 601
------- --------
Total operating expenses......10,348 15,644
------- --------
Income (loss) from
operations..................(5,772 ) (8,539 )
Total other income
(expense)................... 62 (293 )
Provision (benefit) for income
taxes....................... (157 ) 256
------- --------
Net income (loss).............$(5,553) $(9,088 )
------- --------
------- --------
Pro forma net loss per
common share(a)(b).......... $ (0.88 )
--------
--------
Pro forma weighted average
common shares
outstanding(a)(b)........... 10,311,285
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents..... $ 4,556
Working capital
(deficiency)................ 5,090
Total assets.................. 18,262
Total liabilities............. 8,074
Mandatorily redeemable
preferred stock............. 26,626
Stockholders'equity
(deficit)................... (16,438 )
</TABLE>
- ------------
(a) For information concerning the computation of pro forma net loss per common
share and pro forma weighted average common shares of Common Stock
outstanding, see Notes 3 and 12 to the Financial Statements.
(b) Gives effect to the conversion of 422,607 shares of Series A Preferred
Stock and 180,240 shares of Series B Preferred Stock into 1,637,061 and
2,992,770 shares of Common Stock, respectively, upon consummation of the
Offering.
23
<PAGE>
<PAGE>
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 Prospectus. This discussion contains
forward-looking statements based on current expectations which 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 under 'Risk Factors' and elsewhere
in this Prospectus.
OVERVIEW
ICI, the Company's predecessor, was incorporated in New York in February
1991. Icon 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 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, enhanced by the Company's proprietary technologies; 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.
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 other related communications services, such as web/server hosting and
management. Communications services are generally provided based on one-year or
multi-year service agreements, which are renewable at the discretion of the
customer. Communications services revenues are recognized ratably over the term
of the respective service agreement.
As a result of the Company's implementation of its end-to-end solutions
strategy, services revenues (which incorporate professional, communications and
media services) have increased on a yearly basis as a percentage of total
revenue. For the years ended December 31, 1994, 1995 and 1996, services revenues
comprised 10.1%, 18.3% and 22.0% of total net revenues, respectively. For the
nine months ended September 30, 1997 services revenues were 52.8% of total net
revenues as compared to 18.2% for the similar period in 1996. The increase in
services revenues as a percentage of total net revenues is expected to continue
to increase in the future. Historically, the Company generated limited media
revenues from selling advertisement space on its three new-media properties,
Word, Charged and SportsFan Online. The Company is not actively marketing these
properties and does not expect to expand this business. The Company has
experienced and expects to continue to experience operating losses in connection
with the ongoing operation of its media properties. The Company has recently
commenced efforts to identify potential strategic partners to assist in the
exploitation of these properties. While it is the Company's intention and desire
to continue to design, produce and distribute such properties, it does not
intend to continue its role as a publisher of proprietary properties. The
24
<PAGE>
<PAGE>
Company's media properties have historically operated at a loss, but have
nevertheless served a valuable marketing function, helping the Company attract
employees and win new business.
Historically the Company has experienced relatively stable gross margins on
product sales. For the years ended December 31, 1994, 1995 and 1996 gross
margins on product sales were 17.3%, 17.6% and 17.3%, respectively, and for the
nine months ended September 30, 1996 and 1997 were 17.6% and 18.4%,
respectively. 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 services will provide greater opportunities for increased gross margins.
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.
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 LECs and network and related communications facilities costs, depreciation
of network equipment and rental expenses for equipment pursuant to operating
leases. The Company expects its services revenues 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.
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.
Selling 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 relations. The
Company expects selling 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. The Company expects marketing
expenses to decrease as a percentage of total net revenues due to the fact that
initial marketing expenses, such as development and preparation of collateral
materials, were incurred upon the expansion of business lines.
Research and development expenses consist primarily of personnel and
related costs associated with the development of the Company's technologies. The
Company expects its research and development spending to continue to grow and to
increase modestly as a percentage of total operating expenses in future years.
The Company's expectations of significant revenue growth are not dependent,
however, upon the success of ongoing future research and development 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 to
access MFS' nationwide communications facilities and related communications
products and services. The terms of the agreement provide for the Company to pay
MFS primarily based on the average bandwidth of the Company's traffic
transmitted over MFS' communications facilities. The Company believes that the
usage-based pricing plan established in the agreement has allowed, and will
continue to allow, the Company to grow communications services revenues without
incurring the full fixed costs typically associated with building a nationwide
network and Internet access. The Company also believes that as the utilization
of its network increases the Company may elect to lease and install its own
dedicated high speed connections between nodes and may rely less on MFS'
communications facilities for data transport.
25
<PAGE>
<PAGE>
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 to operate at a
loss and experience negative cash flow at least through 1998. The Company's
attainment of profitability and positive cash flow 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 serves major customers in information intensive industries,
such as financial services, telecommunications, media and travel. Revenues
attributable to Bear Stearns comprised 24%, 28% and 30% of the Company's total
net revenues in 1994, 1995 and 1996, respectively, and 49% for the nine months
ended September 30, 1997. Revenues attributable to Nomura Securities comprised
11%, 15% and 13% of the Company's total net revenues in 1994, 1995 and 1996,
respectively, and 3% for the nine months ended September 30, 1997. Revenues
attributable to Merrill Lynch comprised 10% of the Company's total net revenues
in 1995. 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
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 for both dedicated and
switched access, including residential customers. Revenues from customers
acquired through Bell Atlantic Internet Solutions were a significant portion of
communications services revenues in the nine months ended September 30, 1997.
The Company believes that revenues from this arrangement will continue to grow
and that this relationship will represent a significant element of Icon's
distribution strategy in Bell Atlantic Internet Solutions' region. In October
1997, the Company extended its arrangement by entering into an updated 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 currently plans that it will make its services
available to requesting Bell Atlantic Internet Solutions business customers in
the northern region during the first half of 1998. See 'Business -- Sales and
Marketing'. The Company also has agreements with Access Graphics, Fiberlink,
Merisel and other resellers to resell the Company's communications services.
The Company has incurred losses in 1995, 1996 and the nine months ended
September 30, 1997 that have generated net operating loss carryforwards of
approximately $15.3 million at September 30, 1997 for federal and state income
tax purposes. These carryforwards are available to offset future taxable income
and expire in 2011 through 2012 for federal income tax purposes. See 'Risk
Factors -- Limitations on Use of Net Operating Loss Carryforwards'.
26
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
The following table shows various items on the Company's Statement of
Operations as a percentage of total net revenues (except where otherwise noted).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Services:
Professional............. 16.6% 8.6% 10.1% 16.8% 17.3%
Communications........... -- -- -- 0.7 3.3
Media.................... -- -- -- 0.8 1.4
----- ----- ----- ----- -----
Total services
revenues............ 16.6 8.6 10.1 18.3 22.0
----- ----- ----- ----- -----
Products.................... 83.4 91.4 89.9 81.7 78.0
----- ----- ----- ----- -----
Total revenues, net........... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Cost of revenues:
Services(a).............. 36.3% 38.4% 39.6% 54.2% 81.8%
Products(b).............. 82.2 90.5 82.7 82.4 82.7
Total cost of revenues........ 74.6 86.0 78.4 77.3 82.5
Gross profit.................. 25.4 14.0 21.6 22.7 17.5
Operating expenses:
General and
administrative......... 10.2 5.6 8.2 9.2 18.4
Selling and marketing.... 9.4 6.5 7.3 13.1 17.1
Research and
development............ 1.1 0.6 2.6 1.6 2.5
Depreciation and
amortization........... 1.0 0.6 0.5 0.9 1.2
----- ----- ----- ----- -----
Total operating expenses...... 21.7 13.3 18.6 24.8 39.2
----- ----- ----- ----- -----
Income (loss) from
operations.................. 3.7 0.7 3.0 (2.1) (27.1)
Net income (loss)............. 2.4 0.4 1.5 (1.7) (21.1)
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------
1996 1997
----- -----
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Services:
Professional............. 14.4% 39.6%
Communications........... 2.5 13.0
Media.................... 1.3 0.2
----- -----
Total services
revenues............ 18.2 52.8
----- -----
Products.................... 81.8 47.2
----- -----
Total revenues, net...........100.0% 100.0%
----- -----
----- -----
Cost of revenues:
Services(a).............. 87.1% 72.0%
Products(b).............. 82.4 81.6
Total cost of revenues........ 83.2 76.6
Gross profit.................. 16.8 23.4
Operating expenses:
General and
administrative......... 18.5 25.0
Selling and marketing.... 16.1 21.6
Research and
development............ 2.2 3.0
Depreciation and
amortization........... 1.1 2.0
----- -----
Total operating expenses...... 37.9 51.6
----- -----
Income (loss) from
operations..................(21.1) (28.2)
Net income (loss).............(20.3) (30.0)
</TABLE>
- ------------
(a) As a percentage of total services revenues.
(b) As a percentage of products revenues.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues. Total net revenues were $30.3 million for the nine months ended
September 30, 1997, a $3.0 million increase over total net revenues of $27.3
million for the nine months ended September 30, 1996.
Professional services revenues were $12.0 million and $3.9 million for the
nine months ended September 30, 1997 and 1996, respectively, representing an
increase of 205%. This increase was attributable to the growing demand for
professional services in its 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 utilization and average billing rate per systems engineer.
Communications services revenues were $3.9 million and $0.7 million for the
nine months ended September 30, 1997 and 1996, respectively, representing an
increase of over 470%. This increase is 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
were a significant component of communications revenues in the nine months ended
September 30, 1997.
Products revenues were $14.3 million and $22.3 million for the nine months
ended September 30, 1997 and 1996, respectively. This decrease was due primarily
to the transition of the Company's focus from its historical role as a VAR to
providing IP network-related services.
Cost of revenues. Total cost of revenues were $23.2 million and $22.7
million for the nine months ended September 30, 1997 and 1996, respectively,
representing 76.6% and 83.2% of total net revenues,
27
<PAGE>
<PAGE>
respectively. The overall margin improvement was primarily attributable to the
continued successful implementation of the Company's strategy to sell
higher-margin professional services.
Services cost of revenues were approximately $11.5 million and $4.3 million
for the nine months ended September 30, 1997 and 1996, respectively. This growth
is primarily attributable to the hiring of 23 additional professional services
personnel and the continued expansion of the Company's communications
infrastructure. As a percentage of services revenues, such costs declined to
72.0% in the nine months ended September 30, 1997 from 87.1% in the year earlier
period, mostly due to increased utilization of systems engineers.
Products cost of revenues were $11.7 million and $18.4 million for the nine
months ended September 30, 1997 and 1996, respectively, representing 81.6% and
82.4% of products revenues for the nine months ended September 30, 1997 and
1996, respectively. The slight decrease in margin was due primarily to a change
in the mix of resold products.
General and administrative. General and administrative expenses were $7.6
million and $5.0 million for the nine months ended September 30, 1997 and 1996,
respectively. This higher level of expenses reflects 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 25.0% for the nine months ended September 30,
1997 from 18.5% in the year earlier period due to the expansion of the Company's
administrative infrastructure necessary to manage the rapid growth of the
Company's services business.
Selling and marketing. Selling and marketing expenses were $6.5 million and
$4.4 million for the nine months ended September 30, 1997 and 1996,
respectively. The 49.1% increase in 1997 reflects increased spending including
the development of new marketing materials. Selling and marketing expenses as a
percentage of total net revenues increased to 21.6% for the nine months ended
September 30, 1997 from 16.1% in the year earlier period as a result of the
increased marketing effort.
Research and development. Research and development expenses were $0.9
million and $0.6 million for the nine months ended September 30, 1997 and 1996,
respectively. This higher level of expense reflects an overall increase in the
number of personnel required to develop new technologies that enhance the
performance and reliability of the Company's network. Research and development
expenses as a percentage of total net revenues increased to 3.0% for the nine
months ended September 30, 1997 from 2.2% in the year earlier period as a result
of the Company's increased efforts to deliver enhanced communications services
to its customers.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Total net revenues were $38.1 million in 1996, an $11.9 million
increase over total net revenues of $26.2 million in 1995.
Professional services revenues were $6.6 million and $4.4 million in 1996
and 1995, respectively, representing an increase of 49.4%. 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, the increased number of systems
engineers available to perform these services and a higher utilization and
average billing rate per systems engineer.
Communications services revenues increased to $1.3 million in 1996 from
$0.2 million in 1995, representing an increase of 570%. This increase is
primarily attributable to the acquisition of new customers, the rollout of the
Bell Atlantic Internet Solutions arrangement in the second half of 1996 and the
continued cross-selling of communications services to the Company's existing
professional services and products customers.
Products revenues were $29.7 million and $21.4 million in 1996 and 1995,
respectively, representing an increase of 38.8%. This increase was due primarily
to hardware and software resales related to large scale systems integration
projects for customers in the financial services industry.
28
<PAGE>
<PAGE>
Cost of revenues. Total cost of revenues were $31.4 million and $20.2
million in 1996 and 1995, respectively, representing 82.5% and 77.3% of total
net revenues, respectively. This decline in margin is primarily attributable to
the expansion of the Company's network, resulting in significant fixed costs
with minimal communications services revenues.
Services cost of revenues were $6.8 million and $2.5 million in 1996 and
1995, respectively. This growth is primarily attributable to the hiring of
professional services personnel, expansion of the Company's communications
infrastructure and costs associated with the Company's media properties. Such
costs increased to 81.8% as a percentage of services revenues in 1996 from 54.2%
in the prior year, reflecting the significant fixed costs involved in expanding
the Company's communications infrastructure.
Products cost of revenues were $24.6 million and $17.7 million in 1996 and
1995, respectively, representing 82.7% and 82.4%, respectively, of products as a
percentage of products revenues in 1996 and 1995, respectively.
General and administrative. General and administrative expenses were $7.0
million and $2.4 million in 1996 and 1995, respectively. This higher level of
expense reflects 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 18.4%
from 9.3% in the year earlier period due to expansion of the Company's
administrative infrastructure necessary to manage the rapid growth of the
Company's services business.
Selling and marketing. Selling and marketing expenses were $6.5 million and
$3.5 million in 1996 and 1995, respectively. The 88.5% increase in 1996 reflects
an increase in sales commissions resulting from increased services and products
revenues combined with increased marketing and promotional activities, including
advertising and trade shows. Selling and marketing expenses as a percentage of
total net revenues increased to 17.1% in 1996 from 13.2% in 1995 as a result of
the higher sales commissions and increased marketing and promotional activities.
Research and development. Research and development expenses were $1.0
million and $0.4 million in 1996 and 1995, respectively. This higher level of
expenses reflected an increase in personnel to develop new technologies that
allow the Company's network to more efficiently transport data.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Total net revenues were $26.2 million in 1995, a $7.2 million
increase over total net revenues of $19.0 million in 1994.
Professional services revenues were $4.4 million and $1.9 million in 1995
and 1994, respectively, representing an increase of 130%. This increase was
attributable to the Company's broadened services offerings relating to
IP-networks, the increased number of systems engineers available to perform
these services and the acquisition of several new customers.
Communications services revenues were $0.2 million in 1995, the first year
the Company provided communications services.
Products revenues were $21.4 million and $17.1 million in 1995 and 1994,
respectively, representing an increase of 25.4%. This increase was due primarily
to hardware and software resales related to large scale systems integration
projects for customers in the financial services industry.
Cost of revenues. Total cost of revenues was $20.2 million and $14.9
million in 1995 and 1994, respectively, representing 77.3% and 78.4% of total
net revenues, respectively.
Services cost of revenues were $2.6 million and $0.8 million in 1995 and
1994, respectively. This growth was primarily attributable to the hiring of
professional services personnel and the initial investment in the communications
network. As a percentage of services revenues, such costs increased to 54.2% in
1995 from 39.6% in 1994, reflecting a lower utilization of professional services
personnel, combined with the initial costs of the communications infrastructure.
29
<PAGE>
<PAGE>
Products cost of revenues were $17.7 million and $14.1 million in 1995 and
1994, respectively, representing 82.4% and 82.7%, respectively, as a percentage
of products revenues, respectively.
General and administrative. General and administrative expenses were $2.4
million and $1.5 million in 1995 and 1994, respectively, representing 9.3% and
8.1% of total net revenues, respectively. This higher level of expense reflects
an increase in personnel and professional fees necessary to manage the
financial, legal and administrative aspects of the business.
Selling and marketing. Selling and marketing expenses were $3.5 million and
$1.4 million in 1995 and 1994, respectively. The $2.1 million increase in 1995
reflected the Company's shift to a focus on providing IP-based network
solutions. In connection with this new focus, the Company incurred increased
expenses related to development of strategic relationships and marketing
communications.
Research and development. Research and development expense was $0.4 million
and $0.5 million in 1995 and 1994, respectively.
QUARTERLY RESULTS OF OPERATIONS
The Company's quarterly operating results have in the past and may in the
future vary significantly depending upon factors such as the timing and
installation of significant orders, which in the past have been and will in the
future be, delayed from time to time by delays in the provisioning of
telecommunications services and products by subcontractors. Additional factors
contributing to variability of quarterly operating results include the pricing
and mix of products and services sold by the Company, terminations of service,
new services and products introductions by the Company and its competitors,
market acceptance of new and enhanced versions of the Company's services and
products, changes in pricing or marketing policies by its competitors and the
Company's responses thereto, the Company's ability to obtain sufficient supplies
of sole source or limited source components, changes in the Company's
communications infrastructure costs, as a result of demand variation or
otherwise, the lengthening of the Company's sales cycle, access to capital and
the timing of the expansion of the Company's communications infrastructure.
The following tables set forth the statement of operations data for each of
the seven quarters through September 30, 1997, as well as such operations data
as a percentage of the Company's revenues. This information has been derived
from the Company's unaudited financial statements. In the opinion of management,
the unaudited information set forth below includes all adjustments, consisting
only of normal recurring adjustments necessary to present fairly the
information set forth herein. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Services:
Professional...................... $ 1,203 $ 1,062 $ 1,671 $ 2,634 $ 3,207 $ 4,268 $ 4,513
Communications.................... 147 185 353 583 938 1,233 1,760
Media............................. 124 113 116 176 77 -- --
--------- -------- ------------- ------------ --------- -------- -------------
Total services revenues......... 1,474 1,360 2,140 3,393 4,222 5,501 6,273
--------- -------- ------------- ------------ --------- -------- -------------
Products............................ 7,281 7,328 7,732 7,400 4,795 4,885 4,626
--------- -------- ------------- ------------ --------- -------- -------------
Total revenues, net................... 8,755 8,688 9,872 10,793 9,017 10,386 10,899
--------- -------- ------------- ------------ --------- -------- -------------
Cost of revenues:
Services............................ 1,270 1,237 1,826 2,509 3,137 3,592 4,792
Products............................ 6,157 5,865 6,384 6,201 3,813 4,092 3,771
--------- -------- ------------- ------------ --------- -------- -------------
Total cost of revenues................ 7,427 7,102 8,210 8,710 6,950 7,684 8,563
--------- -------- ------------- ------------ --------- -------- -------------
Gross profit.......................... 1,328 1,586 1,662 2,083 2,067 2,702 2,336
Operating expenses.................... 2,566 3,873 3,909 4,591 4,652 5,269 5,723
--------- -------- ------------- ------------ --------- -------- -------------
Loss from operations.................. (1,238) (2,287) (2,247) (2,508) (2,585) (2,567) (3,387)
Net loss.............................. (1,169) (2,205) (2,179) (2,485) (2,950) (2,734) (3,404)
</TABLE>
30
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Services:
Professional...................... 13.7% 12.3% 16.9% 24.4% 35.5% 41.1% 41.4%
Communications.................... 1.7 2.1 3.6 5.4 10.4 11.9 16.2
Media............................. 1.4 1.3 1.2 1.6 0.9 0.0 0.0
--------- -------- ----- ----- --------- -------- -----
Total services revenues......... 16.8 15.7 21.7 31.4 46.8 53.0 57.6
--------- -------- ----- ----- --------- -------- -----
Products............................ 83.2 84.3 78.3 68.6 53.2 47.0 42.4
--------- -------- ----- ----- --------- -------- -----
Total revenues, net................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
--------- -------- ----- ----- --------- -------- -----
--------- -------- ----- ----- --------- -------- -----
Cost of revenues:
Services(a)......................... 86.2% 91.0% 85.3% 73.9% 74.3% 65.3% 76.4%
Products(b)......................... 84.6 80.0 82.6 83.8 79.5 83.8 81.5
Total cost of revenues................ 84.8 81.7 83.2 80.7 77.1 74.0 78.6
Gross profit.......................... 15.2 18.3 16.8 19.3 22.9 26.0 21.4
Operating expenses.................... 29.3 44.6 39.6 42.5 51.6 50.7 52.5
--------- -------- ----- ----- --------- -------- -----
Loss from operations.................. (14.1) (26.3) (22.8) (23.2) (28.7) (24.7) (31.1)
Net loss.............................. (13.4) (25.4) (22.1) (23.0) (32.7) (26.3) (31.2)
</TABLE>
- ------------
(a) As a percentage of total services revenues.
(b) As a percentage of products revenues.
The increase in services revenues as a percentage of total net revenues,
which has been experienced over the last five quarters, is expected to continue
to increase in the future. The Company expects cost of services revenues to
continue to increase in dollar amount but to decline in future years as a
percentage of services revenues as the Company expands its customer base and
more fully utilizes its communications infrastructure. The Company expects
operating expenses to continue to increase in dollar amount but to decrease in
future years as a percentage of total net revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company had an accumulated deficit of $17.2 million at September 30,
1997 and has used cash of $14.9 million in the aggregate to fund operations
during 1995, 1996 and the nine months ended September 30, 1997. To date, the
Company has 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, 1997 the Company had $4.6 million in cash and
cash equivalents and $5.1 million in working capital. Net cash used in operating
activities for the nine months ended September 30, 1997 and 1996 was
approximately $8.6 million and $4.4 million, respectively. Net cash used in
investing activities for the nine months ended September 30, 1997 and 1996 was
approximately $2.7 million and $3.0 million, respectively. For the nine months
ended September 30, 1997 and 1996, cash of approximately $15.3 million and $7.0
million, respectively, was provided by financing activities. Cash provided by
financing activities in the nine months ended September 30, 1997 includes
approximately $16.5 million in net proceeds from the issuance of the Series B
Preferred Stock.
Net cash used in operating activities for the years ended December 31, 1995
and 1996 was $1.3 million and $5.0 million, respectively. Net cash flow provided
by financing activities was $2.9 million and $8.6 million for 1995 and 1996,
respectively.
As of September 30, 1997, the Company's operating lease obligations were
projected to be $1.7 million, $1.4 million, and $1.1 million for 1998, 1999 and
2000, respectively.
On August 13, 1996, the Company obtained a secured line of credit with The
CIT Group/Business Credit, Inc. ('CIT') for $10.0 million which expires on
August 13, 1998. Borrowings under this line are secured by substantially all of
the assets of the Company and are limited to a specified 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 pay cash dividends, pledge any of its assets to
third parties, borrow money from third parties, lend money to third parties or
merge or consolidate with third parties without CIT's prior written consent. At
December 31, 1996, borrowings under this line amounted to $2.2 million, and no
amounts were outstanding at September 30, 1997. The Company does not currently
expect that it will be necessary to use the secured line of credit to meet its
working capital and capital expenditure requirements through the end of 1998.
Interest is payable monthly at an annual rate equal to the prime rate plus one
percent. Following a
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change in the prime rate, the rate adjusts on the first of the month following
any change. Interest expense amounted to $0.1 million and $0.4 million for the
year ended December 31, 1996 and the nine-month period ended September 30, 1997,
respectively. As of September 30, 1997, there was $2.5 million available under
the line.
As of September 30, 1997, trade payables to a vendor in the amount of $2.6
million were secured by a lien on substantially all of the Company's assets.
The Company has made capital investments in its network, NOC and other
capital assets totaling $1.0 million and $3.7 million in 1995 and 1996,
respectively, and $2.7 million in the nine months ended September 30, 1997. The
Company expects to make additional capital investments to expand and enhance its
operations of $2.5 million during the last quarter of 1997, and $4.9 million in
1998. 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, including those described in 'Risk Factors -- Future Capital Needs;
Uncertainty of Additional Financing'.
Since the Company expects to incur additional operating losses, the Company
intends to utilize the net proceeds from the Offering to meet its short term
capital requirements. The Company believes that proceeds from the Offering will
be sufficient to meet its anticipated cash needs for working capital and for the
acquisition of capital equipment through the end of 1998. However, there can be
no assurance that the Company will not require additional financing within this
time frame. 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 terms attractive to the Company, or at all.
Furthermore, any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may involve restrictive covenants. Strategic
arrangements, if necessary to raise additional funds, may require the Company to
relinquish its rights to certain of its technologies. See 'Risk
Factors -- Future Capital Needs; Uncertainty of Additional Financing'.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ('FASB') issued
Financial Accounting Standards 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 (options, warrants, convertible
securities or contingent stock arrangements). FAS 128 also requires presentation
of earnings per share by an entity that has made a filing or is in the process
of filing with a regulatory agency in preparation for the sale of those
securities in a public market. Basic EPS is computed by dividing income
available to common stockholders by the weighted-average potential 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 statement is
effective for both interim and annual periods ending after December 15, 1997.
The effect on the Company's earnings per share resulting from the adoption of
FAS 128 is not expected to be significant.
In June 1997, FASB issued Financial Accounting Standards No. 130,
'Reporting Comprehensive Income' ('FAS 130'), which requires the presentation of
components of comprehensive income in a company's financial statements for the
reporting periods begining subsequent to December 15, 1997. Comprehensive income
is defined as the change in a company's equity during a financial reporting
period from transactions and other circumstances from nonowner sources
(including cumulative translation adjustments, minimum pension liabilities and
unrealized gains/losses on available for sale securities). The adoption of FAS
130 is not expected to have a material impact on the Company's financial
statements.
RECENT DEVELOPMENTS
The following table sets forth certain preliminary unaudited Statement
of Operations Data for the three month period ended December 31, 1997 and
for the year ended December 31, 1997, as well as such preliminary operations
data as a percentage of the Company's total net revenues (except where
otherwise indicated). Audited financial statements for the year ended
December 31, 1997 are not yet available. The unaudited financial data set forth
below are derived from, and are qualified by reference to, the Company's
unaudited financial statements not included herein. In the opinion of
management, the unaudited financial data set forth below includes all
adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the data presented. The operating results set forth below
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997
-------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues, net:
Services:
Professional....................... $ 5,154 30.9% $17,140 36.5%
Communications..................... 2,047 12.3 5,979 12.7
Media.............................. 12 0.1 89 0.2
------ ----- ------ -----
Total services revenues.......... 7,213 43.3 23,208 49.4
------ ----- ------ -----
Products............................. 9,461 56.7 23,769 50.6
------ ----- ------ -----
Total revenues, net.................... 16,674 100.0% 46,977 100.0%
====== ======
Cost of revenues:
Services(a).......................... 5,479 76.0%(a) 17,001 73.3%(a)
Products(b).......................... 7,725 81.7 (b) 19,401 81.6 (b)
------ ------
Total cost of revenues................. 13,204 79.2 36,402 77.5
------ ------
Gross profit........................... 3,470 20.8 10,575 22.5
------ ----- ------ -----
Operating expenses..................... 7,404 44.4 23,048 49.1
Loss from operations................... (3,934) (23.6) (12,473) (26.6)
Net loss............................... (3,909) (23.4) (12,997) (27.7)
</TABLE>
- --------------
(a) As a percentage of total services revenues.
(b) As a percentage of products revenues.
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BUSINESS
GENERAL
Icon is an Internet solutions provider that offers a comprehensive range of
services and products that enable corporate customers to implement their
Internet, intranet and extranet strategies. Icon's mission is to provide
end-to-end solutions to its customers by facilitating the distribution of the
customers' information and applications over Icon's communications
infrastructure as well as access to such information and applications. In order
to provide end-to-end solutions, Icon integrates services and products in three
key areas: (i) communications services, including high quality Internet access
and web/server hosting and management, enhanced by the Company's proprietary
technologies; (ii) a range of professional services, including custom
application and website development and design, systems integration and
maintenance and support services; and (iii) product resales, including hardware
and software, which are an integral component of systems design and integration
and serve as a means of establishing customer relationships. Icon differentiates
itself by integrating its services and products to provide customized turnkey
solutions for the needs of corporate customers. Icon's customers include major
corporations in the financial services, telecommunications, travel and media
industries, such as ABC Radio Network Inc. ('ABC Radio'). The Associated Press,
Bear Stearns, Bell Atlantic Internet Solutions, CBS, Galileo International
('Galileo'), Swissair and Swissotel.
MARKET AND INDUSTRY OVERVIEW
The emergence of the Internet and the widespread adoption of IP as a data
transmission standard in the 1990s, combined with deregulation of the
telecommunications industry and advances in telecommunications technology, have
significantly increased the demand for providing data communications
applications and services over public networks. At the same time, growth in
client/server and distributed computing, multimedia personal computers and
online computing services and the proliferation of networking technologies have
resulted in a large and growing group of end-users who are accustomed to using
networked computers for a variety of purposes, including electronic mail,
electronic file transfers, online computing and electronic financial
transactions. These trends have increasingly led businesses to explore
opportunities to provide IP-based applications and services internally within
their organizations via intranets, externally to selected customers and business
partners via extranets and to the general public via the Internet.
The ubiquitous nature and relatively low cost of the Internet have resulted
in its widespread usage for certain applications, most notably web browsing and
electronic mail. Use of the Internet for mission-critical business applications
is increasing even with the limited security and unreliable performance inherent
in the structure and management of the Internet, as well as the difficulties of
integrating web gateways and IP-based networks with applications traditionally
run on legacy systems. Additionally, emerging applications such as IP-based
audio and video applications and certain multimedia applications require a
communications infrastructure that has high performance characteristics,
including low latency (response time) and high throughput. These factors have
resulted in demand from an increasing number of businesses for high bandwidth
Internet access, secure networked systems, technology-related products and
integration and custom application development services. Revenues generated by
the Internet communications services market in the United States, comprised of
access and hosting, are expected to increase from $1.4 billion in 1996 to $28.1
billion in 2000 according to Forrester Research, Inc., while the worldwide
Internet-related professional services market is expected to grow from $2.5
billion in 1996 to $13.8 billion in 2000 according to International Data
Corporation.
As the amount of information transmitted over the Internet has grown and
the speed and complexity of networks has increased, IP-based services and
products have become increasingly intertwined. Corporate customers have not only
come to rely on IP-based networks for distributing mission-critical information
and applications to end-users but have become dependent on the technical
services that enable access and distribution of this information, resulting in
an increasing number of outside vendors offering services to corporate
customers. However, given the growth in complexity and expenditures related to
implementation of Internet, intranet and extranet strategies, the Company
believes that customers are increasingly seeking a single-source provider.
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STRATEGY
Icon is an Internet solutions provider that offers a comprehensive range of
services and products that enable corporate customers to implement their
Internet, intranet and extranet strategies. Icon's mission is to provide
end-to-end solutions to its customers by facilitating the distribution of
customers' information and applications over Icon's communications
infrastructure as well as access to such information and applications. Unlike
many of its competitors who focus on a single service or product, the Company
continuously expands the breadth of its services and its engineering expertise
to provide customized turnkey solutions to meet the increasingly demanding
requirements of corporate customers. In order to provide end-to-end solutions,
Icon offers communications and professional services, as well as product resales
capabilities. The key strategic initiatives of the Company are to:
Leverage Capability to Provide End-to-End Internet Solutions. Icon's
ability to provide end-to-end solutions is often a decisive factor in
attracting and retaining customers and contributes to generating
additional business from its existing customer base. While some of the
Company's customers are initially attracted to Icon's end-to-end
solutions, others seek a specific service or product. The Company has
historically succeeded in migrating many of such customers to become users
of the Company's additional services and products. Icon's relationships
with several customers, such as The Associated Press, Bear Stearns, CBS
and Galileo, began with a single offering and evolved into an end-to-end
solution encompassing multiple communications and professional services.
The Company's strategy is to expand the number of customers who demand
end-to-end solutions and to become an integral component of its customers'
information technology infrastructure.
Maintain Reliable and High Performance Communications Infrastructure. The
Company maintains a nationwide communications infrastructure that
incorporates proprietary technologies and is managed to deploy and
distribute information and applications. The Company manages its network
to achieve utilization levels that enable it to operate in a reliable and
high performance manner. Icon controls its network and provides hosting
and management services from its state-of-the-art NOC, enabling it to meet
increasingly demanding customer requirements. The Company will continue to
develop network-centric proprietary technologies and integrate third party
technologies to optimize network performance and provide value-added
network services to its customers. The Company currently focuses on new
communications services offerings, such as back-up and recovery and wide
area data caching, as well as real-time audio and video streaming and
Internet telephony. Icon will seek to continue to develop its
communications infrastructure to enhance the speed, security, reliability
and overall performance of its network.
Expand Network Domestically and Overseas. The Company plans to expand its
network to specifically address the growing bandwidth and global reach
requirements of its customers, both in the United States and
internationally. Icon's agreement with MFS provides for access to MFS
communications facilities throughout the country. The Company believes
that the usage-based pricing model in its agreement with MFS enables it to
enter new markets in a more advantageous manner than many of its
competitors which, in many cases, must expend greater resources to build
or lease facilities on a fixed-price basis. The Company also has
agreements with other vendors who provide similar services, and the
Company will pursue similar arrangements in the future as the Company
continues to expand its network. In November 1997, the Company entered
into a joint venture agreement with Teleway Corporation ('Teleway') that
will extend the reach of the Company's network into Japan; however, this
transaction is subject to third party and governmental consents and and
no assurance can be made that the Company will obtain the required
consents or that the transaction will otherwise be successful. Recently,
Kokusai Denshain Denwa Co. Ltd. ("KDD") announced that it is in
negotiations to acquire Teleway. The Company cannot predict the effect,
if any, such acquisition would have on the joint venture.
Expand and Integrate Professional Services Offerings. Icon's professional
services include software application development, website design and
development, integration with legacy systems, maintenance and support
services and consulting. Unlike many of Icon's competitors, who focus on a
single service or product, the Company continuously expands the breadth of
its services and its engineering expertise to optimize its end-to-end
solutions. The Company intends to continue to develop and leverage both
its expertise in designing graphical user interfaces (so-called 'front-
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end' design) and integrating with legacy data that resides on databases or
mainframe systems (so-called 'back-end' integration).
Continue to Build Efficient Distribution Through Direct and Indirect
Channels. Icon will continue to grow its direct sales force, which has
grown from 25 at the beginning of 1997 to 33 as of September 30, 1997. The
direct sales force targets large accounts with significant revenue-
generating potential. It focuses on information-intensive industries, such
as financial services, media, telecommunications and travel. The Company
believes that the organization of its direct sales force along industry
lines enables it to leverage its expertise and develop solutions that can
be replicated and tailored to meet recurring demands of corporate
customers throughout a particular industry. In addition, the Company will
continue to expand distribution relationships that enable it to compete
effectively by expanding its customer base without substantial costs. The
Company's indirect sales channels include relationships with
telecommunications providers, such as Bell Atlantic Internet Solutions and
Fiberlink, as well as resellers and master distributors. Bell Atlantic
Internet Solutions offers its customers the option to select Icon as their
global service provider to provide the long distance portion of the
Internet access services. In October 1997, the Company extended its GSP
agreement through October 1999 to continue to make its services available
in the traditional Bell Atlantic southern region and to include the Bell
Atlantic northern region (previously NYNEX) for dedicated access service.
The Company currently plans that it will make its services available to
Bell Atlantic Internet Solutions business customers in the northern region
during the first half of 1998.
Grow Through Acquisitions. The Company intends to strengthen its market
position through acquisitions of companies that bring complementary
expertise in certain segments of the Internet business and maximize value
through cross-selling opportunities.
JOINT VENTURE
In November 1997, the Company entered into an agreement with Teleway, a
Japanese communications company, pursuant to which they established Icon-Teleway
Internet Corporation, ('ITIC') to operate an Internet solutions business to
market end-to-end solutions to corporate customers in Japan (including Japanese
subsidiaries of United States corporations). Teleway, established in 1984, is
one of the largest long distance companies in Japan, with sales of approximately
$850 million in fiscal year 1996. Teleway will hold a 52% equity stake and Icon
will hold a 48% equity stake in ITIC, which will be formally established by the
first quarter of 1998. The services provided by ITIC will be similar to the
services provided by Icon in the United States, including communications
services, professional services and product resales. ITIC's network
infrastructure will be based on Teleway's nationwide ATM network.
Teleway has agreed to provide ITIC an initial loan of 'Y'1 billion
(approximately $8.3 million) and, upon request, to make an additional loan for
up to 'Y'500 million (approximately $4.2 million) to fund operations. In
connection with the creation of the venture, the Company licensed to ITIC the
exclusive right to exploit Icon's intellectual property in Japan for a period of
five years. Any royalties received by Icon (up to a maximum of $8 million) will
be contributed back to ITIC as equity and will be matched by Teleway such that
the relative ownership is maintained. ITIC will use such equity contributions to
repay outstanding loans from Teleway and to fund operations. Icon and Teleway
have agreed to establish a network cross-connection between Icon's network in
the United States and Teleway's network in Japan. The parties have further
agreed to a reciprocal wholesale arrangement, on a 'most favored nations' basis,
pursuant to which Icon and ITIC will purchase communications services (including
Internet access) from each other at a wholesale price and resell such services
to customers in their respective countries. The transaction is subject to third
party and governmental consents.
Recently, KDD announced that it is in negotiations to acquire Teleway.
The Company cannot predict the effect, if any, such acquisition would have on
ITIC.
COMMUNICATIONS INFRASTRUCTURE
The Company developed its communications infrastructure in recognition of
the market need for commercial-grade Internet access and value-added deployment
of mission-critical information and applications. The Company's customers use
the Company's communications infrastructure for private networks and commercial
applications. The Company has developed proprietary technologies that enhance
network performance in terms of speed, reliability, security and flexibility.
See ' -- Research and Development.' The Company's communications infrastructure
is based upon an ATM architecture.
35
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As shown on the map below, customers can connect to the Company's network from
major cities across the United States through dedicated high-speed leased lines.
The network is logically designed as a 'cloud,' with multiple high-speed paths
between switches, so as to reduce the possibility that any single point of
failure will cause network outage. The network uses state-of-the-art routing
platforms, including Cisco routers. Currently, the Company's backbone consists
of 19 nodes, and the Company currently plans to add several additional nodes.
MAP OF UNITED STATES AND THE COMPANY'S BACKBONE:
After a customer's data has entered the Company's backbone, it is routed to
its destination, either over the Company's backbone or to another ISP's
backbone, which is facilitated through peering arrangements with other ISPs. In
order to peer with other Tier 1 ISPs, an ISP must demonstrate that its network
transports sufficient volumes of data and that it can peer at geographically
diverse locations. The Company has established Tier 1 peering arrangements with
other ISPs and long distance carriers enabling it to exchange traffic at major
peering points, including MAE-East, MAE-West, Ameritech Advanced Data Services
NAP, Digital Internet Exchange (including the CIX), Sprint Communications NAP
and Pacific Bell NAP. Peered ISPs share routing tables with each other so that
each ISP's customers can have access to the information on a peered-ISP's
network. Although many ISPs have recently been adding to their peering
eligibility requirements, the Company has been successful in qualifying for
these arrangements. The Company believes that the need to enter into peering
arrangements and the increasingly stringent eligibility standards to be met to
qualify for these relationships now provide a significant barrier to entry for
other companies trying to build nationwide backbones to provide Internet access.
The Company believes that its combination of a nationwide backbone and peering
arrangements establishes the Company as a Tier 1 provider, which differentiates
the Company from regional ISPs who, without peering arrangements, may have to
pay transit fees to national Internet carriers in order to exchange network
traffic.
The Company's communications network consists of facilities leased from a
number of providers, including MFS, WorldCom and certain RBOCs, LECs and CAPs.
In June 1995, the Company entered into a service agreement with MFS that
provides the Company access to all of MFS' communications facilities throughout
the country. The Company believes that the usage-based pricing model in its
agreement with MFS enables it to enter new markets in a more advantageous manner
than many of its competitors which, in many cases, must expend greater resources
to build or lease facilities on a fixed-price basis. Furthermore, Icon's
agreement with MFS affords the Company the flexibility of converting
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to a fixed price model, at its option, as utilization of facilities by the
Company increases. Pursuant to the agreement, MFS also provides certain
additional related services including, upon request by the Company, the
provisioning of local telecommunications services and co-location of certain of
the Company's equipment. Either MFS or Icon may terminate the agreement with or
without cause, with six months written notice, such termination to be effective
as early as December 1998. The Company has recently commenced discussions with
MFS regarding the potential extension of the agreement past December 1998 while
at the same time identifying alternative vendors who provide similar services to
ensure the continued uninterrupted operation of its high performance network. In
November 1997, the Company entered into an agreement with Teleway pursuant to
which they established ITIC to operate an Internet solutions business to
corporate customers in Japan (including Japanese subsidiaries of United States
corporations); however, no assurance can be made at this time that this
transaction will be successful.
The Company's network is monitored 24 hours per day, 7 days per week by its
NOC, located at its Weehawken, New Jersey headquarters. The NOC is the primary
control and networking equipment center for all forms of network operations.
Redundant network paths connect the NOC to the backbone, reducing the
possibility that a single point of failure will cause a network outage. The NOC
hosts systems, which consist of networking equipment, hardware and software, for
customers by providing space, connectivity, data protection and continuous
monitoring and maintenance. The Company maintains a second internal secure
network as a dedicated data conduit for backup and restoration of hosted client
data. To date, the Company has not experienced any network-wide outages or
significant losses of customer data.
SERVICES AND PRODUCTS
The Company integrates services and products in three key areas: (i)
communications services, (ii) professional services and (iii) product resales.
COMMUNICATIONS SERVICES
Access Solutions. Icon's network access solutions enable customers to
deploy mission-critical information and applications over the Internet,
intranets and extranets. In some cases, the Company provides guaranteed levels
of service for dedicated Internet access to corporate customers and targets
performance benchmarks for connection success rates, latency levels and
throughput. The Company also provides switched Internet access including ISDN
and dial-up through Bell Atlantic Internet Solutions and may, in the future,
seek to expand its switched services to augment its dedicated offerings to its
corporate customers, who may want to provide switched access to their employees
or customers. In addition, the Company offers data back-up services by acting as
an outsourcer for archiving customers' data on its servers and systems, and
provides business recovery solutions by using its proprietary technologies. See
' -- Research and Development.'
Depending upon the size of the customer and corresponding application and
information needs, bandwidth requirements vary widely. For example, audio and
video applications typically require greater bandwidth than text-based
applications. Icon offers five levels of Internet access to meet the wide range
of bandwidth needs:
56 Kbps
Fractional DS-1 (n x 64 Kbps; n<24)
DS-1 (1.544 Mbps)
Fractional DS-3 (n x 3 Mbps; 1<n<15)
DS-3 (45 Mbps)
Hosting and Management Solutions. Hosting and management solutions consist
of the provisioning, installation, maintenance and monitoring of the hardware
and software components that comprise a hosted system. The actual components of
web hosting are the server, the physical workstation or PC upon which the
website or application resides, the Company's NOC which hosts the server, a high
speed physical connection to the Company's backbone, server and power backup to
ensure 24 hour functionality, and maintenance, monitoring and management
services to ensure ongoing operation of the server. Within both the NT and UNIX
product lines, the Company offers a diversity of hardware, software, network and
service level configuration options to meet the requirements of its
sophisticated customer base. By outsourcing its web server management function
to the Company, a customer can
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reduce costs while increasing reliability and performance of its servers. The
Company offers 24 hours per day, 7 days per week monitoring of the server and
Internet connection through the Company's technical staff. In addition, Icon
provides upgrades as the customer's speed and capacity requirements grow. In
addition to its existing hosting facility at its corporate headquarters, the
Company currently plans to expand its hosting locations to include New York City
and San Francisco.
PROFESSIONAL SERVICES
Custom Software Application Development. The Company designs and develops
specialized software applications that enable corporations to communicate
business information and conduct commerce through IP-based networks. The
Company's engineering staff is exprienced in programming languages such as C,
C++ and Java and works closely with its customers to analyze and design
specifications for IP-based applications. The Company has completed custom
application projects for customers including ABC Radio, The Associated Press,
Bear Stearns, CBS and Galileo.
Website Design and Development. The Company is an established provider of
advanced website design and implementation services. The Company designs
websites ranging from basic 'inquiry only' sites to complex, interactive sites
featuring sophisticated graphics, animation, sound and other multimedia content.
The Company has completed website design projects for customers including Bell
Atlantic Internet Solutions, CBS News, a division of CBS, Comedy Central,
Deutsche Morgan Grenfell, Galileo, Eastman Kodak Company, Kobra International
(Nicole Miller), Swissair and Swissotel.
In addition, the Company operates an interactive publishing unit that
produces three Internet-based media properties: Word, a 'lifestyle' publication
targeted at 18-34 year olds; Charged, focusing on the extreme sports market; and
SportsFan On-Line, a spectator-sports media property that is a joint venture
with Sports Fan Radio Network, a division of Winstar Communications, Inc. The
Company has experienced and expects to continue to experience operating losses
in connection with the ongoing operation of its media properties. The Company
has recently commenced efforts to identify potential strategic partners to
assist in the exploitation of these properties. While it is the Company's desire
to continue to design, produce and distribute such properties, it does not
intend to continue its role as publisher of interactive media. The Company's
interactive media properties have historically operated at a loss, but have
nevertheless served a valuable marketing function, helping the Company attract
employees and new business.
Integration with Legacy Systems. The Company combines its expertise in
communications services, systems design and custom software and website design
and development to offer integration services. Icon's integration services
enable its customers to access corporate information that resides on legacy
systems, such as IBM or Unix mainframes, that are connected by network
architectures. The Company's technical engineers, whose training and
certification includes Sun Solaris, Netscape, Microsoft NT and Cisco, are
skilled at design and implementation of databases in order to reduce demands on
legacy systems and increase the efficiency of transporting corporate data
between legacy and client/server systems over an IP-based network. The Company
has completed integration projects for customers including ABC Radio, The
Associated Press, Bear Stearns, CBS News, Galileo, Merrill Lynch, Nomura
Securities, Omnipoint Communications ('Omnipoint'), Swissair, Tudor Investment
Company and John Wiley & Sons, Inc. ('John Wiley').
Maintenance and Support of Customer IT Infrastructure. The Company's
maintenance and support services organization offers 24 hours per day, 7 days
per week hardware and software maintenance and support for its customers.
Services include call-in support, troubleshooting, software and hardware updates
and on-site helpdesk and general support personnel. Engagements of the Company
to perform maintenance and support services have often developed when or after
the customer has purchased products from the Company or used other professional
services. The Company has provided maintenance and support services for
customers including Bear Stearns, CBS, Merrill Lynch, Moore Capital Management,
Inc., Omnipoint, Tudor Investment Company and John Wiley.
PRODUCT RESALES
Product resales are an integral part of providing end-to-end solutions. The
Company identifies and resells hardware and software that become components of
its customers' information technology infrastructure. The Company, in certain
cases, leverages product resales to cross-sell Icon's end-to-end solutions to a
growing customer base. The products include hardware and networking equipment
such as Sun Microsystems servers and Cisco routers, and software such as
Checkpoint firewalls, Netscape web servers and Oracle, Informix and Sybase
databases.
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SALES AND MARKETING
The Company's distribution strategy entails expanding its sales channels to
sell its services and products directly to commercial users and through a
network of indirect distribution channels, including OEM relationships, regional
systems integrators, VARs, distributors and relationships with
telecommunications companies, including Bell Atlantic Internet Solutions and
Fiberlink.
DIRECT SALES FORCE
The Company's direct sales force targets large accounts with significant
revenue-generating potential. The Company's sales group focuses on
information-intensive industries, such as financial services, media,
telecommunications and travel and includes customers such as ABC Radio, Bear
Stearns, CBS, Galileo and Nomura Securities. The Company believes that the
organization of its direct sales force along industry lines enables it to
leverage its expertise and develop solutions that can be replicated and tailored
to meet recurring demands of corporate customers throughout a particular
industry. As the size of the direct sales force grows, the Company plans to
expand into additional vertical segments, including general commercial and
consumer brand products. The Company has expanded its sales staff from 25 at the
beginning of 1997 to 33 as of September 30, 1997. Typically, the Company's sales
representatives receive a compensation package that includes a salary and
commissions that are based on actual sales and oriented toward selling higher
margin services.
INDIRECT DISTRIBUTION CHANNELS
The Company markets its services and products through a network of
third-party relationships, thereby expanding its customer base throughout the
country without incurring the associated sales, marketing and administrative
costs. Regional systems integrators, VARs and, in some cases, regional ISPs may
also resell the Company's services and products. By reselling the Company's
services and products, these companies are able to expand their service and
product offerings and provide more comprehensive solutions to their customers.
As an example of this strategy, the Company has entered into master distribution
agreements with Access Graphics and Merisel, two leading distributors of Sun
Microsystems Computer Company ('Sun') workstations, to bundle Sun web servers
with the Company's Internet access services. Such distributors and resellers may
participate in the Company's indirect distribution channel either by (i)
sublicensing the Company's services and products and reselling them to their
customers or (ii) referring orders to the Company in exchange for an agency
commission.
Icon has also pursued a distribution strategy that enlists the assistance
of telecommunications companies who are already providing communications
services (such as local phone service or cable television) to existing
customers. This strategy enables the Company to leverage not only a
substantially larger sales and marketing infrastructure, but also strong
customer relationships. While the Company's margins are lower in this
distribution channel, the Company's resellers absorb all of the
customer-acquisition and administrative costs that would otherwise be borne by
the Company.
In addition to its reseller agreements, pursuant to the arrangement with
Bell Atlantic Internet Solutions, Bell Atlantic Internet Solutions offers its
customers the option to purchase Icon's communications services and bills the
customers on Icon's behalf. In October 1997, the Company extended its
arrangement with Bell Atlantic Internet Solutions by entering into an updated
GSP agreement with Bell Atlantic Internet Solutions. The Company currently plans
to make its services available to requesting Bell Atlantic Internet Solutions
business customers in the Bell Atlantic northern region during the first quarter
of 1998. The Company intends to pursue additional relationships with other
telecommunications providers, including additional 'local telco service'
providers both using wireline and wireless facilities, including LECs, RBOCs,
CAPs and cable television companies.
MARKETING
The Company employs marketing and public relations personnel and works with
third-party advertising firms and consultants to provide broad coverage in
network computer and vertical industry publications. The Company participates in
nationwide industry trade shows, historically including NetWorld+InterOp,
Internet World and CompTel. The Company also participates in co-branding
promotions with strategic partners including Sun, Access Graphics and Merisel.
Recently, the Company expanded its marketing budget in an effort to increase its
brand recognition among potential customers in its target vertical markets.
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CUSTOMERS
Customers served by the Company in the 12 months ended September 30, 1997
include the following:
<TABLE>
<CAPTION>
SOLUTION COMPONENTS
COMMUNICATIONS PROFESSIONAL
CUSTOMER SERVICES SERVICES PRODUCTS
<S> <C> <C> <C>
FINANCIAL SERVICES
Alliance Capital Management LP X X
Bear, Stearns & Co. Inc X X X
Daiwa Securities America Inc. X X X
Deutsche Morgan Grenfell X X
Merrill Lynch & Co., Inc. X X
Nomura Securities Co. Ltd. X X X
Tudor Investment Company X X
TELECOMMUNICATIONS
ACC Long Distance Corp. X
Bell Atlantic Internet Solutions, Inc. X X
Fiberlink Communications Corp. X
Omnipoint Communications X X X
MEDIA
ABC Radio Network Inc. X X
CBS, Inc. X X X
CMP Publications, Inc. X X X
C-NET: The Computer Network X X
Comedy Central Network X
Economist Intelligence Unit X X X
John Wiley & Sons, Inc. X X
Wire Networks, Inc. (Women's Wire) X X
TRAVEL
Galileo International X X X
KLM Royal Dutch Airlines X
Swissair X X
Swissotel X X X
RETAIL/CONSUMER PRODUCTS
Eastman Kodak Company X X
Kobra International (Nicole Miller) X X
INFORMATION SERVICES
The Associated Press X X X
Bloomberg Financial Markets Inc. X X
INSURANCE AND HEALTHCARE
Group Health, Inc. X X X
Insurance Services Office, Inc. X X X
Metropolitan Life Insurance Co. X X
National Preferred Provider Network, Inc. X X X
</TABLE>
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In 1994, 1995, 1996 and the first nine months of 1997, the Company derived
25%, 28%, 30%, respectively, and 49%, respectively, of its revenues from a
single customer, Bear Stearns. In 1994, 1995 and 1996, the Company derived 11%,
15% and 13%, respectively, of its revenues from a second customer, Nomura
Securities. In 1995, the Company derived 10% of its revenues from a third
customer, Merrill Lynch. Except for such revenues from such customers, the
Company did not derive 10% or more of its revenues from a single customer in
1994, 1995, 1996 or the first nine months of 1997.
KEY APPLICATIONS
The following examples illustrate how the Company has provided
communications and professional services to facilitate access to and
distribution of mission-critical IP-based information and applications.
BEAR, STEARNS & CO. INC.
Historically, Icon had been a major technology product supplier for Bear
Stearns, reselling hardware and software products to the financial services
company since January 1994. In 1995, Bear Stearns hired the Company's
professional services unit to assist in the roll-out of desktop computers within
the firm. As part of the engagement, a number of the Company's engineers were
staffed on-site to assist with the installation and maintenance of the new
systems. Subsequently, Bear Stearns engaged Icon on projects to integrate Bear
Stearns' document management system into an IP-network through a web gateway and
to design, develop and implement its Correspondence System Project. Bear Stearns
also selected the Company to facilitate the migration of Bear Stearns' brokerage
clearing system to an IP-based network, to run the back-office transaction
processing on existing legacy networks and to operate Bear Stearns' systems and
mainframes consistent with its exacting reliability and security requirements.
Icon's solution included initial project consultation, design and development of
the application and IP-network, integration of the application and web gateway
with existing back-office legacy equipment and applications and associated
communications and maintenance services. With respect to this project, Icon
currently provides Internet access services, manages the server on which the
application resides, manages and maintains the IP-network and provides ongoing
consulting services. By implementing this solution, the Company believes that
Bear Stearns has been able to reduce the cost of maintaining a client/server
infrastructure, eliminate the need for application support on the PC level
through the use of Java and reduce WAN expenses by using the Company's network
rather than building its own.
BELL ATLANTIC INTERNET SOLUTIONS
In May 1996, Bell Atlantic Internet Solutions entered into an arrangement
to provide billing services in connection with the inclusion of Icon's
communications services as an option available to Bell Atlantic Internet
Solutions' customers. As a result of this arrangement, a significant percentage
of Bell Atlantic Internet Solutions' customers have selected Icon as their
global service provider to provide the long distance portion of the Internet
access services for both dedicated and switched access services. In light of the
success of this relationship, in June 1997, Bell Atlantic Internet Solutions
contracted with the Company to provide professional services to develop a
website for Bell Atlantic Internet Solutions' online marketing campaign. Icon's
professional services included the design and development of a system
architecture that facilitated users' access to product information and was
capable of distributing geographically specific information to users in
disparate locations. The Company also re-purposed existing marketing material to
take advantage of the interactive nature of the Internet. In October 1997, the
Company extended its arrangement with Bell Atlantic Internet Solutions by
entering into an updated GSP agreement with Bell Atlantic Internet Solutions.
The Company currently plans to make its services available to requesting Bell
Atlantic Internet Solutions customers in the northern region during the first
quarter of 1998.
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CBS, INC.
Commencing in 1991, the Company began acting as a VAR for CBS. CBS
thereafter engaged Icon's professional services division to design and develop
an extranet to facilitate CBS' affiliates' access to programming information and
CBS' ability to distribute real-time news and other corporate information from
internal databases. The Company provided consulting services to help CBS design
an efficient and cost-effective technology infrastructure and integrate a
streamlined data-filtering information distribution application with back-end
legacy databases and a web-based user interface. In 1995, the customer selected
Icon to provide hosting and Internet access for the CBS website and other
CBS-related websites. At the same time, CBS selected Icon to develop and manage
an Internet site providing live coverage of the 1996 Presidential election,
entitled 'Campaign '96.' The Company provided CBS with an end-to-end solution,
including design and implementation of the back-end database architecture and
the creation of dynamically-generated pages with live streaming audio and video.
The Company also provided hosted systems management and maintenance and
monitored bandwidth needs on a real-time basis. In September 1997, CBS selected
Icon as its communications services provider to provide various services
including hosting and access for the websites 'cbsnow.com' and 'cbs.com,'
provide systems integration and infrastructure planning services, and to provide
technology products and associated integration, maintenance and support
services.
RESEARCH AND DEVELOPMENT
To optimize overall network performance, Icon develops and markets
proprietary technologies. Icon's proprietary technologies are based on a modular
development approach that offers flexibility and allows for the reuse of
individual components and the rapid implementation of custom solutions. In
addition, Icon maintains a technology-neutral position thereby enabling it to
integrate third-party technologies to optimize its clients' solutions
irrespective of technology platform.
OLive -- Objects Live. OLive is an object-oriented development platform
developed and used by the Company in the design of its proprietary technologies.
The Company designed OLive to simplify the development process of customized
network-centric applications solutions and is focused on re-usability,
interoperability and ease of customization.
NESI. The protection of mission-critical data is of vital importance to a
company's business. As a result, corporations need business recovery
capabilities to replicate data in remote locations. To address data backup and
recovery needs, the Company developed NESI, a technology that extends the
distance over which computers can communicate with peripherals such as disk
drives. Data can be sent over a WAN to be processed on a device at a remote
location, in the same manner as if the device were local. As a result,
administrative tools may be used to manage remote devices without modification.
Major benefits of NESI include the ability to be integrated with third-party
data mirroring products, such as Sun's Solstice DiskSuite and the Veritas Volume
Manager, and with data backup software. The Company plans to provide a business
recovery service by combining NESI with its proprietary IP replication
technology. IP replication technology redirects requests for data stored on a
specific server to one or more servers that are hosted on the Company's network
by replicating the IP address or identity of the original server. If data is
requested from a server that has failed, the request is re-directed to a
different NESI-enabled server that is storing a mirrored copy of the data. This
further improves recoverability of the data and speed of access to it. The
Company has a patent pending on the NESI technology.
IconCache. End users often experience poor performance while waiting for
content to be downloaded from a web server. IconCache, an OLive-based,
intelligent caching technology speeds this download process, enhancing the
access to and distribution of information over the Internet. Traditionally, when
end-users request data via the Internet, a server in a single location fulfills
the request. This configuration may result in poor performance due to high
server loads caused by overburdening the server with a high volume of requests
or increased latency or transmission delays caused by end-user requests
originating a significant distance from the server. IconCache improves network
performance by addressing both of these problems. Icon addresses server load and
distance-related latency problems in areas experiencing high request volume by
replicating server data and offloading or caching it to other servers.
Ultimately, IconCache diversifies single server loads and
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moves data closer to the end-user, minimizing backbone traffic and enhancing
performance. IconCache is different from other caching technologies, such as
proxy servers, that do not provide high levels of data management and are
typically used for simple static websites. Icon plans to enhance the flexibility
of IconCache by combining it with IP replication. The Company has a patent
pending on this technology.
IconFeed. In order to fulfill the growing need to publish and distribute
content over the Internet, Icon developed IconFeed, an OLive-based content
publishing and distribution technology. IconFeed is an application that resides
on a server and receives data, regardless of format, and normalizes it for
optimal storage, maintenance and distribution on the web. The normalized data
can be stored in and accessed by a variety of data storage devices, including
databases and file systems. Ultimately, it is distributed and converted into a
format suitable for presentation via web servers, including HTML. The Company
has a patent pending on this technology.
IconChat. The Internet enables the real-time interaction of end-users via
text, audio and video technologies. By incorporating these increasingly popular
interactive technologies into their websites, corporations are realizing
benefits, including the extended duration of end-user visits to revenue-
generating sites and the reduction of traditional communications costs. While
currently integrated with a third-party software product, IconChat, a text-based
real-time discussion system, is the Company's first Internet-based interactive
offering. IconChat includes proprietary functionalities, including a message
board functionality that enables the electronic posting of messages similar to
that of a traditional bulletin board. The Company believes that IconChat is
ideal for corporate customers who want to facilitate real-time text-based dialog
among users of a company's website. It is offered as a value-added service to
Icon's communications services customers.
COMPETITION
The markets served by the Company are extremely competitive. The influx of
new market entrants is expected to continue in each sector of the Company's
business to meet the growing demand for information technology and
communications services and products. Additionally, the Company believes that
such factors as shifting customer demands and the rapid pace of technological
advance will intensify competition and result in continual pressures to reduce
prices, enhance services and products and develop and exploit new technology.
Most of the Company's current and potential competitors enjoy a greater market
presence and possess substantially greater technical, financial and marketing
resources than the Company. The Company believes that its ability to compete
successfully depends upon a number of factors, including the performance,
reliability and security of its communications infrastructure, continued ability
to provide end-to-end Internet solutions, its ability to maintain and expand its
channels of distribution, its continued expertise in proprietary and third party
technologies, its ability to attract and retain service engineers, the pricing
policies of its competitors and suppliers, the variety of services it offers,
the timing of introductions of new services by the Company and its competitors,
customer support, the Company's ability to support industry standards and
industry and general economic trends.
COMMUNICATIONS SERVICES
The Company's current and prospective competitors in the Internet
communications services sector generally may be divided into the following five
groups: (i) telecommunications companies, such as AT&T, MCI, Sprint, WorldCom,
Intermedia, GTE and LECs; (ii) online services providers, such as America
Online, MSN and Prodigy; (iii) ISPs, such as NETCOM, PSI, Concentric and other
national and regional providers; (iv) cable modem connectivity providers such as
@Home; and (v) data center providers such as Exodus. Most of these competitors
have greater market presence, engineering and marketing capabilities, and
financial, technological and personnel resources than those available to the
Company. As a result, they may be able to develop and expand their
communications infrastractures more quickly, adapt more swiftly to new or
emerging technologies and changes in customer requirements, take advantage of
acquisition and other opportunities more readily, and devote greater resources
to the marketing and sale of their services and products than the Company. In
addition to the companies named above, various organizations have entered into
or are forming joint ventures or
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consortiums to provide services similar to those of the Company. The Company
believes that competitive factors in the Internet services market include market
presence, network capacity, reliability and security, price, new products and
enhancements and conformity with industry standards.
Certain companies, including WorldCom, Intermedia and GTE, have also
obtained or expanded their Internet access services and products as a result of
acquisitions. In 1996, MFS merged with UUNET, a competitor of the Company in the
area of Internet access. MFS has been acquired by WorldCom, which is also a
supplier of network services to Icon. WorldCom has reached an agreement to
acquire MCI, which is a major provider of Internet backbone services. The
combination of MFS, UUNET, WorldCom and MCI means that one of the Company's
major suppliers is also one of its formidable competitors in providing Internet
services. Such acquisitions may permit the Company's competitors to devote
greater resources to the development and marketing of new competitive products
and services and the marketing of existing competitive products and services.
Additionally, certain distributors of the Company's services and products,
such as Bell Atlantic Internet Solutions, may compete with the Company in the
future. Certain companies are also providing high-speed data services using
alternative delivery methods such as cable television, direct broadcast
satellites and wireless cable.
As a result of increased competition and vertical and horizontal
integration and consolidation in the industry, the Company could encounter
significant pricing pressure, which in turn could result in significant
reductions in the average selling price of the Company's services. For example,
certain of the Company's competitors that are telecommunications companies may
be able to provide customers with reduced communications costs in connection
with their Internet access services or private network services, reducing the
overall cost of their solutions and significantly increasing price pressures on
the Company. There can be no assurance that the Company will be able to offset
the effects of any such price reductions with an increase in the number of its
customers, higher revenue from enhanced services, cost reductions or otherwise.
PROFESSIONAL SERVICES
The professional services market is highly fragmented and served by
numerous providers, including consulting and systems integration firms,
facilities management and MIS outsourcing companies, applications software
firms, major equipment providers through their professional services units,
major accounting firms, general management consulting firms and website/intranet
design firms. The Company typically encounters competition from mid-sized and
regional consulting and systems integration firms, such as Cambridge Technology
Partners and Technology Solutions, and increasingly competes with large-scale
systems integrators, such as EDS. The Company's design group also competes with
a variety of interactive design firms including agency.com, Razorfish, USWeb and
CKS Group. The Company believes that the primary competitive factors at work in
this market are price, the ability to fashion and deliver efficient solutions to
customer needs, the quality of service, including project management and ongoing
support and maintenance, its ability to attract and retain service engineers and
the availability and quality of hardware. Accordingly, the Company competes on
the basis of its reputation, personnel, technical sophistication and ability to
provide single-source, end-to-end solutions.
PRODUCT RESALES
The product resales business is a highly competitive market with low
margins and no substantial barriers to entry. The Company believes that its
ability to compete successfully depends on a number of factors, including its
ability to integrate value-added services with its product resales, the price at
which the Company resells products, the speed and accuracy of delivery, the
effectiveness of sales and marketing programs, credit availability, the ability
to tailor specific solutions to customer needs, the quality and breadth of
products offered, the availability to offer product information and technical
support and industry and general economic trends.
The Company's current and prospective competitors generally can be divided
into three groups: (i) national and regional VARs, such as EJV Bridge Networks,
Bell Technology and LANCOM; (ii) national and regional systems integrators, such
as EDS, Sapient, Computer Associates and The Ergonomics Group; and (iii)
hardware distributors, such as CHS Electronics and ITOCHU. Many of these
competitors have greater market presence and financial resources than those
available to the
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Company. As a result, they may be able to adapt more swiftly to changes in
market prices and customer requirements, provide financing to customers for
purchases, take advantage of acquisition and other opportunities more readily,
and devote greater resources to the marketing and sale of their products than
can the Company. In addition, the Company expects that additional competitive
pressure may arise from manufacturers that have been successful in selling
directly to the end-users without the use of resellers.
PROPRIETARY RIGHTS
The Company believes that factors such as the technical and business
expertise of its personnel, attentive high-quality customer service and
strategic alliances with its suppliers and other vendors, have to date played a
predominant role in promoting its reputation and the growth of its business but
recognizes that its ability to compete effectively and to continue to grow will
depend increasingly on the use and appeal of its proprietary technology. While
the Company relies on patent, trademark, contract, trade secret and copyright
law to protect its proprietary technologies, it is possible for a third party to
copy or otherwise obtain and use the Company's technologies without
authorization, or to develop similar technologies independently. Although the
Company has not to date registered any trademark or service mark, it has applied
to register its name and logo design as trademarks and certain of its product
and service names and marks as trademarks or service marks in the United States.
The Company does not own but has applied for patents on certain of its
proprietary technologies. Although the Company does not believe that its
services or products infringe the proprietary rights of any third parties, there
can be no assurance that third parties will not assert such claims against the
Company in the future or that such claims will not be successful.
In accordance with the Company's policy, all of the Company's employees and
consultants have entered into, and all future employee and consultants are
expected to enter into, agreements containing confidentiality and
nonsolicitation covenants. Similarly, the Company's agreements with customers
and suppliers include provisions prohibiting or restricting the disclosure of
proprietary information and products, the use of software in source code form
and the sublicensing of licensed software. The Company also monitors and limits
access to and the distribution of its proprietary technologies. In addition, the
Company sells or licenses its services and products in, and the Internet and
other global networks facilitate the delivery of the Company's software to,
other countries where the laws may not afford adequate protection of the
Company's proprietary rights in such products or provide effective means for its
enforcement of such rights.
Certain technologies used in the Company's solutions are licensed or leased
by the Company, generally on a non-exclusive basis. There can be no assurance
that such technology will continue to be available to the Company on
commercially reasonable terms. The loss of such technology could impair the
Company's products or services or require the Company to obtain substitute
technologies of lower quality or performance standards or at greater cost. See
'Risk Factors -- Dependence on Proprietary Technologies'.
GOVERNMENTAL REGULATION
The Company believes it is not currently subject to direct regulation by
the FCC or any other governmental agency, other than regulations applicable to
businesses generally. To date, the FCC has not actively sought to regulate the
provision of Internet access and related services. Except for the stand-alone
provision of underlying basic transmission capability, the offering of Internet
services or access to the Internet has generally been considered an 'enhanced
service,' a type of services offering that is not currently regulated by the
FCC. Whether the FCC will assert regulatory authority over the Internet and the
level of such regulation, if asserted, are pending issues at that agency, and
regulation of the Internet and related services in general is being considered
by lawmakers at many levels of government. The Company cannot predict whether
regulation may be imposed in the future, what form such regulation may take or
that such regulation will not adversely affect the Company's business, financial
condition or results of operations.
Under current law, operators of 'enhanced' services are exempt from FCC
regulation, but operators of 'basic' services are not similarly exempt. The FCC
has not yet addressed whether providing transport services, including Internet
telephony, to customers over
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an IP-based network is an enhanced service. A determination by the FCC that
providing Internet transport or telephone services to customers over an
IP-based network is subject to regulation would adversely impact the Company's
ability to provide various existing and planned services and to provide Bell
Atlantic Internet Solutions' customers with the option to purchase the Company's
communications and other services, and could have a material adverse effect on
the Company's business, financial condition and results of operations. Some
states may, however, seek to exercise regulatory jurisdiction over certain
aspects of such offerings.
The FCC also extensively regulates the cable and broadcasting industries.
These regulations address, among other things, technical, ownership, competition
and content-related issues. To date, the FCC has not determined whether or to
what extent its regulatory framework can or should be extended to directly
govern analogous communications on the Internet, such as video and audio
streaming. There can be no guarantee that the limited regulatory burdens on the
Internet to date will not increase or that new laws governing the Internet will
not be passed.
In February 1996, the Telecommunications Act of 1996 was signed into law by
the President of the United States. Changes in the regulatory environment
relating to the Internet access industry, including regulatory changes that
directly or indirectly affect the regulatory status of Internet services, affect
telecommunications costs, including the application of access charges to
Internet services, or increase the likelihood or scope of competition from
regional telephone companies or others, could have a material adverse effect on
the Company's business, financial condition and results of operations. Due to
the increase in Internet use and publicity, it is possible that laws and
regulations may be adopted with respect to the Internet, including with respect
to privacy, pricing and characteristics of services or products. Certain other
legislative initiatives, including those involving taxation of Internet services
and transactions, Internet regulation and universal service contribution
requirements for Internet providers have also been proposed. The Company cannot
predict the impact, if any, that these or other laws and regulations or legal or
regulatory changes may have on its business.
In addition, Bell Atlantic has filed a petition with the FCC seeking relief
from various regulations that affect the deployment of advanced
telecommunications services by RBOCs. The petition asks the FCC to approve Bell
Atlantic's (i) provision of high-speed broadband services without regard to
current geographic restrictions, (ii) development of new services without
current pricing, unbundling or separations restrictions and (iii) sale of new
services unrestricted by otherwise applicable price cap and separate afiiliate
rules. If the FCC approves the petition, Bell Atlantic Internet Solutions may be
able to undertake many of the functions that the Company currently performs for
Bell Atlantic Internet Solutions' customers. The FCC has invited public comment
on Bell Atlantic's request.
Recently the FCC proposed to eliminate the requirement that RBOCs must file
comparably efficient interconnection plans and obtain approval for those plans
prior to providing new enhanced services. Elimination of this requirement could
lessen certain regulatory burdens currently imposed on Bell Atlantic Internet
Solutions. Furthermore, on December 31, 1997, a Federal District Court Judge
declared several provisions of the Telecommunications Act unconstitutional. If
upheld on appeal, this decision may allow Bell Atlantic to offer certain
services, which Bell Atlantic Internet Solutions and its affiliates have been
prohibited from offering under the Telecommunications Act, without the FCC
finding Bell Atlantic to be in compliance with the network unbundling and other
competitive requirements set out in the Telecommunications Act. The Company
currently provides such services for Bell Atlantic Internet Solutions'
customers; and if the decision is upheld on appeal, Bell Atlantic Internet
Solutions or its affiliates may provide such services directly to their
customers.
Bell Atlantic Internet Solutions' relationship with the Company is subject
to review and regulation by state and federal authorities, including the FCC.
Although the Company understands that Bell Atlantic Internet Solutions has
received the requisite approvals to provide service and make the Company's
services available to those of Bell Atlantic Internet Solutions' customers who
request them (which has only included customers in the traditional Bell Atlantic
southern region through the date of this Prospectus), a petition submitted by
MFS in July 1996 for reconsideration of such FCC approvals is currently pending
before the FCC. Additionally, the extension of the Company's service offerings
into the traditional Bell Atlantic northern region (NYNEX) is subject to
approvals at the state and federal levels. There can be no assurance that Bell
Atlantic Internet Solutions will be successful in maintaining or procuring the
requisite regulatory approvals. Failure of Bell Atlantic Internet Solutions to
maintain or prospectively procure such approvals at the federal or state level
could adversely affect the Company's existing agreements with Bell Atlantic
Internet Solutions, and, as a result, the Company's business, financial
condition and results of operations.
Additionally, certain lobbying groups are attempting to initiate
legislation which would compel ISPs to pay access charges for the use of some of
the local networks operated by the RBOCs. The adoption of such laws or
regulations could inhibit the continued growth of the Internet or other wide
area information networks, impose additional costs on the Company, expose the
Company to greater potential liability from regulatory actions or private legal
proceedings or otherwise adversely affect the Company's business operations or
performance. However, at present, the Company is unable to predict whether any
laws or regulations specifically applicable to the Company or its businesses
will be adopted, or, if any such laws or regulations are adopted, the nature or
extent of their impact on the information technology industry or the Company's
business operations or performance.
Federal and state laws and regulations relating to the liability of online
services companies and Internet access providers for information carried on or
disseminated through their networks is currently unsettled. Several private
lawsuits seeking to impose such liability upon online services companies and
Internet access providers are currently pending.
In addition, legislation has been enacted and new legislation has been
proposed that imposes liability for or prohibits the transmission on the
Internet of certain types of information. The imposition
46
<PAGE>
<PAGE>
upon the Company and other Internet access providers of potential liability for
information carried on or disseminated through their systems could require the
Company to implement measures to reduce its exposure to such liability, which
may require the expenditure of substantial resources, or to discontinue certain
service or product offerings. The increased attention focused upon liability
issues as a result of these lawsuits and legislative actions and proposals could
impact the growth of Internet use. While the Company carries professional
liability insurance, it may not be adequate to compensate or may not cover the
Company in the event the Company becomes liable for information carried on or
disseminated over its networks. See 'Risk Factors -- Government Regulation.'
LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject of,
any material pending legal proceedings.
EMPLOYEES
As of September 30, 1997, the Company had 229 employees, all of whom were
full time. Of these, 98 were principally engaged in professional services, 28
were principally engaged in the communications services, 11 were principally
engaged in the interactive publishing group, 36 were principally engaged in
sales and marketing, 13 were principally engaged in research and development, 10
were principally engaged in operations and 33 were principally engaged in
finance, administration, legal, management information systems and human
resources. None of the Company's employees is represented by a labor union. The
Company considers its relations with its employees to be satisfactory.
PROPERTIES
The Company currently occupies approximately 55,000 square feet in a modern
office building in Weehawken, New Jersey, under a lease which expires on
February 28, 2006. The Company's NOC is located at its Weehawken building. The
Company also leases approximately 5,700 square feet for its New York City office
and is negotiating a possible lease of approximately 20,000 square feet of space
to replace the existing New York City office.
47
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information (ages as of February 1,
1998) concerning each of the Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- -------------------------------------------------------------
<S> <C> <C>
Scott A. Baxter................... 35 President, Chief Executive Officer and Chairman of the Board
of Directors
Richard M. Brown.................. 48 Vice President -- Information Technologies, Secretary and
Director
Scott Harmolin.................... 38 Senior Vice President, Chief Technology Officer and Director
Kenneth J. Hall................... 39 Senior Vice President, Chief Financial Officer and Treasurer
Susan A. Massaro.................. 42 Senior Vice President -- Professional Services
Frank C. Cicio, Jr................ 43 Senior Vice President -- Sales and Business Development
Anthony R. Scrimenti.............. 43 Senior Vice President -- Communications Services
David L. Goret.................... 34 Vice President -- Business Affairs, General Counsel and
Assistant Secretary
Robert J. Thalman, Jr............. 45 Vice President -- Strategic Marketing
Michael J. Gold................... 33 Vice President -- Corporate Development
Samuel A. Plum.................... 53 Director
Wayne B. Weisman.................. 41 Director
</TABLE>
Scott A. Baxter, a founder of the Company, has been the President, Chief
Executive Officer and Chairman of the Board of Directors of the Company since
its inception in 1991. From June 1987 to February 1991, Mr. Baxter was an
account executive at Sun. From 1984 to 1987, Mr. Baxter was an account executive
at Data General Corporation ('Data General').
Richard M. Brown, a founder of the Company, has been the Vice
President -- Information Technologies, Secretary and a Director of the Company
since its inception in 1991. From November 1986 to February 1991, Mr. Brown was
President of Custom Applied System Techniques Inc., a consulting firm that
specialized in computer systems.
Scott Harmolin, a founder of the Company, has served as Senior Vice
President, Chief Technology Officer and Director of the Company since its
inception in 1991. From November 1986 to February 1991, Mr. Harmolin was Vice
President of Custom Applied System Techniques Inc., a consulting firm that
specialized in computer systems.
Kenneth J. Hall has served as the Company's Senior Vice President, Chief
Financial Officer and Treasurer since April 1997. From February 1996 to March
1997, he was the Chief Financial Officer of Global Direct Mail Corp. ('Global'),
an international direct marketer of computer products and office supplies. Prior
to such time, Mr. Hall was employed by the National Football League Properties,
Inc. as Vice President of Finance and Administration and Chief Financial Officer
from 1992 to 1995 and Director of Finance from 1990 to 1991. Mr. Hall's
experience also includes management positions with Price Waterhouse LLP and
Coopers & Lybrand L.L.P.
Susan A. Massaro has served as the Company's Senior Vice
President -- Professional Services since March 1996. From January 1979 to March
1996, Ms. Massaro worked for Data General, a computer hardware and software
manufacturer, where she held many technical and business management positions,
including the U.S. Director of Professional Services, Eastern U.S. Director of
Systems Engineering, Northeast Technical Services Manager, and various Systems
Engineering consultant and management positions. Prior to joining Data General,
Ms. Massaro held Programmer/Analyst positions at LeCroy Research Systems, a test
and measurement instrumentation manufacturer, and STC Systems, a business
application solutions provider and integrator. Ms. Massaro is the spouse of
Anthony R. Scrimenti.
Frank C. Cicio, Jr. has served as Icon's Senior Vice President -- Sales and
Strategic Business Development since February 1997. Mr. Cicio served from July
1993 to February 1997 as Executive Vice
48
<PAGE>
<PAGE>
President of Sales and Marketing of Logic Works Incorporated, a computer
software company. Prior to joining Logic Works, Mr. Cicio was Director of
Strategic Alliances at Bachman Information, a computer software company, and
served in various capacities at MAI Systems, a manufacturer of application
software and hardware products for the retail, distribution and financial
markets, beginning as an engineering project manager in 1977 and rising to
General Manager of the North American Industry Business Unit in 1989.
Anthony R. Scrimenti has served as the Company's Senior Vice
President -- Communications Services since November 1997 and was its Chief
Information Officer from August 1994 to November 1997. From October 1993 to
August 1994, Mr. Scrimenti was employed by Novell, Inc., a networking software
manufacturer, as a senior systems consultant. From January 1986 to October 1993,
Mr. Scrimenti was employed by Data General, a computer hardware and software
manufacturer, in various capacities, including as Manager, Network Services.
Mr. Scrimenti is the spouse of Ms. Massaro.
David L. Goret has served as the Company's General Counsel since February
1996 and Vice President -- Business Affairs since February 1997. From July 1992
to January 1996, Mr. Goret served as Vice President -- Business Affairs and
General Counsel of Interfilm, Inc., a public company that he co-founded, which
produced interactive motion pictures. From May 1991 to July 1992, Mr. Goret
served as director of Business Affairs for Controlled Entropy Entertainment, an
entertainment production company. From October 1989 to July 1992, Mr. Goret
served as Director of Business Affairs for Tour-Toiseshell, Inc., the production
company of the Teenage Mutant Ninja Turtles live shows. Mr. Goret was an
attorney at Haythe & Curley from September 1988 to October 1989. Mr. Goret is
admitted to practice in New York and New Jersey.
Robert J. Thalman, Jr. has served as the Company's Vice President of
Strategic Marketing since January 1997. Prior to joining Icon, Mr. Thalman spent
16 years with Turner Broadcasting System, where he oversaw strategic marketing
for both international (1991-1996) and domestic (1986-1990) network
distribution.
Michael J. Gold has served as the Company's Vice President -- Corporate
Development since August 1997. From October 1996 to May 1997, Mr. Gold was the
Chief Executive Officer of Tumble Interactive Media, Inc., an interactive media
agency. From May 1993 to February 1996, he was the President and founder of
Beyond Fitness, a multimedia fitness-information services company. From August
1986 to April 1993, Mr. Gold was employed by AT&T and Bell Laboratories in
various capacities, including Manager, New Business Development in the
electronic commerce area and District Manager, Sales.
Samuel A. Plum has been a Managing General Partner of the general partner
SCP Private Equity Partners, L.P. ('SCP'), a private equity investment fund,
since its inception in August 1996 and was a Managing Director of Safeguard
Scientifics Inc., an information technology company, from 1993 to 1996. From
February 1989 to January 1993, Mr. Plum served as President of Charterhouse Inc.
and Charterhouse North America Securities, Inc., the U.S. investment banking and
broker-dealer arms, respectively, of Charterhouse PLC, a merchant bank in the
U.K. From 1973 to 1989, Mr. Plum served in various capacities at the investment
banking division of PaineWebber, Inc. and Blyth Eastman Dillon & Co., Inc.
Wayne B. Weisman has been a Partner of the general partner of SCP, a
private equity investment fund, since its inception in August 1996. He has been
Vice President of CIP Capital, L.P., a licensed Small Business Investment
Company, since its formation in 1990. From January 1992 to May 1994, Mr. Weisman
was an Executive Vice President of Affinity Biotech, Inc., a healthcare
technology company, and Vice President and General Counsel of its successor,
IBAH, Inc., a clinical trials management company. He formerly practiced law with
the Philadelphia firm of Saul, Ewing, Remick & Saul. Mr. Weisman is a director
of Microleague Multimedia, Inc. and CinemaStar Luxury Theaters, Inc.
Prior to consummation of the Offering, the Board of Directors shall be
divided into three classes, with each class containing as equal a number of
Directors as possible; after an interim period of three years following
consummation of the Offering, all directors will be elected for three years and
only one class of directors will come up for election each year. Officers serve
at the discretion of the Board of Directors. Other than as set forth above,
there are no family relationships between any of the Directors or executive
officers of the
49
<PAGE>
<PAGE>
Company. There will be five people on the Company's Board of Directors
immediately after the consummation of the Offering.
Upon consummation of the Offering, the Board of Directors intends to
establish an Audit Committee and a Compensation and Stock Option Committee, a
majority of whose members will be independent directors. The Audit Committee
will communicate with and receive information directly from the Company's
independent accountants and will review the Company's financial controls,
policies and procedures. The Compensation and Stock Option Committee is expected
to review and evaluate periodically the compensation of the Company's officers
and will administer the 1995 Option Plan.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company are not entitled to receive any
fees for serving as directors. All directors are reimbursed for out-of-pocket
expenses related to their service as directors. Under the 1995 Option Plan,
non-employee directors will be entitled to receive formula grants of stock
options.
An option to purchase 3,273 shares will be automatically granted to each
non-employee director when he or she is elected or appointed to the Board (the
'Initial Grant'), and an option to purchase an additional 2,182 shares will be
automatically granted immediately following each annual meeting of the
stockholders at which directors are elected after the Initial Grant (the
'Subsequent Grant') where such person is re-elected as a director of the
Company. Such options have not yet been issued to Messrs. Plum and Weisman.
The director's right to exercise all of the shares of the Initial Grant will
vest immediately upon grant. Each Subsequent Grant of options will vest
immediately upon grant. The option price per share of Common Stock granted
to non-employee directors will be 100% of the fair market value of the Common
Stock at the date of grant. Each option granted to non-employee directors will
be exercisable for ten years after the date of grant.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table specifies the components of the
compensation packages of the Company's Chief Executive Officer and four other
most highly compensated executive officers (the 'named executive officers') for
the fiscal year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
--------------------------
ANNUAL NUMBER OF
COMPENSATION(A) SHARES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS OPTIONS COMPENSATION
POSITION YEAR ($) ($) (#) ($)
- ------------------------------------------------------ ------ -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Scott A. Baxter ...................................... 1997 $185,000 $120,000 $1,275
Chief Executive Officer and President 1996 176,981 120,000 109,091 --
Richard M. Brown ..................................... 1997 173,807 40,000 1,361
Vice President -- Information Technologies and 1996 157,077 35,000 -- 5,376
Secretary
Frank C. Cicio, Jr. .................................. 1997 171,539 50,000 109,091 --
Senior Vice President -- Sales and 1996 -- -- -- --
Business Development
Scott Harmolin ....................................... 1997 173,807 40,000 1,286
Senior Vice President and Chief Technology Officer 1996 157,577 35,000 -- 5,820
Robert J. Thalman, Jr. ............................... 1997 169,615 40,000 32,727 --
Vice President -- Strategic Marketing 1996 -- -- -- --
</TABLE>
- ------------
(a) Does not indicate supplementary compensation amounts less than the greater
of 10% of the named executive officer's salary and bonus or $50,000.
50
<PAGE>
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to the named executive officers for the year ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE
SECURITIES TOTAL OPTIONS VALUE AT ASSUMED
UNDERLYING GRANTED TO PER SHARE ANNUAL RATES OF STOCK
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION PRICE VALUATION FOR
NAME GRANTED FISCAL YEAR PRICE DATE OPTION TERM
- --------------------------------- ---------- ------------- --------- ---------- ------------------------
5% 10%
---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank C. Cicio, Jr............... 109,091 21.3% $6.02(a) 2/17/07 $1,653,000 $3,022,000
Robert J. Thalman, Jr. .......... 36,727 6.4 6.02(a) 1/15/07 496,000 907,000
</TABLE>
- ------------
(a) Reflects the repricing of such options in June 1997 when the exercise price
of such options was reduced from $14.27 to $6.02 per share.
FISCAL YEAR-END VALUE OF UNEXERCISED OPTIONS
The following table contains information concerning the value of
unexercised options (which includes the value of such options both before and
after giving effect to the repricing and/or replacement of such options in
January and June 1997, respectively) of the named executive officers at December
31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS THE-MONEY OPTIONS
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Scott A. Baxter.................................. -- 109,091 -- $ 695,000
Frank C. Cicio, Jr. ............................. -- 109,091 -- 761,000
Robert J. Thalman, Jr. .......................... -- 32,727 -- 228,000
</TABLE>
EMPLOYMENT AGREEMENTS
In December 1995, the Company entered into five-year employment agreements
with Messrs. Baxter, Brown and Harmolin. In May 1997, each of the agreements was
amended to extend the employment term until May 2002. The agreements provide for
Mr. Baxter to serve as the Company's Chief Executive Officer and President, for
Mr. Brown to serve as the Company's Vice President -- Information Technologies
and Secretary and for Mr. Harmolin to serve as the Company's Senior Vice
President and Chief Technology Officer at a minimum annual base salary of
$185,000, $180,000 and $180,000, respectively. Mr. Baxter's agreement also
provides for the payment of a guaranteed quarterly bonus in the amount of
$30,000, and Mr. Brown's and Mr. Harmolin's agreements each provide for the
payment of a guaranteed quarterly bonus in the amount of $10,000. Each also
receives additional salary increases and bonuses as the Board of Directors may
grant, as well as those benefits generally provided to other executive officers
of the Company, and an automobile allowance. In the event of termination of
employment of any of such executives following a change of control (as defined
in such employment agreements) of the Company, the Company has agreed to pay the
respective executive severance in an amount equal to 2.99 multiplied by his base
amount (as defined in section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the 'Code')). Each executive has also agreed not to compete against
the Company during the term of his employment, and not to solicit or perform
services for any
51
<PAGE>
<PAGE>
customers or solicit any employee of the Company during the term of his
employment and for a period of 12 months after the termination of his
employment.
In February and March 1997, the Company entered into employment agreements
with Messrs. Cicio and Hall, respectively, pursuant to which they are
employees-at-will. The agreements provide for each to be paid a minimum annual
base salary of $200,000 and a performance-based bonus. If either is terminated
without cause, he is entitled to receive his salary compensation otherwise
payable for a period of six months; provided, however, that if the Company has
extended such employee's related non-compete agreement, then such employee is
entitled to receive his salary compensation otherwise payable for a period of 12
months. Messrs. Cicio and Hall were each granted an option to purchase 109,091
and 87,273 shares of Common Stock, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee during the fiscal year
ended December 31, 1996; its function was performed by the Board of Directors.
Messrs. Baxter, Brown and Harmolin, as the three members of the Board of
Directors, each participated in deliberations concerning executive officer
compensation. In June 1997, the Company established a Compensation Committee and
an Audit Committee. The members of the Compensation Committee are Messrs.
Baxter, Brown, Harmolin and Weisman and the members of the Audit Committee are
Messrs. Baxter, Harmolin and Weisman. Upon the consummation of this Offering,
the Board of Directors intends to reconstitute the Audit Committee such that a
majority of the members of such Committee will be non-employee directors (as
defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended).
1995 OPTION PLAN
In October 1995, the Board of Directors adopted and the stockholders of the
Company approved the 1995 Option Plan. The 1995 Option Plan provides for the
grant of (i) options that are intended to qualify as incentive stock options
('Incentive Stock Options') within the meaning of Section 422 of the Code to
key employees (including directors and officers who are key employees) and
(ii) options not intended so to qualify ('Nonqualified Stock Options') to key
employees (including directors and officers who are key employees of the
Company), non-employee directors and consultants. The total number
of shares of Common Stock for which options may be granted under
the 1995 Option Plan is 2,181,818 shares.
The 1995 Option Plan is to be administered by the Board of Directors, which
will determine to whom options are granted, the number of shares subject to such
options, and the terms, exercise prices and other terms and conditions of the
exercise thereof.
The exercise price of any Incentive Stock Option granted under the 1995
Option Plan must be at least equal to the fair market value of the shares
subject to such option on the date of grant, while the exercise price of any
Incentive Stock Option granted to any participant who owns stock possessing more
than 10% of the total combined voting power of the Company's outstanding capital
stock must be at least equal to 110% of the fair market value of the shares
subject to such option on the date of grant. The determination of fair market
value is made by the Board of Directors based primarily upon reference to the
fair market value of recent sales of the Company's securities to unrelated third
parties. The term of each Incentive Stock Option granted pursuant to the 1995
Option Plan cannot exceed ten years, while the term of any Incentive Stock
Option granted to a participant who owns stock possessing more than 10% of the
total combined voting power of the Company's outstanding capital stock cannot
exceed five years. Options become exercisable at such times and in such
installments as is provided in the option contract for each individual option.
No option granted under the 1995 Option Plan is transferable by the optionee
other than by will or the laws of descent and distribution and each option
is exercisable during the lifetime of the optionee only by such optionee.
Pursuant to option contracts granted to certain executive officers and
certain key employees of the Company, the vesting of certain unvested options
granted to such individuals will accelerate (i) upon such individual's
termination of employment without cause, as a result of death or as a result
of disability and (ii) upon certain changes in control (each, an 'Acceleration
Date'). Pursuant to such agreements, the options otherwise exercisable within up
to three years (depending on the terms of the
52
<PAGE>
<PAGE>
option contract such individual has negotiated with the Company) will vest upon
the occurrence of an Acceleration Date.
As of the date of this Prospectus, under the 1995 Option Plan, the Company
has granted to certain of its employees options to purchase up to 1,186,286
shares of Common Stock at an exercise price between $6.02 and $13.48 per share,
of which options with respect to 245,273 shares are currently exercisable and
the balance thereof becomes exercisable at various times after January 15, 1998.
The Company has also granted to one of its former employees options to purchase
up to 65,455 shares of Common Stock at an exercise price of $14.27 per share,
all of which options are currently exercisable. All such options have terms of
ten years, and provide that, upon the earliest to occur of the death, permanent
total disability or termination without cause of employment of the option
holder, such option will become immediately exercisable with respect to all
shares of Common Stock subject thereto as to which such option would otherwise
have been exercisable within three years after the occurrence of such event.
AGREEMENTS WITH EMPLOYEES
Each employee of the Company is required to enter into an agreement with
the Company pursuant to which such person agrees (i) to assign to the Company
any inventions relating to such person's employment conceived during such
person's employment by the Company, (ii) not to disclose confidential
information to third parties, (iii) not to engage in any business that is
competitive with the Company during the term of such person's employment, (iv)
not to hire any employee of the Company during such person's employment and for
a period of 12 months following the termination of such person's employment and
(v) not to perform services for any customer of the Company for a period of 12
months following the termination of such person's employment. The agreement also
provides that the employee is an 'at will' employee and that either the Company
or the employee may terminate employment with the Company at any time with or
without cause.
401(k) PLAN
In January 1993 the Company adopted a tax-qualified employee savings and
retirement plan (the '401(k) Plan') covering the Company's employees. Pursuant
to the 401(k) Plan, employees may elect to reduce their current compensation by
up to the lesser of 10% of eligible compensation or the statutorily prescribed
annual limit ($9,500 in 1997) and have the amount of such reduction contributed
to the 401(k) Plan. The trustees under the 401(k) Plan, at the direction of each
participant, invest the assets of the 401(k) Plan. The 401(k) Plan is intended
to qualify under Section 401 of the Code so that contributions by employees to
the 401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn.
PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all full-time
employees. Contributions by the Company to the profit sharing plan amounted to
$129,000 and $28,000 in 1994 and 1996, respectively. There were no contributions
to the profit sharing plan during 1995 and the nine months ended September 30,
1997.
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<PAGE>
<PAGE>
CERTAIN TRANSACTIONS
On August 30, 1995, the Company made loans of $50,000 to Messrs. Baxter,
Brown and Harmolin. Interest accrues at an annual rate of 7%. The loans
including accrued interest are due on demand.
Messrs. Baxter, Brown and Harmolin are party to a Stockholders' Agreement
dated as of July 17, 1995, as amended, pursuant to which, in the event any of
them desires to accept an offer from a third-party to purchase any shares of
Common Stock owned by such stockholder, the Company and the other two
stockholders have the right to purchase such shares at a price that is adjusted
annually pursuant to the mutual agreement of Messrs. Baxter, Brown and Harmolin
(the 'Agreed Upon Price'). If any of Messrs. Baxter, Brown or Harmolin becomes
disabled, is terminated for any reason, engages in a competitive business or is
adjudicated bankrupt, then the Company and the remaining two stockholders have
the right to purchase all the shares then owned by such stockholder at the
Agreed Upon Price. Upon the death of any of them, the Company is obligated to
purchase all the decedent's shares of Common Stock, and the decedent's estate is
obligated to sell such shares, at the Agreed Upon Price.
On March 19, 1997, Tudor BVI Futures, Ltd. ('Tudor BVI'), as agent and
holder on behalf of itself and each of The Raptor Global Fund L.P. ('Raptor
L.P.'), The Raptor Global Fund Ltd. ('Raptor Ltd.') and Tudor Arbitrage
Partners L.P. ('TAP'), loaned to the Company an aggregate principal amount of
$1.0 million pursuant to a convertible note bearing interest at a rate of 10%
per annum. In consideration for such loan, the Company granted to such lenders a
warrant to purchase an aggregate of 41,511 shares of Common Stock at an exercise
price of $6.02 per share. On May 30, 1997, such lenders converted the $1.0
million note and $20,000 of accrued but unpaid interest thereon into an
aggregate of 10,200 shares of Series B Preferred Stock.
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<PAGE>
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the Common Stock as of February 1, 1998 and immediately following the Offering
by (i) each person or entity who owns of record or beneficially five percent or
more of the Company's Common Stock, (ii) each director and executive officer
of the Company, (iii) all directors and executive officers of the Company as a
group and (iv) each of the Selling Stockholders. To the knowledge of the
Company, each of such stockholders has sole voting and investment power as to
the shares shown unless otherwise noted. Unless otherwise noted, the address
of each beneficial owner named below is the Company's corporate address.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------------------
PERCENT PERCENT
NUMBER OF PRIOR TO AFTER
BENEFICIAL OWNER SHARES OFFERING OFFERING
- ----------------------------------------------------------------------- --------- --------- -------
<S> <C> <C> <C>
Scott A. Baxter(a)..................................................... 2,203,636 19.7% 14.6%(b)
Richard M. Brown....................................................... 2,181,818 19.5 14.5(b)
Scott Harmolin......................................................... 2,181,818 19.5 14.5(b)
Kenneth J. Hall(c)..................................................... 26,800 * *
Susan A. Massaro(d).................................................... 10,728 * *
Frank C. Cicio, Jr.(e)................................................. 27,272 * *
Anthony R. Scrimenti(f)................................................ 10,909 * *
David L. Goret(g)...................................................... 6,364 * *
Robert J. Thalman, Jr.(f).............................................. 10,909 * *
Michael J. Gold(h)..................................................... 3,636 * *
Samuel A. Plum(i)(j)................................................... 2,499,639 20.8 15.8
Wayne B. Weisman....................................................... -- * *
SCP Private Equity Partners, L.P.(i)(k)................................ 2,499,639 20.8 15.8
Paul Tudor Jones, II(l)(m)............................................. 875,040 7.8 5.8
Mellon Ventures, L.P.(n)............................................... 830,220 7.4 5.5
MVMA, Inc.(n)(o)....................................................... 830,220 7.4 5.5
Tudor Investment Corporation(m)(p)..................................... 697,622 6.2 4.6
All directors and executive officers as a group
(12 persons)(q)...................................................... 9,163,529 75.6% 57.4%
</TABLE>
- ------------
* Less than 1%.
(a) Includes 21,818 shares of Common Stock that may be issued upon exercise of
options that are exercisable within 60 days of February 1, 1998.
(b) Each of Messrs. Baxter, Brown and Harmolin is a Selling Stockholder and has
granted the Underwriters an option to purchase up to 77,000 shares of
Common Stock solely to cover over-allotments. If the Underwriters'
over-allotment is exercised in full, Messrs. Baxter, Brown and Harmolin
will own 13.8%, 13.7% and 13.7%, respectively, of the Common Stock after
consummation of the Offering.
(c) Includes 21,819 shares of Common Stock that may be issued upon exercise of
options that are exercisable within 60 days of February 1, 1998.
(d) Includes 10,728 shares of Common Stock that may be issued upon exercise of
options that are exercisable within 60 days of February 1, 1998.
(e) Includes 27,272 shares of Common Stock that may be issued upon exercise of
options that are exercisable within 60 days of February 1, 1998.
(footnotes continued on next page)
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(f) Includes 10,909 shares of Common Stock that may be issued upon exercise of
options that are exercisable within 60 days of February 1, 1998.
(g) Includes 6,364 shares of Common Stock that may be issued upon exercise of
options that are exercisable within 60 days of February 1, 1998.
(h) Includes 3,636 shares of Common Stock that may be issued upon exercise of
options that are exercisable within 60 days of February 1, 1998.
(i) The address for the beneficial owner is 800 The Safeguard Building, 435
Devon Park Drive, Wayne, Pennsylvania 19087.
(j) Includes 1,660,440 shares of Common Stock and currently exercisable
warrants to purchase 839,199 shares of Common Stock, each held of record by
SCP which Mr. Plum may be deemed to beneficially own. Mr. Plum is a general
partner of the general partner of SCP. Mr. Plum disclaims beneficial
ownership of such securities.
(k) Includes warrants to purchase 839,199 shares of Common Stock.
(l) The address for the beneficial owner is c/o Tudor Investment Corporation,
40 Rowes Wharf, Boston, Massachusetts 02110.
(m) Includes 477,827 shares of Common Stock and warrants to purchase 23,784
shares of Common Stock beneficially owned by Tudor BVI, 77,191 shares
of Common Stock and warrants to purchase 3,862 shares of Common Stock
beneficially owned by Raptor L.P., 109,521 shares of Common Stock
and warrants to purchase 5,437 shares of Common Stock beneficially owned by
Raptor Ltd. and, in the case of Mr. Jones, 168,990 shares of Common Stock
and warrants to purchase 8,428 shares of Common Stock beneficially owned
by TAP. Mr. Jones is the Chairman, Chief Executive Officer and
principal stockholder of Tudor Investment Corporation ('Tudor'), which
acts as general partner and/or investment adviser to Tudor BVI, Raptor L.P.
and Raptor Ltd. Mr. Jones is also the Chairman and indirect principal
equity owner of the general partner of TAP. As a result, Mr. Jones and
Tudor may be deemed to be the beneficial owners of the shares of
Common Stock beneficially held by Tudor BVI, Raptor L.P., Raptor Ltd.
and, in the case of Mr. Jones, TAP. Each of Mr. Jones and Tudor disclaims
beneficial ownership of shares of Common Stock beneficially owned by
such entities.
(n) The address for the beneficial owner is Plymouth Meeting Executive Campus,
610 West Germantown Pike, Suite 200, Plymouth Meeting, Pennsylvania 19462.
(o) MVMA, Inc. ('MVMA') is the general partner of the general partner of Mellon
Ventures L.P. ('Mellon Ventures'). MVMA disclaims beneficial ownership of
shares of Common Stock owned by Mellon Ventures.
(p) The address for the beneficial owner is 40 Rowes Wharf, Boston,
Massachusetts 02110.
(q) Includes options to purchase 113,455 shares of Common Stock that may be
issued upon exercise of options that are excercisable within 60 days
of February 1 1998 and warrants to purchase 839,199 shares of Common Stock.
Mr. Plum disclaims beneficial ownership of 1,660,440 shares of Common Stock
and currently exercisable warrants to purchase 839,199 shares of
Common Stock.
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DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
The total amount of authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, par value $.001 per share, and 1,000,000
shares of preferred stock, par value $.01 per share (the 'Preferred Stock'),
450,000 shares of which are designated as Series A Convertible Participating
Preferred Stock and 415,000 shares of which are designated as 10% PIK Series B
Convertible Participating Preferred Stock. Upon consummation of the Offering,
15,025,285 shares of Common Stock will be issued and outstanding and no shares
of Preferred Stock will be outstanding. The discussion herein describes the
Company's capital stock, Restated Certificate of Incorporation and Restated
By-laws. The following summary description of the Company's capital stock
describes all material provisions of, but does not purport to be complete and is
subject to, and qualified in its entirety by, the Restated Certificate of
Incorporation and the Restated By-laws of the Company that are included as
exhibits to the Registration Statement of which this Prospectus forms a part and
by the provisions of applicable law.
COMMON STOCK
As of September 30, 1997, there were 6,545,454 shares of Common Stock
outstanding held by three holders of record. The issued and outstanding shares
of Common Stock are, and the shares of Common Stock being offered will be upon
payment therefor, validly issued, fully paid and non-assessable. Subject to the
prior rights of the holders of any Preferred Stock, the holders of outstanding
shares of Common Stock are entitled to receive dividends out of assets legally
available therefor at such times and in such amounts as the Board of Directors
may from time to time determine. See 'Dividend Policy'. Following consummation
of the Offering, shares of Common Stock will not be redeemable or convertible,
and the holders thereof will have no preemptive or subscription rights to
purchase any securities of the Company. Upon liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive pro rata
the assets of the Company which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of Preferred Stock then outstanding. Each outstanding share of
Common Stock is entitled to one vote on all matters submitted to a vote of
stockholders.
The Common Stock has been approved for listing on the NNM under the
symbol 'ICMT', subject to official notice of issuance.
PREFERRED STOCK
As of September 30, 1997, there were 422,607 shares of Series A Preferred
Stock outstanding, which shares were sold by the Company in January 1996 for an
aggregate of $9.9 million, held by approximately 60 holders of record. The
issued and outstanding shares of Series A Preferred Stock are validly issued,
fully paid and non-assessable. Pursuant to the terms of the Certificate of
Incorporation in effect prior to the Offering, upon the consummation of this
Offering, the shares of Series A Preferred Stock will be converted automatically
into 1,637,061 shares of Common Stock. Each share of Series A Preferred Stock
converts into approximately 3.87 shares of Common Stock at the option of the
holder and automatically upon consummation of a public offering by the Company
in which it receives at least $20 million in gross proceeds or the sale of all
or substantially all of the Company's assets or outstanding capital stock, each
at a price of at least $12.05 per share of Common Stock.
As of September 30, 1997, there were 180,240 shares of Series B Preferred
Stock outstanding, which shares were sold by the Company from May through
September 1997 for an aggregate of $18.0 million, held by 18 holders of record.
The issued and outstanding shares of Series B Preferred Stock are validly
issued, fully paid and non-assessable. Pursuant to the terms of the Certificate
of Incorporation in effect prior to the Offering, upon the consummation of the
Offering, the shares of Series B Preferred Stock will be converted automatically
into 2,992,770 shares of Common Stock. Each share of Series B Preferred Stock
converts into approximately 16.60 shares of Common Stock at the option of the
holder and automatically upon consummation of a public offering by the Company
in which it receives at least $20 million in gross proceeds or the sale of all
or substantially all of the Company's assets or outstanding capital stock, each
at a price of at least $12.05 per share of Common Stock.
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The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of up to
1,000,000 shares of Preferred Stock in series and may, at the time of issuance,
determine the rights, preferences and limitations of each series. Satisfaction
of any dividend preferences of outstanding shares of Preferred Stock would
reduce the amount of funds available for the payment of dividends on shares of
Common Stock. Holders of shares of Preferred Stock may be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding-up of
the Company before any payment is made to the holders of shares of Common Stock.
Under certain circumstances, the issuance of shares of Preferred Stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. The Board of Directors of the
Company, without stockholder approval, may issue shares of Preferred Stock with
voting and conversion rights which could adversely affect the holders of shares
of Common Stock. Upon consummation of the Offering, there will be no shares of
Preferred Stock outstanding, and the Company has no present intention to issue
any shares of Preferred Stock.
WARRANTS
There are currently outstanding warrants to purchase an aggregate of
948,891 shares of Common Stock, of which warrants to purchase 68,180 shares of
Common Stock have an exercise price of $.03 and warrants to purchase 880,711
shares of Common Stock have an exercise price of $6.02. Of the warrants with an
exercise price of $.03, 15,542 expire on January 29, 2001; 94 expire on March
14, 2001; 50,042 expire on May 30, 2007; and 2,502 expire on September 2, 2007.
Of the warrants with an exercise price of $6.02, 41,511 expire on December 31,
2002; 838,199 expire on May 30, 2007; and 1,001 expire on September 2, 2007. The
warrants have customary anti-dilution provisions.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Pursuant to an Investors' Rights Agreement among the Company and the
holders of the Series A Preferred Stock, dated as of January 30, 1996,
Registration Rights Agreements between the Company and each holder of the Series
B Preferred Stock, dated between May 30, 1997 and September 22, 1997 and certain
warrants issued by the Company (collectively, the 'Registration Rights
Agreements'), certain securityholders of the Company (the 'Holders') that will
own approximately 4,629,831 shares of Common Stock, shares of Common Stock
issuable upon exercise of warrants to purchase 933,255 shares of Common Stock
and 891,744 warrants to purchase Common Stock (collectively, the 'Registrable
Securities') or their permitted transferees are entitled to registration rights
with respect to the Registrable Securities at any time following the earlier of
(i) 180 days following consummation of the Offering and (ii) January 30, 1999.
Additionally, the holders of warrants to purchase 15,636 shares of Common Stock
have the right to register such shares of Common Stock on a registration
statement filed by the Company.
Under the terms of the Registration Rights Agreements between the Company
and the Holders of such Registrable Securities, 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 securityholders exercising registration
rights, such Holders are entitled to notice of such registration and are
entitled to include their Registrable Securities therein at the Company's
expense; such Holders, however, have waived their right to register their
Registrable Securities in the Offering. Holders of Registrable Securities also
have the right to demand that the Company file a registration statement under
the Securities Act, subject to certain conditions and limitations, among them
the right of the underwriters of an offering to limit the number of shares
included in such registration in certain circumstances.
CERTAIN ANTI-TAKEOVER CHARTER PROVISIONS AND STATUTORY PROVISIONS
The Restated Certificate of Incorporation requires that special meetings of
the stockholders of the Company be called only by a majority of the Board of
Directors or by certain officers. The Restated Certificate of Incorporation also
provides that the Board of Directors shall be divided into three classes, with
each class containing as equal a number of directors as possible; after an
interim period of three
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years following consummation of the Offering, all directors will be elected for
three years and only one class of directors will come up for election each year.
The Restated Certificate of Incorporation further provides that the Company's
by-laws may only be amended by the affirmative vote of two-thirds of the shares
of the Company entitled to vote for the election of directors or by a majority
of the Board of Directors, but that certain provisions may only be amended or
repealed by the affirmative vote of two-thirds of the shares of the Company
entitled to vote for the election of directors. Pursuant to the Restated
Certificate of Incorporation, each of the foregoing provisions may only
be amended by a two-thirds vote of the shares of the Company entitled to
vote for the election of directors.
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of up to
1,000,000 shares of Preferred Stock. Under certain circumstances, the issuance
of shares of Preferred Stock may render more difficult or tend to discourage
a merger, tender offer or proxy contest, the assumption of control by a holder
of a large block of the Company's securities or the renoval or incumbent
management.
The Restated By-laws provide that stockholders seeking to bring business
before or to nominate directors at any annual meeting of stockholders must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive offices
of the Company not less than 60 days nor more than 90 days prior to such meeting
or, if less than 70 days' notice was given for the meeting, within 10 days
following the date on which such notice was given. The Restated By-laws also
will specify certain requirements for a stockholder's notice to be in proper
written form. These provisions will restrict the ability of stockholders to
bring matters before the stockholders or to make nominations for directors at
meetings of stockholders.
Following the consummation of the Offering, the Company will be subject to
the 'business combination' provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various 'business combination' transactions with any 'interested
stockholder' for a period of three years after the date of the transaction in
which the person became an 'interested stockholder,' unless (i) the transaction
is approved by the Board of Directors prior to the date the interested
stockholder obtained such status, (ii) upon consummation of the transaction
which resulted in the stockholder 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 by
(a) persons who are directors and also officers and (b) 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) on or subsequent to such date the 'business combination' is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the 'interested stockholder.' A
'business combination' is defined to include mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. In general, an
'interested stockholder' is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate of Incorporation limits the liability of directors
for breach of fiduciary duty as a director except for (i) breach of the duty of
loyalty to the Company or its stockholders, (ii) acts not in good faith,
involving intentional misconduct or knowing violation of law, (iii) certain
violations of the Delaware General Corporation Law and (iv) transactions
where the director derived an improper benefit. In addition, the Restated
Certificate of Incorporation provides that the Company shall indemnify
directors, officers, employees and agents of the Company acting in such
capacity to the fullest extent permitted by such law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be ChaseMellon
Shareholder Services, L.L.C.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion the Offering the Company will have 15,025,285 shares of
Common Stock outstanding (15,371,785 shares if the over-allotment option is
exercised in full). The 3,850,000 shares of Common Stock (4,427,500 shares if
the over-allotment option is exercised in full) sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act, unless held by an 'affiliate' of the Company as that term is
defined in Rule 144 promulgated under the Securities Act ('Rule 144'), which
shares will be subject to the resale limitations of Rule 144. The remaining
11,175,285 shares of Common Stock have not been registered under the Securities
Act and may not be sold unless they are registered or unless an exemption from
registration, such as the exemption provided by Rule 144 or Rule 701 under the
Securities Act ('Rule 701'), is available.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting 'restricted securities' (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction) for
at least one year, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the outstanding Common
Stock or the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is filed pursuant
to Rule 144. Sales under Rule 144 are also subject to certain provisions
regarding the manner of sale, notice requirements and the availability of
current public information about the Company. A stockholder (or stockholders
whose shares are aggregated) who is not an affiliate of the Company for at least
90 days prior to a proposed transaction and who has beneficially owned
'restricted securities' for at least two years is entitled to sell such shares
under Rule 144 without regard to the limitations described above. Rule 701
provides that, beginning 90 days after the date of this Prospectus, shares of
Common Stock acquired on the exercise of options outstanding prior to the date
of this Prospectus may be resold by persons other than affiliates of the Company
without regard to the current public information, holding period, volume
limitations and notice provision of Rule 144, and by affiliates subject to all
the provisions of Rule 144 except its one-year minimum holding period.
Accordingly, the Company believes that, under prevailing interpretations of
Rules 144 and 701, 6,545,454 shares of Common Stock that constitute 'restricted
securities' will be eligible for sale, subject to the contractual lock-up
provisions described below, 90 days after the date of this Prospectus, and
4,629,831 shares of Common Stock would be eligible for sale beginning one year
from the date of this Prospectus, subject to certain volume and other
limitations under Rule 144. The Company intends to file one or more registration
statements under the Securities Act to register the shares of Common Stock
issued and reserved for issuance in compensatory arrangements and under the 1995
Option Plan. Registration would permit the resale of such shares by
non-affiliates and affiliates, subject to the lock-up described below, in the
public markets without restriction under the Securities Act.
The Company and the holders of more than 10.7 million shares of Common
Stock (including, among others, the Company's executive officers, directors
owning securities of the Company before the Offering and the Selling
Stockholders) have agreed that, for a period of 180 days after the
date of this Prospectus, they will not (i) offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, or, in the case of the Company,
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any shares of Common Stock or securities
convertible into or exchangeable or exercisable for any shares of Common Stock,
or publicly disclose the intention to make any such offer, sale, contract to
sell, pledge, disposition or, in the case of the Company, filing, or (ii) enter
into any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of such shares of Common Stock, whether any
transaction described in clause (i) or (ii) above is to be settled by delivery
of shares of Common Stock or such other securities, in cash or otherwise, in
each case without the prior written consent of Credit Suisse First Boston
Corporation, except in the case of the Company, issuances of Common Stock
pursuant to the conversion or exchange of convertible or exchangeable securities
or the exercise of warrants or options, in each case outstanding on the date of
this Prospectus, grants of employee stock options pursuant to the 1995 Option
Plan and issuances of Common Stock pursuant to the exercise of such options, and
except in the case of an individual, bona fide gifts or similar transfers to or
for the benefit, directly or indirectly, of members of such individual's family
for estate planning purposes provided that such gifts or transfers are made
other than on any securities exchange or in the
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over-the-counter market and that such donees or transferees agree to terms
substantially similar to the foregoing for the benefit of the Company and the
Underwriters.
In addition, after the Offering, the holders of 4,629,831 shares of Common
Stock will be entitled to certain rights with respect to registration of such
shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradeable without
restriction under the Securities Act (except for shares purchased by affiliates
of the Company) immediately upon the effectiveness of such registration. See
'Description of Capital Stock -- Registration Rights of Certain Holders'.
Prior to the Offering, there has been no public trading market for the
shares of Common Stock, and there can be no assurance that a regular trading
market will develop after the Offering, or that if it is developed, it will be
sustained. In addition, no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of such shares for
sale will have on the market prices prevailing from time to time. Nevertheless,
the possibility that substantial numbers of shares of Common Stock may be sold
in the public market may adversely affect prevailing market prices for the
shares of Common Stock and could impair the Company's ability to raise capital
through the sale of its equity securities.
CERTAIN UNITED STATES FEDERAL TAX
CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general summary of certain U.S. Federal income and
estate tax consequences expected to result under current law from the purchase,
ownership, sale or other taxable disposition of Common Stock by any person or
entity other than (a) a citizen or resident of the United States, (b) a
corporation created or organized in or under the laws of the United States or of
any State thereof (including the District of Columbia), (c) an estate or trust
described in Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended (the 'Code') or (d) a person or entity otherwise subject to U.S. Federal
income taxation on income from sources outside the United States (a 'Non-U.S.
Holder'). This summary does not address all U.S. Federal income and estate tax
considerations that may be relevant to Non-U.S. Holders in light of their
particular circumstances or to certain Non-U.S. Holders that may be subject to
special treatment under U.S. Federal income tax laws. Furthermore, this summary
does not discuss any aspects of foreign, state or local taxation. This summary
is based on current provisions of the Code, existing, temporary and proposed
regulations promulgated thereunder and administrative and judicial
interpretations thereof, all of which are subject to change, possibly with
retroactive effect. No legal opinion is being rendered to the Company in respect
of the United States tax consequences to a holder of Common Stock who is a
non-U.S. Holder. PROSPECTIVE PURCHASERS OF COMMON STOCK ARE ADVISED TO CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF ACQUIRING, HOLDING
AND DISPOSING OF COMMON STOCK.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Common Stock generally will be
subject to withholding of U.S. Federal income tax at a 30% rate (or such lower
rate as may be specified by an applicable income tax treaty) unless the dividend
is (a) effectively connected with the conduct of a trade or business of the
Non-U.S. Holder within the United States or (b) if a tax treaty applies, is
attributable to a United States permanent establishment of the Non-U.S. Holder,
in which cases the dividend will be taxed at ordinary U.S. Federal income tax
rates. If the Non-U.S. Holder is a corporation, such effectively connected
income may also be subject to an additional 'branch profits tax.' A Non-U.S.
Holder may be required to satisfy certain certification requirements in order to
claim treaty benefits or otherwise claim a reduction of, or exemption from, the
withholding obligation pursuant to the above described rules.
SALE OR OTHER DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. Federal income or
withholding tax in respect of any gain recognized on the sale or other taxable
disposition of Common Stock unless (a) the gain is effectively connected with a
trade or business of the Non-U.S. Holder in the United States; (b) in
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the case of a Non-U.S. Holder who is an individual and holds the Common Stock as
a capital asset, the holder is present in the United States for 183 or more days
in the taxable year of the disposition and satisfies certain other conditions;
(c) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
Federal income tax law applicable to certain United States expatriates; or (d)
(i) the Company is or has been during certain periods preceding the disposition
a 'U.S. real property holding corporation' for U.S. Federal income tax purposes
(which the Company does not believe it is or is likely to become) and, (ii)
assuming that the Common Stock will be 'regularly traded on an established
securities market' for tax purposes, the Non-U.S. Holder held, directly or
indirectly, at any time during the five-year period ending on the date of
disposition, more than 5% of the outstanding Common Stock.
BACKUP WITHHOLDING AND REPORTING REQUIREMENTS
On October 6, 1997, the Internal Revenue Service issued final regulations
relating to withholding, information reporting and backup withholding that unify
current certification procedures and forms and clarify reliance standards (the
'Final Regulations'). The Final Regulations generally will be effective with
respect to payments made after December 31, 1998. Except as provided below, this
section describes rules applicable to payments made on or before December 31,
1998.
Dividends. United States backup withholding tax generally will not apply to
dividends paid on Common Stock to a Non-U.S. Holder at an address outside the
United States. The Company must report annually to the Internal Revenue Service
and to each Non-U.S. Holder the amount of dividends paid to, and the tax
withheld with respect to, such holder, regardless of whether any tax was
actually withheld. This information may also be made available to the tax
authorities in the Non-U.S. Holder's country of residence.
Sale or Other Disposition of Common Stock. Upon the sale or other taxable
disposition of Common Stock by a Non-U.S. Holder to or through a United States
office of a broker, the broker must backup withhold at a rate of 31% and report
the sale to the Internal Revenue Service, unless the holder certifies its
Non-U.S. status under penalties of perjury or otherwise establishes an
exemption. Upon the sale or other taxable disposition of Common Stock by a
Non-U.S. Holder to or through the foreign office of a United States broker, or a
foreign broker with certain types of relationships to the United States, the
broker must report the sale to the Internal Revenue Service (but not backup
withhold), unless the broker has documentary evidence in its files that the
seller is a Non-U.S. Holder and/or certain other conditions are met, or the
holder otherwise establishes an exemption.
Amounts withheld under the backup withholding rules generally are allowable
as a credit against such Non-U.S. Holder's U.S. Federal income tax liability (if
any), which may entitle such Non-U.S. Holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
The Final Regulations eliminate the general prior legal presumption that
dividends paid to an address in a foreign country are paid to a resident of that
country. In addition, the Final Regulations impose certain certification and
documentation requirements on Non-U.S. Holders claiming the benefit of a reduced
withholding rate with respect to dividends under a tax treaty or otherwise
claiming a reduction of, or exemption from, the withholding obligation described
above.
PROSPECTIVE PURCHASERS OF THE COMMON STOCK ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE EFFECT, IF ANY, OF THE FINAL REGULATIONS ON THEIR
PURCHASE, OWNERSHIP AND DISPOSITION OF THE COMMON STOCK.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual Non-U.S. Holder who
is not a citizen or resident (as specially defined for U.S. Federal estate tax
purposes) of the United States at the time of death will be included in such
individual's gross estate for U.S. Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1998 (the 'Underwriting Agreement'), the underwriters
named below (the 'Underwriters'), for whom Credit Suisse First Boston
Corporation, BancAmerica Robertson Stephens and Donaldson, Lufkin & Jenrette
Securities Corporation are acting as representatives (the 'Representatives'),
have severally but not jointly agreed to purchase from the Company the following
respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------------------------------------- ---------
<S> <C>
Credit Suisse First Boston Corporation.....................................................
BancAmerica Robertson Stephens.............................................................
Donaldson, Lufkin & Jenrette Securities Corporation........................................
---------
Total................................................................................. 3,850,000
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides that,
in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
Under the Underwriting Agreement, the Company and the Selling Stockholders
have granted to the Underwriters an option, exercisable by Credit Suisse First
Boston Corporation on behalf of the Underwriters, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
346,500 additional shares from the Company and an aggregate of 231,000
additional outstanding shares from the Selling Stockholders at the initial
public offering price less the underwriting discounts and commissions, all as
set forth on the cover page of this Prospectus. Such option may be exercised
only to cover over-allotments in the sale of the shares of Common Stock offered
hereby. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of additional shares being sold to the Underwriters as the number of
shares set forth next to such Underwriter's name in the preceding table bears to
the total number of shares. Any shares of Common Stock purchased pursuant to the
exercise of such option will be purchased first from the Selling Stockholders
and thereafter from the Company.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock offered hereby to the public
initially at the offering price set forth on the cover page of this Prospectus
and, through the Representatives, to certain dealers at such price less a
concession of $ per share and that the Underwriters and such dealers may
allow a discount of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price and concession and discount
to dealers may be changed by the Representatives.
In July 1997, an employee of Credit Suisse First Boston Corporation
purchased 200 shares of Series B Preferred Stock for an aggregate cash
consideration of $20,000. Such 200 shares of Series B Preferred Stock are deemed
to be underwriting compensation received by Credit Suisse First Boston
Corporation in connection with the Offering under Rule 2710 of the National
Association of Securities Dealers, Inc. Conduct Rules ('Rule 2710'). Pursuant to
Rule 2710, such employee has agreed that, for a period of one year following the
date on which the Registration Statement relating to the Offering, of which this
Prospectus constitutes a part, is declared effective by the Securities and
Exchange Commission, he will not, subject to certain exceptions, sell, transfer,
assign, pledge or hypothecate (i) such 200 shares of Series B Preferred Stock or
(ii) the shares of Common Stock into which such 200 shares of Series B Preferred
Stock are convertible.
The Representatives have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the number of shares of
Common Stock offered hereby.
63
<PAGE>
<PAGE>
The Company and the holders of more than 10.7 million shares of Common
Stock (including, among others, the Company's executive officers, directors
owning securities of the Company before the offering and the Selling
Stockholders) have agreed that, for a period of 180 days after the
date of this Prospectus, they will not (i) offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, or, in the case of the Company,
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any shares of Common Stock or securities
convertible into or exchangeable or exercisable for any shares of Common Stock,
or publicly disclose the intention to make any such offer, sale, contract to
sell, pledge, disposition or, in the case of the Company, filing, or (ii) enter
into any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of such shares of Common Stock, whether any
transaction described in clause (i) or (ii) above is to be settled by delivery
of shares of Common Stock or such other securities, in cash or otherwise, in
each case without the prior written consent of Credit Suisse First Boston
Corporation, except in the case of the Company issuances of Common Stock
pursuant to the conversion or exchange of convertible or exchangeable securities
or the exercise of warrants or options, in each case outstanding on the date of
this Prospectus, grants of employee stock options pursuant to the 1995 Option
Plan and issuances of Common Stock pursuant to the exercise of such options, and
except in the case of an individual, bona fide gifts or similar transfers to or
for the benefit, directly or indirectly, of members of such individual's family
for estate planning purposes provided that such gifts or transfers are made
other than on any securities exchange or in the over-the-counter market and that
such donees or transferees agree to terms substantially similar to the foregoing
for the benefit of the Company and the Underwriters.
The Company has reserved for purchase from the Underwriters at the initial
public offering price up to 192,500 shares of Common Stock which may be
purchased by certain employees of the Company and certain other individuals
through a directed share program. The number of shares of Common Stock available
for sale to the general public in the Offering will be reduced to the extent
such persons purchase the reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same terms as
the other shares offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, and to contribute to payments which the Underwriters may be
required to make in respect thereof.
The Common Stock has been approved for listing on the NNM under the
symbol 'ICMT', subject to official notice of issuance.
Prior to the Offering there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiation between the Company and Credit Suisse First Boston Corporation on
behalf of the Underwriters and does not necessarily reflect the market price of
the Common Stock following the Offering. Among the principal factors to be
considered in determining the initial public offering price will be market
conditions for initial public offerings, the history of and prospects for the
Company's business, the Company's past and present operations, its past and
present earnings and current financial position, an assessment of the Company's
management, the market of securities of companies in businesses similar to those
of the Company, the general condition of the securities markets and other
relevant factors. There can be no assurance that the initial public offering
price will correspond to the price at which the Common Stock will develop and
continue after the Offering.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when Common Stock originally sold by such syndicate member is
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the NNM or otherwise and, if commenced, may be discontinued at
any time.
64
<PAGE>
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of Common Stock are
effected. Accordingly, any resale of the Common Stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under 'Resale Restrictions.'
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the Selling Stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
Legislation.
65
<PAGE>
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Parker Chapin Flattau & Klimpl, LLP, New York,
New York. The Underwriters have been represented by Cravath, Swaine & Moore, New
York, New York.
EXPERTS
The financial statements as of December 31, 1995 and 1996 and September 30,
1997 and for each of the three years in the period ended December 31, 1996 and
for the nine months ended September 30, 1997 included in this Prospectus have
been so included in reliance on the report (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern as
described in Note 2 to such financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE 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, which constitutes a
part of the Registration Statement, omits certain of the information contained
in the Registration Statement and the exhibits and schedules thereto on file
with the Commission pursuant to the Securities Act and the rules and regulations
of the Commission thereunder. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and the exhibits and schedules thereto.
After the consummation of the Offering, the Company will be subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith, will be required to file reports, proxy
statements and other information with the Commission. The Registration
Statement, including exhibits and schedules thereto, as well as any such report,
proxy statement or other information filed by the Company with the Commission
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 75 Park Place, Room
1400, New York, New York 10007 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies may be obtained at the
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. In addition, the Company is required to
file electronic versions of these documents on the Commission's Electronic Data
Gathering Analysis and Retrieval system. The Commission maintains a website that
contains reports, proxy and information statements and other information filed
with the Commission; the address of this site is http://www.sec.gov. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in its entirety
by such reference.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements examined and reported upon by
independent certified public accountants and quarterly reports containing
unaudited financial information for each of the first three fiscal quarters.
66
<PAGE>
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
ATM................................. Asynchronous Transfer Mode. An information transfer standard that is one of
a general class of packet technologies that relay traffic by way of an
address contained within the first five bytes of a standard fifty-three
byte-long packet or cell. The ATM format can be used by many different
information systems, including LANs, to deliver traffic at varying rates,
permitting a mix of data, voice and video.
Backbone............................ A centralized high-speed network that connects smaller, independent
networks.
Bandwidth........................... The number of bits of information which can move over a communications
medium in a given amount of time.
Browser............................. Software that enables users to browse the World Wide Web. Netscape
Navigator and Microsoft's Internet Explorer are the primary browsers today.
Cache............................... Memory or disk space where frequently accessed data is stored for rapid
access.
CAP................................. Competitive Access Provider. A data and/or voice service provider that
competes with LECs. CAPs typically offer regional service rather than
national service.
CIX................................. Commercial Internet eXchange Association. A non-profit trade association of
Internet access providers that promotes and encourages development of the
public data communications internetworking services industry and that
operates a router at the Digital Internet Exchange.
Client/server system................ An interconnected system of computers centered around a server, such as
minicomputer, which stores data and applications and distributes them to
user stations.
Cloud............................... A network designed such that each of its nodes is logically connected to
every other node.
Distributed computing............... The process by which data and applications are distributed to
minicomputers, workstations and personal computers within a network rather
than maintained on a centralized mainframe.
DS-1................................ A data communications line with transmission speeds of up to 1.54 Mbps.
DS-3................................ A data communications line with transmission speeds of up to 45 Mbps.
Extranet............................ A network that enables two or more institutions to privately share
resources and communicate over the Internet in their own virtual space.
This technology is typically used to enhance business-to-business
communications.
Firewall............................ A gateway between two networks that buffers and screens all information
that passes between such networks.
Gateway............................. Hardware and/or software that enables communication between dissimilar
systems.
Graphical user interface............ A means of communicating with a computer by manipulating Icons and windows
rather than using text commands.
Hosting............................. Housing and managing a user's website or application.
HTML................................ HyperText Markup Language. The programming language used to create World
Wide Web pages.
</TABLE>
67
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Internet............................ An open global network of interconnected commercial, educational and
governmental computer networks which utilize a common communications
protocol, TCP/IP.
Internetworking..................... The process of communicating between and among networks.
Intranet............................ A private network within an institution that uses Internet software only
for internal use. For example, many companies have web servers that are
available only to employees. An intranet may simply be a network.
IP Address.......................... Internet Protocol Address. The address or identification number of a host
computer or other intelligent device on the Internet.
ISDN................................ Integrated Services Digital Network. A digital network that combines voice
and digital network services through a single medium, making it possible to
offer customers digital data services as voice connections.
ISP................................. Internet Service Provider. An institution that provides access to the
Internet.
Java................................ A programming language intended to be used in networked environments.
Kbps................................ Kilobits per second. A measure of digital information transmission rates.
One kilobit equals 1,000 bits of digital information.
LAN................................. Local Area Network. A data communications network designed to interconnect
personal computers, workstations, minicomputers, file servers and other
communications and computing devices within a localized environment.
Leased Line......................... A dedicated telecommunications line rented for use along a predetermined
route.
LEC................................. Local Exchange Carrier. A local telephone company for a given geographic
area. In return for being given a monopoly over residential connections to
the telephone network, the LEC is subject to strict regulation of the
services it offers and rates it may charge for those services. The 1996
Telecommunications Act formed two types of LECs: Incumbent Local Exchange
Carriers (ILEC), including RBOCs, and Competitive Local Exchange Carriers
(CLEC).
Local loop.......................... The last mile or last several miles from an Internet access provider's
backbone to a customer's phone or modem. Operation of the local loop is the
responsibility of the LEC
MAE-East............................ Metropolitan Area Ethernet. Network access peering point located in
Washington, D.C.
MAE-West............................ Metropolitan Area Ethernet. Network access peering point located in San
Jose, California.
Mbps................................ Megabits per second. A measure of digital information transmission rates.
One megabit equals 1,000 kilobits.
NAP................................. Network access point. The peering points at which major Internet access
provides connect and exchange Internet traffic.
Nodes............................... An interlinked group of modems, routers and/or other computer equipment,
located in a particular city or metropolitan area.
On-line services.................... Commercial information services that offer a computer user access through a
modem to specified information, entertainment and communications.
</TABLE>
68
<PAGE>
<PAGE>
<TABLE>
<S> <C>
OEM................................. Original Equipment Manufacturer. An institution that typically sells its
product to other companies or resellers for integration into systems.
Peering............................. The exchange of routing announcements between two Internet access providers
for the purpose of ensuring that traffic from the first can reach all
customers of the second, and vice-versa. Peering takes place predominantly
at NAPs and MAEs.
Protocol............................ A formal description of message formats and the rules two or more machines
must follow in order to exchange such messages.
Routing Table....................... A list that provides the path to an IP address.
RBOC................................ Regional Bell Operating Company. The 1984 divestiture of AT&T left local
telephone service under the control of seven RBOCs. An RBOC is an ILEC,
which is a type of LEC.
Router.............................. A device that receives and transmits data packets between segments in a
network or different networks.
Server.............................. A computer that offers a service to another computer. In addition, such
term means the software which resides on the computer.
Source code......................... Software that is in the format in which it was originally programmed and
has not been compiled or interpreted into machine code to run on end users'
computers. Typically, software cannot be modified once it is compiled.
Switch.............................. A device that creates and maintains circuit connections between points on a
network.
TCP/IP.............................. Transmission Control Protocol/Internet Protocol. A compilation of network-
and transport-level protocols that allow computers with different
architectures and operating system software to communicate with other
computers on the Internet.
Tier 1 ISP.......................... Tier 1 Internet Service Provider. An ISP that controls its own backbone, is
directly connected to the Internet and directly exchanges Internet traffic
with other Tier 1 ISPs. Other non-Tier 1 ISPs typically lease their
connections and possibly other services from Tier 1 providers.
VAR................................. Value Added Reseller. An institution that sells OEM product to other
companies.
WAN................................. Wide Area Network. A communications network which connects geographically
dispersed users.
Web................................. World Wide Web. A network of computer servers that uses a special
communications protocol to link different servers throughout the Internet
and permits communication of graphics, video and audio.
</TABLE>
69
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
ICON CMT CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheet as of December 31, 1995 and 1996 and September 30, 1997...................................... F-3
Statement of Operations for the years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1996 (unaudited) and 1997.................................................................. F-4
Statement of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1994, 1995 and 1996
and for the nine months ended September 30, 1997......................................................... F-5
Statement of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1996 (unaudited) and 1997.................................................................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
ICON CMT CORP.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Icon CMT
Corp. (the 'Company') at December 31, 1995 and 1996 and September 30, 1997, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996 and the nine months ended September 30, 1997,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred substantial operating losses,
expects to incur substantial additional losses and expects that its cash and
working capital requirements will continue to increase as the Company's
operations continue to expand. These and other factors, as discussed in Note 2,
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PRICE WATERHOUSE LLP
Stamford, Connecticut
November 17, 1997 except as to the
reverse stock split described in
Note 12, which is as of December 15, 1997
F-2
<PAGE>
<PAGE>
ICON CMT CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, SEPTEMBER 30,
---------------- SEPTEMBER 30, 1997
1995 1996 1997 (NOTE 12)
------ ------- ------------- -------------
(IN THOUSANDS, EXCEPT (UNAUDITED)
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 620 $ 515 $ 4,556
Accounts receivable, net of allowance for
doubtful accounts of $328, $437 and $516,
respectively................................ 6,036 7,348 6,527
Unbilled costs and accrued earnings.......... -- 184 986
Notes receivable from stockholders (Note
7).......................................... 153 167 175
Inventories.................................. 21 92 78
Prepayments and other current assets......... 364 752 842
Deferred tax asset (Note 10)................. 260 430 --
------ ------- -------------
Total current assets.................... 7,454 9,488 13,164
Equipment, net (Note 4)........................... 1,074 3,721 5,015
Other assets...................................... 83 83 83
------ ------- -------------
Total assets............................ $8,611 $13,292 $ 18,262
------ ------- -------------
------ ------- -------------
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. $3,447 $ 6,689 $ 4,997
Notes payable................................ 3,000 2,194 --
Accrued expenses............................. 1,463 2,213 3,042
Deferred revenue............................. 241 273 35
Income taxes payable......................... 15 19 --
------ ------- -------------
Total current liabilities............... 8,166 11,388 8,074
Deferred tax liability............................ 47 155 --
------ ------- -------------
Total liabilities....................... 8,213 11,543 8,074
------ ------- -------------
Commitments (Note 11)............................. -- -- --
Mandatorily redeemable 10% PIK Series B
Convertible Participating Preferred Stock ($.01
par value; 415,000 shares authorized, none
issued and outstanding in 1995 and 1996, 180,240
shares issued in 1997, pro forma none issued and
outstanding) (liquidating preference of $18,640
at September 30, 1997).......................... -- -- 16,205
Mandatorily redeemable Series A Convertible
Participating Preferred Stock ($.01 par value;
450,000 shares authorized, none issued and
outstanding in 1995, 422,607 issued and
outstanding in 1996 and 1997, pro forma none
issued and outstanding) (liquidating preference
of $10,401 and $10,845 at December 31, 1996 and
September 30, 1997, respectively)............... -- 9,881 10,421
Stockholders' equity
Preferred stock ($.01 par value; 1,000,000
shares authorized)..........................
Common stock ($.001 par value; 50,000,000
shares authorized, 6,545,454 shares issued
and outstanding in 1995, 1996 and 1997,
respectively, pro forma 11,175,285 shares
issued and outstanding)..................... 7 7 7 $ 11
Additional paid-in capital................... 426 23 1,104 27,338
Accretion of mandatorily redeemable preferred
stock....................................... -- (89) (388) --
Accumulated deficit.......................... (35) (8,073) (17,161) (17,161)
------ ------- ------------- -------------
Total stockholders' equity (deficit).... 398 (8,132) (16,438) $ 10,188
------ ------- ------------- -------------
-------------
Total liabilities, mandatorily
redeemable convertible preferred
stock and stockholders' equity
(deficit)........................ $8,611 $13,292 $ 18,262
------ ------- -------------
------ ------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<PAGE>
ICON CMT CORP.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- --------------------------
1994 1995 1996 1997
------- ------- ------- 1996 -----------
-----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues, net:
Services
Professional........................................... $ 1,914 $ 4,397 $ 6,570 $ 3,936 $11,988
Communications......................................... -- 189 1,268 685 3,931
Media.................................................. -- 202 529 353 77
------- ------- ------- ----------- -----------
Total services revenues.............................. 1,914 4,788 8,367 4,974 15,996
------- ------- ------- ----------- -----------
Products (Note 9)........................................... 17,083 21,424 29,741 22,341 14,306
------- ------- ------- ----------- -----------
Total revenues, net............................... 18,997 26,212 38,108 27,315 30,302
------- ------- ------- ----------- -----------
Cost of revenues:
Services.................................................... 758 2,596 6,842 4,333 11,521
Products.................................................... 14,132 17,653 24,607 18,406 11,676
------- ------- ------- ----------- -----------
Total cost of revenues............................ 14,890 20,249 31,449 22,739 23,197
------- ------- ------- ----------- -----------
Gross profit..................................................... 4,107 5,963 6,659 4,576 7,105
------- ------- ------- ----------- -----------
Operating expenses:
General and administrative.................................. 1,548 2,435 7,006 5,049 7,577
Selling and marketing....................................... 1,393 3,450 6,504 4,390 6,546
Research and development.................................... 501 411 969 598 920
Depreciation and amortization............................... 94 228 460 311 601
------- ------- ------- ----------- -----------
Total operating expenses............................. 3,536 6,524 14,939 10,348 15,644
------- ------- ------- ----------- -----------
Income (loss) from operations.................................... 571 (561) (8,280) (5,772) (8,539)
------- ------- ------- ----------- -----------
Other income (expense)
Interest income............................................. 9 16 107 88 58
Interest expense............................................ -- (78) (75) (26) (351)
------- ------- ------- ----------- -----------
Total other income (expense)......................... 9 (62) 32 62 (293)
------- ------- ------- ----------- -----------
Income (loss) before income taxes................................ 580 (623) (8,248) (5,710) (8,832)
Provision (benefit) for income taxes............................. 289 (183) (210) (157) 256
------- ------- ------- ----------- -----------
Net income (loss)................................................ $ 291 $ (440) $(8,038) $(5,553) $(9,088)
------- ------- ------- ----------- -----------
------- ------- ------- ----------- -----------
Pro forma data (unaudited) (Note 12)
Pro forma net loss per common share......................... $ (0.80) $ (0.88)
------- -----------
------- -----------
Pro forma weighted average common shares outstanding........ 10,109,279 10,311,285
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<PAGE>
ICON CMT CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCRETION OF
MANDATORILY
REDEEMABLE RETAINED TOTAL
COMMON STOCK ADDITIONAL CONVERTIBLE EARNINGS STOCKHOLDERS'
------------------- PAID-IN PREFERRED (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL STOCK DEFICIT) (DEFICIT)
--------- ------ ---------- ------------ ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994.............. 6,545,454 $ 7 $ 293 $ 114 $ 414
Net income.............................. -- -- -- 291 291
--------- ---------- ------------- -------------
BALANCE AT DECEMBER 31, 1994............ 6,545,454 7 293 405 705
Issuance of compensatory stock options
to employees.......................... -- -- 133 -- 133
Net loss................................ -- -- -- (440) (440)
--------- ---------- ------------- -------------
BALANCE AT DECEMBER 31, 1995............ 6,545,454 7 426 (35) 398
Issuance of warrants in connection with
sale of Series A convertible
participating preferred stock......... -- -- 166 -- 166
Expenses related to issuance of Series A
convertible participating preferred
stock................................. -- -- (569) -- (569)
Accretion of mandatorily redeemable
convertible preferred stock to
redemption value...................... -- -- -- $ (89) -- (89)
Net loss................................ -- -- -- -- (8,038) (8,038)
--------- ---------- ------ ------------- -------------
BALANCE AT DECEMBER 31, 1996............ 6,545,454 7 23 (89) (8,073) (8,132)
Issuance of warrants in connection with
sale of 10% PIK Series B convertible
participating preferred stock......... -- -- 2,362 -- -- 2,362
Expenses related to issuance of 10% PIK
Series B convertible participating
preferred stock....................... -- -- (497) -- -- (497)
Accretion of mandatorily redeemable
convertible preferred stock to
redemption values..................... -- -- (784) (299) -- (1,083)
Net loss................................ -- -- -- -- (9,088) (9,088)
--------- ---------- ------ ------------- -------------
BALANCE AT SEPTEMBER 30, 1997........... 6,545,454 $ 7 $1,104 $ (388) $ (17,161) $ (16,438)
--------- ---------- ---------- ------ ------------- -------------
--------- ---------- ---------- ------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<PAGE>
ICON CMT CORP.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
----------------------------- SEPTEMBER 30,
1994 1995 1996 ---------------------------
------- ------- ------- 1996 1997
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 291 $ (440) $(8,038) $(5,553) $ (9,088)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization.............. 94 228 1,054 639 1,385
Stock option compensation.................. -- 133 -- -- --
Loss on disposal of equipment.............. 30 -- -- -- --
Deferred income taxes, net................. (3) (198) (62) (45) 275
Non-cash interest expense.................. -- -- -- -- 20
Changes in assets and liabilities:
Accounts receivable........................ (2,271) (2,230) (1,312) (963) 821
Unbilled costs and accrued earnings........ -- -- (184) -- (802)
Inventories................................ (100) 223 (71) (499) 14
Prepayments and other current assets....... (15) (352) (402) (529) (98)
Other assets............................... (5) (69) -- -- --
Accounts payable........................... 1,415 697 3,242 1,986 (1,692)
Accrued expenses........................... 512 771 750 544 828
Deferred revenue........................... -- 241 32 (43) (238)
Income taxes payable....................... 292 (316) 4 20 (19)
------- ------- ------- ----------- ------------
Net cash provided by (used in)
operating activities................ 240 (1,312) (4,987) (4,443) (8,594)
------- ------- ------- ----------- ------------
Cash flows from investing activities:
Capital expenditures............................ (232) (1,000) (3,701) (3,017) (2,679)
------- ------- ------- ----------- ------------
Net cash used for investing
activities.......................... (232) (1,000) (3,701) (3,017) (2,679)
------- ------- ------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of short-term notes...... -- 3,000 2,194 -- 6,750
Net repayments of short-term notes.............. -- -- (3,000) (2,399) (7,944)
Loans to stockholders........................... -- (150) -- -- --
Net proceeds from issuance of mandatorily
redeemable convertible preferred stock........ -- -- 9,389 9,389 16,508
------- ------- ------- ----------- ------------
Net cash provided by financing
activities.......................... -- 2,850 8,583 6,990 15,314
------- ------- ------- ----------- ------------
Net increase (decrease) in cash...................... 8 538 (105) (470) 4,041
Cash and cash equivalents at beginning of period..... 74 82 620 620 515
------- ------- ------- ----------- ------------
Cash and cash equivalents at end of period........... $ 82 $ 620 $ 515 $ 150 $ 4,556
------- ------- ------- ----------- ------------
------- ------- ------- ----------- ------------
Cash paid (received) for:
Income taxes.................................... $ 2 $ 461 $ (175) $-- $ (22)
------- ------- ------- ----------- ------------
------- ------- ------- ----------- ------------
Interest........................................ $ -- $ 56 $ 75 $ 25 $ 331
------- ------- ------- ----------- ------------
------- ------- ------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION AND BUSINESS
ORGANIZATION
Icon CMT Corp. (the 'Company' or 'Icon') was incorporated in February 1995
under the laws of the State of Delaware for the purpose of merging with
Integration Consortium, Inc. (the 'Predecessor'), which was incorporated in 1991
under the laws of the State of New York. In July 1995, the stockholders of the
Predecessor exchanged their shares of the Predecessor for 6,545,454 shares of
the common stock of Icon and the Predecessor became a wholly owned subsidiary of
Icon. A merger of Icon and the Predecessor was effected in December 1995, and
pursuant to the merger agreement, Icon was the surviving entity. The share
exchange and subsequent merger has been accounted for in a manner similar to a
pooling of interests. References herein to the operations and historical
financial information of the 'Company' prior to the date of the share exchange
refer to the operations and historical financial information of the Predecessor.
Unless the context otherwise requires, all other references herein to the
'Company' refer to Icon.
BUSINESS
From inception through 1994, the Company was primarily engaged in the
design, marketing, sale, installation and on-going support of information
management systems and distribution of information over networks. Through 1994,
the Company primarily generated revenue through the sales of hardware and
services to migrate its customers' networks to local client/server environments
and by managing, maintaining and expanding those networks.
During 1995 the Company began its transition to become an end-to-end
Internet solutions provider to corporate customers. The Company currently
derives its revenues from the following services and products: (i) professional
services including custom application development and design, systems
integration and maintenance and support services, (ii) high quality Internet
access and related communications services such as web/server hosting and
management and (iii) product resales, including hardware and software, as a part
of systems design and integration.
2. BASIS OF PRESENTATION
The Company has incurred significant operating losses for the year ended
December 31, 1996 and the nine months ended September 30, 1997. At December 31,
1996 and September 30, 1997 the Company had an accumulated deficit of $8,073 and
$17,161, respectively, and working capital of ($1,900) and $5,090, respectively.
Such losses have resulted principally from general and administrative and
selling and marketing expenses associated with the Company's expanded level of
operations. The Company expects that its cash and working capital requirements
will continue to increase as the Company's operations continue to expand and it
will require additional financing to achieve its business objectives. In order
to fund these efforts, the Company completed private placements of its
mandatorily redeemable Series A Convertible Participating Preferred Stock (the
'Series A Preferred') during 1996 (Note 6) and its mandatorily redeemable 10%
PIK Series B Convertible Participating Preferred Stock (the 'Series B
Preferred') during the nine months ended September 30, 1997. The Company
utilized the net proceeds from these issuances for the repayment of short-term
debt and working capital, including marketing and product line expansions.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company's significant net
operating losses, expected substantial additional losses and increasing working
capital requirements raise substantial doubt about the Company's present ability
to continue as a going concern. The Company's ability to continue as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations as they come due.
F-7
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
At September 30, 1997, the Company had an option to issue and sell up to an
additional 50,000 shares of Series B Preferred to investors at a per share price
of $100.00 to fund its future cash requirements (Note 6). Additionally, the
Company had a secured line of credit available at September 30, 1997 (Note 5).
Management is also actively pursuing other financing options which include
securing additional equity financing through an initial public offering and
believes that sufficient funding will be available to meet its planned business
objectives; however, there can be no assurance that the Company will be
successful in its efforts to raise additional capital. The financial statements
do not include any adjustments relating to the recoverability of the carrying
amount of recorded assets or the amount of liabilities that might result from
the outcome of these uncertainties.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SERVICES REVENUE
Revenue from custom software development, database design, outsourcing and
corporate website production is recognized as the services are rendered or on a
percentage of completion basis for contracts requiring milestone achievements
prior to invoicing.
Revenue from communications services, such as Internet access, hosting
services, on-site maintenance, product enhancements and telephone support, is
recognized ratably over the period of the agreement as the services are
provided, typically one year.
Revenue from sponsorships of digital publications is recognized ratably
over the period in which the sponsorship is displayed on a website or webzine
produced by the Company.
Unbilled costs and accrued earnings consist primarily of services performed
which were not billed at the end of the period due to specific contractual terms
established with certain customers.
PRODUCTS REVENUE
Revenue from the resale of products, which consist of high-end
non-proprietary network hardware and software products, is recognized upon
shipment to the customer when no significant vendor obligations exist and
collectibility is probable.
DEFERRED REVENUE
Deferred revenue consists principally of billings in advance for services
not yet provided.
CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments, with
original maturities of less than three months when purchased and are stated at
cost. Interest is accrued as earned.
F-8
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
INVENTORIES
Inventories, which consist principally of purchased computer hardware, are
stated at the lower of cost (determined on a first-in, first-out basis) or
market value.
EQUIPMENT
Equipment is stated at cost. Depreciation is provided on a straight-line
basis over the estimated useful lives of the respective assets, none of which
exceeds five years. Depreciation expense related to equipment used solely for
communications-related services is included in services cost of revenues.
RESEARCH AND DEVELOPMENT
The Company charges all costs incurred to establish the technological
feasibility of a product or product enhancement to research and development
expense.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recorded for temporary differences between financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred
tax assets and liabilities reflect the tax rates expected to be in effect for
the years in which the differences are expected to reverse. A valuation
allowance is provided if it is more likely than not that some or all of the
deferred tax asset will not be realized.
PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per common share is computed using the weighted average
number of common shares and common share equivalents assumed to be outstanding
during the period. Common share equivalents consist of the Company's common
shares issuable upon conversion of stock options and outstanding warrants and
are reflected when dilutive. Pursuant to the requirements of the Securities and
Exchange Commission, stock options granted and warrants and shares issued by the
Company within one year of the date of the initial filing of a registration
statement in connection with an initial public offering at prices below the
proposed offering price have been included in the calculation of weighted
average shares outstanding as if they were outstanding for all periods presented
using the treasury stock method.
INTERIM FINANCIAL DATA
The unaudited financial data for the nine months ended September 30, 1996
has been prepared by management and include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the results of
operations and cash flows. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the operating results to be
expected for the year ending December 31, 1997.
F-9
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with their
1997 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of accounts receivable, notes receivable, accounts
payable, accrued expenses and notes payable approximate their fair values due to
the relatively short maturity of these instruments.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ('FASB') issued
Financial Accounting Standards 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 (options, warrants, convertible
securities or contingent stock arrangements). FAS 128 also requires presentation
of earnings per share by an entity that has made a filing or is in the process
of filing with a regulatory agency in preparation for the sale of those
securities in a public market. 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 statement is
effective for both interim and annual periods ending after December 15, 1997.
The effect on the Company's earnings per share resulting from the adoption of
FAS 128 is not expected to be significant.
In June 1997, the FASB issued Financial Accounting Standards No. 130,
'Reporting Comprehensive Income' ('FAS 130'), which requires the presentation of
the components of comprehensive income in a company's financial statements for
reporting periods beginning subsequent to December 15, 1997. Comprehensive
income is defined as the change in a company's equity during a financial
reporting period from transactions and other circumstances from nonowner sources
(including cumulative translation adjustments, minimum pension liabilities and
unrealized gains/losses on available-for-sale securities). The adoption of FAS
130 is not expected to have a material impact on the Company's financial
statements.
4. EQUIPMENT
Equipment is comprised of the following at December 31, 1995 and 1996 and
September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Computer equipment....................................... $ 1,288 $ 4,688 $ 6,823
Furniture and fixtures................................... 89 397 408
Vehicles................................................. 42 35 35
Leasehold improvements in process........................ -- -- 533
------- ------- -------------
1,419 5,120 7,799
Less: accumulated depreciation and amortization.......... (345) (1,399) (2,784)
------- ------- -------------
$ 1,074 $ 3,721 $ 5,015
------- ------- -------------
------- ------- -------------
</TABLE>
During 1994, the Company incurred a loss of $30 relating to the retirement
of computer equipment with a cost of $128.
F-10
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
5. NOTES PAYABLE
SECURED LINE OF CREDIT
On August 14, 1995, the Company obtained a secured line of credit with a
bank for $3,000 which expired on June 30, 1996. Borrowings under this line were
secured by certain assets of the Company. At December 31, 1995, borrowings under
this line amounted to $3,000. Interest was charged at the bank's prime rate plus
one percent, which was 9.5% at December 31, 1995. Interest expense amounted to
$78 and $25 in 1995 and 1996, respectively. This line of credit was repaid in
full on January 31, 1996.
On August 13, 1996, the Company obtained a secured line of credit with a
lending institution for $10,000 which expires on August 13, 1998. Borrowings
under this line are secured by substantially all of the assets of the Company.
Borrowings under this line are limited to a specified percentage of qualifying
accounts receivable less outstanding obligations of the Company owed to the
lending institution including outstanding letters of credit. The payment of cash
dividends is prohibited under this secured line of credit. At December 31, 1996,
borrowings under this line amounted to $2,194 and no amounts were outstanding at
September 30, 1997. Interest is payable monthly at an annual rate equal to the
lending institution's prime rate plus one percent, which was 9.25% and 9.50% at
December 31, 1996 and September 30, 1997, respectively. The rate adjusts on the
first of the month following any change. Interest expense amounted to $50 and
$314 for the year ended December 31, 1996 and the nine month period ended
September 30, 1997, respectively. The agreement requires an annual commitment
fee of approximately $28.
At December 31, 1996 and September 30, 1997, irrevocable letters of credit
of $500 and $1,000, respectively, were issued under this agreement which are
being maintained as security for performance under long-term property lease
agreements.
At September 30, 1997, amounts available under the secured line of credit
were $2,479.
BRIDGE FINANCING
In March 1997, the Company obtained a $1,000 unsecured bridge loan which
bore interest at a rate of 10% per annum from a holder of the Series A
Preferred. The terms of the loan provided for a rate of interest of 10% per
annum through June 30, 1997 and 18% per annum from July 1, 1997, payable
monthly. The loan was payable upon demand by the holder at any time after the
earliest of the following to occur: (i) the closing of initial public offering
in the amount of $8,000 or greater, (ii) the closing of a private placement of
any class of the Company's capital stock equal to or exceeding $8,000, (iii) a
'Disposal Event' as defined by the loan agreement, or (iv) September 30, 1997.
The loan agreement also provided that upon completion of a public offering
or private placement equal to or exceeding $8,000, the holder of the loan had
the option to convert the outstanding principal amount of the note and accrued
and unpaid interest into the class of capital stock issued in the public or
private offering. In May 1997 the holder of the loan converted the loan plus
accrued interest thereon, in the amount of $20, into 10,200 shares of Series B
Preferred.
In further consideration of the loan, upon completion of the Series B
Preferred financing, the Company issued a warrant to the Series A Preferred
holder to purchase 41,511 shares of common stock at an initial exercise price of
$6.02 per share. The warrant is exercisable for a period of ten years from the
date of issuance. The fair value of the warrant, in the amount of $103, has been
recorded as additional paid-in capital.
F-11
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
6. COMMON STOCK AND CONVERTIBLE PARTICIPATING PREFERRED STOCK
COMMON STOCK SPLIT, INCREASE IN AUTHORIZED COMMON SHARES AND CHANGE TO PAR VALUE
OF COMMON STOCK
Effective May 30, 1997, the Company implemented a six-for-one stock split
applicable to all issued and outstanding shares of the Company's common stock
and increased the number of authorized shares of common stock from 10,000,000 to
50,000,000. In addition, the par value of the Company's common stock was changed
from $.01 per share to $.001 per share.
SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK
In January 1996, the Company issued 422,607 shares of Series A Preferred at
$23.33 per share providing gross proceeds of $9,859 and net proceeds, after
deducting expenses, of $9,389. Each share of Series A Preferred is convertible
at the option of the holder into the number of shares of common stock determined
by dividing $23.33 by the conversion price. The initial conversion price was
$10.70, which is subject to adjustment to the share price of any security
issuances at a per share price lower than $10.70 prior to the second anniversary
of the date of issuance of the Series A Preferred stock. Subsequent to the
second anniversary of the issuance of the Series A Preferred the Series A shares
are subject to weighted average anti-dilution provisions. Upon issuance of the
initial Series B Preferred on May 30, 1997 (See below), the conversion price of
the Series A Preferred was adjusted to $6.02 per share. The Series A Preferred
shares will automatically convert into common stock upon the consummation of a
public offering of the Company's common stock with gross proceeds and a per
share price of qualifying amounts.
At any time after the fifth anniversary of the date of issuance of the
Series A Preferred, a holder, at their option, may sell such shares to the
Company at a redemption price of $23.33 per share plus a redemption premium
equal to $1.40 per annum accruing from the date of issuance to the redemption
date, less any dividends paid thereon prior to the redemption date and including
the amount of any dividends or other distributions declared but unpaid on the
Series A Preferred. The Series A Preferred will have an aggregate redemption
value of $12,817 at January 30, 2001, the earliest date at which redemption may
be required. The excess of the redemption value over the carrying value is being
recorded by periodic charges to stockholders' equity through the earliest date
at which the Series A Preferred holders may require redemption of the Series A
Preferred.
The holders of Series A Preferred are entitled to vote on matters which
holders of common stock have the right to vote.
In connection with this transaction, the Company issued a warrant for the
purchase of 15,542 shares of the Company's common stock, at an initial exercise
price of $0.03 per share, as a placement fee to a financial advisor. The fair
value of the warrant in the amount of $166 has been recorded to additional
paid-in capital. The warrant is exercisable for a period of ten years from the
date of issuance.
10% PIK SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
On May 30, 1997, the Company issued and sold 100,000 shares of the Series B
Preferred at $100.00 per share providing gross proceeds of $10,000 and net
proceeds, after deducting expenses, of $9,601. Subsequent to the initial
issuance, and prior to the first anniversary of the closing date, subject to
certain closing conditions, the Company has the option to issue and sell up to
an additional 50,000 shares to the original investors at a price per share of
$100.00. As of September 30, 1997, the Company has not exercised this option.
This option lapses upon the closing of an initial public offering by the
Company. In connection with this transaction, the Company issued a warrant for
the purchase of 838,199 shares of the Company's common stock, at an initial
exercise price of $6.02 per share, to the
F-12
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
original investors of the Series B Preferred. The warrant is exercisable for a
period of ten years from the date of issuance. The fair value of the warrant, in
the amount of $1,958, has been recorded as additional paid-in capital.
The holders of the Series B Preferred have the right to convert such shares
into common stock at an initial conversion rate of $100.00 divided by a
conversion price of $6.02 per share. In the event the Company exercises its
option to sell the additional 50,000 shares of Series B Preferred to the
original investors, the conversion price will be amended to $4.51 per share. In
addition: (i) such shares will automatically convert into common stock upon the
consummation of a public offering or sale transaction of qualifying size of the
Company's common stock, (ii) any time after the fifth anniversary of the date of
issuance of the Series B Preferred, a holder at its option may sell such shares
to the Company at a redemption amount, and (iii) in the event of a liquidation
of the Company the holders of the Series B Preferred are entitled to a senior
liquidation preference (each as defined).
An in-kind dividend will accrue at an annual rate of 10%. The excess of
redemption value over carrying value, is being recorded by periodic charges to
stockholders' equity through May 30, 2002, the earliest date the Series B
Preferred holders may require redemption of the Series B Preferred. The Series B
Preferred will have an aggregate redemption value of $16,530 at May 30, 2002.
The holders of Series B Preferred shall participate equally per share in any
dividends to holders of common stock or the Series A Preferred in excess of an
annual rate of 10% and shall be entitled to vote on matters which holders of
common stock have the right to vote.
Also in connection with the initial issuance of Series B Preferred, the
Company issued a warrant to a financial advisor for the purchase of 50,042
shares of common stock at an exercise price of $0.03 per share. The fair value
of the warrant, in the amount of $301, has been recorded to additional paid-in
capital.
Prior to the initial issuance of the Series B Preferred, the original
Series B Preferred investors advanced amounts to the Company in the form of
bridge loans totaling $5,750 bearing interest at an annual rate of 10%. Such
advances were repaid with interest in the amount of $16, upon the closing of the
initial issuance of the Series B Preferred.
During the period from July 1997 to September 1997, the Company issued and
sold an additional 70,040 shares of the Series B Preferred at $100.00 per share,
providing gross proceeds of $7,004 and net proceeds, after deducting expenses,
of $6,907.
7. TRANSACTIONS WITH RELATED PARTIES
On July 17, 1995, the three founders and principal stockholders of the
Company entered into an agreement whereby, among other things, each of these
stockholders agreed to grant to the other two stockholders the right of first
refusal to purchase any shares of the Company's common stock they propose to
sell on substantially the same terms as a potential third-party is offering and,
upon their death, the right to purchase any or all of their shares of common
stock of the Company at the fair market value on the date of death.
In August 1995, the Company made loans in the amount of $50 to each of its
three principal stockholders. The loans bear interest at a rate of 7% per annum.
Interest income from such loans amounted to $3, $14, and $8 for the years ended
December 31, 1995 and 1996 and the nine month period ended September 30, 1997,
respectively. The loans, and accrued interest thereon, are due on demand.
On December 4, 1995, the Company entered into employment agreements with
each of its three principal stockholders and founders, which expire five years
from the date of the agreement. The employment agreements, which provide for
base salaries and guaranteed bonuses, contain certain non-
F-13
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
compete clauses which are in effect for a period of one year following
termination of employment. In the event of termination of employment of any of
such principal stockholders following a change in control (as defined in the
employment agreements), that has not been approved by the Board of Directors,
the principal stockholders will receive a termination payment equal to 2.99
times their respective base salary. On June 2, 1997, the employment agreements
were amended by the Company. As a result of these amendments, the expiration
dates of the agreements were extended to May 29, 2002.
8. STOCK OPTION, DEFINED CONTRIBUTION AND PROFIT SHARING PLANS
STOCK OPTION PLANS
In July 1995, the Company adopted a stock option plan (the 'July Plan')
which was subsequently terminated by the Company's Board of Directors on October
23, 1995. Pursuant to the July Plan, the Company granted certain employees
options to purchase 552,000 shares of the Company's common stock at $0.27 per
share. The Company recorded $133 of compensation expense during 1995 related to
the grant of such options. As of the date of grant, 65,455 options were
exercisable, and none were exercised prior to October 23, 1995, the date on
which the July Plan and all options granted pursuant thereto were canceled.
On October 23, 1995, the Company implemented its 1995 Stock Option Plan
(the 'Plan'), whereby incentive and nonqualified options to purchase up to
1,090,909 shares of the Company's common stock may be granted to key employees,
directors and consultants. On March 14, 1997, the Board of Directors approved an
amendment to the Plan whereby the aggregate number of shares of common stock for
which options may be granted under the Plan was increased to 1,636,363. The
exercise and vesting periods and the exercise price for options granted under
the Plan are determined by a Committee of the Board of Directors. The Plan
stipulates that no option may be exercisable after ten years from the date of
grant. The fair market value of the Company's common stock is determined by the
Board of Directors. Options granted under the Plan generally vest in equal
installments over periods ranging from one to five years.
Under the Plan, each non-employee director, upon their initial appointment,
shall be granted options to purchase 3,273 shares of the Company's common stock
at a price equal to its fair market value at the date of grant. Additionally,
options to purchase 2,182 shares of the Company's common stock at the then fair
market value shall be granted immediately following each annual meeting of the
stockholders. These options are exercisable for five years from the date of
grant. No such options have yet been granted as of December 31, 1996 and
September 30, 1997.
On June 18, 1997 outstanding employee stock options, with exercise prices
ranging from $6.42 to $14.27, to purchase 868,364 shares of common stock were
repriced at $6.02 per share, which was the fair market value as determined by
the Board of Directors at such date. Outstanding stock options to purchase
109,091 shares of common stock held by an employee who is also a principal
stockholder were also repriced on such date from $11.76 to $6.63 per share.
F-14
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following table summarizes activity regarding stock options for the
years ended December 31, 1995 and 1996 and the nine months ended September 30,
1997:
<TABLE>
<CAPTION>
SHARES WEIGHTED-
UNDER AVERAGE
OPTION EXERCISE PRICE
---------- --------------
<S> <C> <C>
Options outstanding, December 31, 1994................................ -- --
Options granted at $0.27.............................................. 552,000 $ 0.27
Options granted at $6.42.............................................. 614,182 6.42
Options cancelled..................................................... (552,000) 0.27
----------
Options outstanding at December 31, 1995.............................. 614,182 6.42
Options granted at $11.00-$11.74...................................... 479,127 11.17
Options forfeited at $6.42............................................ (148,364) 6.42
Options forfeited at $11.00........................................... (35,127) 11.00
----------
Options outstanding at December 31, 1996 at $6.42..................... 465,818 6.42
Options outstanding at December 31, 1996 at $11.00-$11.74............. 444,000 11.19
----------
Total options outstanding at December 31, 1996........................ 909,818 8.74
----------
Options granted at $13.48-$14.27...................................... 342,905 14.16
Options cancelled at $6.42-$14.27..................................... (977,455) 9.92
Options re-granted at $6.02-$6.63..................................... 977,455 6.09
Options granted at $6.02.............................................. 106,364 6.02
Options forfeited at $6.02-$11.00..................................... (172,911) 9.48
----------
Options outstanding at September 30, 1997 at $13.48-$14.27............ 113,814 13.93
Options outstanding at September 30, 1997 at $6.02-$6.63.............. 1,072,362 6.08
----------
Total options outstanding at September 30, 1997....................... 1,186,176 6.83
----------
----------
Exercisable at September 30, 1997..................................... 144,547 9.76
----------
----------
Options available for grant at September 30, 1997..................... 450,187
----------
----------
Weighted average remaining contractual life for options at
$6.02-$6.63......................................................... 2.4years
Weighted average remaining contractual life for options at
$13.48-$14.27....................................................... 2.7years
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 'Accounting
for Stock Issued to Employees,' and related interpretations in accounting for
its Plan and other stock-based compensation issued to employees and directors.
During the year ended December 31, 1996 and the nine months ended September 30,
1997, the Company was not required to recognize compensation expense for options
granted to employees.
Had compensation cost for options grants to employees been determined based
upon the fair value at the date of grant for awards under the Plan consistent
with the methodology prescribed under Financial Accounting Standards No. 123,
'Accounting for Stock Based Compensation,' ('FAS 123'), the Company's net loss
for the years ended December 31, 1995 and 1996 and the nine months ended
September 30, 1997 would have increased by approximately $35, $529 and $401,
respectively.
The fair values of options granted to employees during the years ended
December 31, 1995 and 1996 and the nine months ended September 30, 1997 has been
determined on the date of the respective
F-15
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
grant using the Black-Scholes option-pricing model based on the following
weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Dividend yield............................................... None None None
Weighted average risk free interest rate on date of grant.... 6.3% 6.3% 6.45%
Forfeitures.................................................. None None None
Expected life................................................ 5 years 5 years 5 years
</TABLE>
DEFINED CONTRIBUTION AND PROFIT SHARING PLANS
The Company has a defined contribution savings plan (the 'Plan'), which
qualifies under Section 401(k) of the Internal Revenue Code, for employees
meeting certain service requirements. Participants may contribute up to 10% of
their gross wages not to exceed, in any given year, a limitation set by Internal
Revenue Service regulations. The Plan provides for discretionary contributions
to be made by the Company as determined by the Company's Board of Directors. The
Company has not made any contributions to the Plan during periods presented. The
Company also has a profit sharing plan (the 'PSP') covering substantially all
full-time employees. Contributions by the Company to the PSP amounted to $129
and $28 in 1994 and 1996, respectively. There were no contributions to the PSP
during 1995 and the nine months ended September 30, 1997.
9. CONCENTRATION OF RISK AND CUSTOMER INFORMATION
A significant percentage (49%, 58%, 68% and 62% in the years ended December
31, 1994, 1995 and 1996 and the nine months ended September 30, 1997,
respectively) of the Company's revenues are derived from domestic third-party
financial services companies. Financial instruments which potentially subject
the Company to concentrations of credit risk are primarily cash, accounts
receivable, notes receivable, accounts payable and short-term notes payable. The
Company generally does not require collateral and the majority of its trade
receivables are unsecured. The Company is directly affected by the well being of
the financial services industry; however, the Company does not believe
significant credit risk exists at September 30, 1997. The Company relies on
other companies to supply certain key components of its network infrastructure,
including telecommunications services and networking equipment, which, in the
quantities and quality required by the Company, are available only from a
limited number of sources. The Company is also dependent upon local exchange
carriers to provide telecommunications services to the Company and its
customers. There can be no assurance that the Company will be able to obtain
such services on the scale and within the time frames required by the Company at
an acceptable cost, or at all.
The network-based information management systems sold by the Company are
provided by one manufacturer for whom the Company serves as a value-added
reseller. Termination or loss of the Company's agreement with this manufacturer
may have a material adverse impact on the Company's financial position and
results of operations.
For the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1997 a single customer accounted for 25%, 28%, 30% and 49%
of net revenues, respectively. For the years ended December 31, 1994, 1995 and
1996 a second customer accounted for 11%, 15% and 13% of net revenues,
respectively. For the year ended December 31, 1995 a third customer accounted
for 10% of net revenues.
F-16
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
10. INCOME TAXES
The Company has incurred losses during 1995, 1996 and the nine months ended
September 30, 1997, which have generated net operating loss carryforwards of
approximately $15,272 at September 30, 1997, for federal and state income tax
purposes. These carryforwards are available to offset future taxable income and
expire in 2011 through 2012 for federal income tax purposes. At September 30,
1997 the Company also had research and development tax credit carryforwards in
the amount of $87 which expire in 2001. These losses and credits are subject to
limitation on future years utilization should certain ownership changes occur.
The net operating loss carryforwards and temporary differences between
carrying amounts of assets and liabilities for financial reporting and income
tax purposes result in a net deferred tax benefit of $7,486 at September 30,
1997. The Company's operating plans anticipate taxable income in future periods;
however, such plans make significant assumptions which cannot be reasonably
assured including continued market acceptance of the Company's products and
services by customers. Therefore, in consideration of the Company's accumulated
losses and the uncertainty of its ability to utilize this deferred tax benefit
in the future, the Company has recorded a valuation allowance in the amount of
$7,486 at September 30, 1997, respectively, to offset the deferred tax benefit
amount.
Significant components of the noncurrent deferred tax assets at December
31, 1994, 1995, 1996 and September 30, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
----- ------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable reserves......................................... $ 142 $ 185 $ 232
Net operating loss................................................... 70 3,296 6,872
Accruals............................................................. 48 245 409
Research and development credits..................................... -- -- 87
----- ------- -------------
Total deferred tax assets....................................... 260 3,726 7,600
----- ------- -------------
Deferred tax liabilities:
Depreciation......................................................... (47) (117) (76)
Other................................................................ -- (38) (38)
----- ------- -------------
Total deferred tax liabilities.................................. (47) (155) (114)
----- ------- -------------
Net deferred tax asset.................................................... 213 3,571 7,486
Less: valuation allowance................................................. -- (3,296) (7,486)
----- ------- -------------
Deferred tax asset, net................................................... $ 213 $ 275 $--
----- ------- -------------
----- ------- -------------
</TABLE>
F-17
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------- SEPTEMBER 30,
1994 1995 1996 1997
----- ----- ----- -------------
<S> <C> <C> <C> <C>
Current taxes
Federal....................................................... $ 158 -- $(148) --
State and city................................................ 134 $ 15 -- --
----- ----- ----- ------
Total current taxes...................................... 292 15 (148) --
----- ----- ----- ------
Deferred taxes
Federal....................................................... (2) (114) (51) $ 174
State and city................................................ (1) (84) (11) 82
----- ----- ----- ------
Total deferred taxes..................................... (3) (198) (62) 256
----- ----- ----- ------
Provision (benefit) for income taxes............................... $ 289 $(183) $(210) $ 256
----- ----- ----- ------
----- ----- ----- ------
</TABLE>
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. income (loss) tax rate to income
before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
--------------------------- SEPTEMBER 30,
1994 1995 1996 1997
----- ----- ----- -------------
<S> <C> <C> <C> <C>
Federal income tax statutory rate................................. 35.0% (35.0%) (35.0%) (35.0%)
State income taxes, net of federal tax benefit.................... 14.8 (7.2) (9.6) (10.7)
Stock compensation................................................ -- 7.4 -- --
Other nondeductible items......................................... -- 5.4 2.1 1.2
Valuation allowance............................................... -- -- 40.0 47.4
----- ----- ----- ------
Income tax rate as recorded....................................... 49.8% (29.4%) (2.5%) 2.9%
----- ----- ----- ------
----- ----- ----- ------
</TABLE>
11. COMMITMENTS
LEASES
Future minimum payments under non-cancelable operating leases, which
primarily relate to network capacity and office space, with initial or remaining
terms of one year or more, consist of the following as of September 30, 1997:
<TABLE>
<CAPTION>
YEAR
- ---------------------------------------------------------------
<S> <C>
1998........................................................... $ 1,703
1999........................................................... 1,350
2000........................................................... 1,132
2001........................................................... 1,093
2002........................................................... 1,143
2003 and thereafter............................................ 3,904
-------
$10,325
-------
-------
</TABLE>
Rent expense amounted to $112, $210 and $584 for 1994, 1995 and 1996,
respectively, and $550 for the nine months ended September 30, 1997.
F-18
<PAGE>
<PAGE>
ICON CMT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
OTHER
In February 1997, the Company entered into an agreement to purchase
interexchange telecommunications services through February 29, 2000. Pursuant to
this agreement the Company has a monthy commitment, before discounts, of $50.
These purchase commitments are not expected to exceed usage requirements in any
of the months covered by the agreement.
At September 30, 1997 trade payables to a vendor in the amount of $2,614
were secured by substantially all of the assets of the Company. The security
agreement is subordinated to the security interests of a lending institution in
connection with a secured line of credit (Note 5).
12. INITIAL PUBLIC OFFERING AND PRO FORMA PRESENTATION
On October 16, 1997, the Board of Directors of the Company authorized
management to pursue an underwritten sale of shares of the Company's common
stock in an initial public offering (the 'IPO') pursuant to the Securities Act
of 1933. In connection with the IPO, on October 16, 1997 the Company's Board of
Directors approved a 1-for-2.75 reverse stock split to be applicable to all
issued and outstanding shares of the Company's common stock, which split became
effective on December 15, 1997. All common shares, stock options, warrants and
related per share data, reflected in the accompanying financial statements and
notes thereto, have been presented as if the stock split had occurred on January
1, 1994. In addition the Board of Directors has approved an increase in the
shares available for grant under the Plan from 1,636,364 to 2,181,818. Such
increase will be effective only upon completion of the initial public offering.
Upon the closing of the IPO, all outstanding shares of Series A and Series
B Preferred Stock will automatically convert into an aggregate of 4,629,831
shares of common stock. The pro forma effects of this conversion have been
reflected in unaudited pro forma stockholders' equity at September 30, 1997 and
pro forma earnings per share for the year ended December 31, 1996 and the nine
months ended September 30, 1997.
Upon consummation of the IPO, the agreement among the three founders and
principal stockholders of the Company (Note 7) will be terminated.
F-19
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
[LOGO]
Icon is proud to have provided Internet solutions for the following
customers in the 12 months ended September 30, 1997:
<TABLE>
<CAPTION>
COMMUNICATIONS PROFESSIONAL PRODUCT
CUSTOMERS SERVICES SERVICES RESALES
<S> <C> <C> <C>
FINANCIAL SERVICES
Alliance Capital Management LP X X
Bear, Stearns & Co. Inc. X X X
Daiwa Securities America Inc. X X X
Deutsche Morgan Grenfell X X
Merrill Lynch & Co., Inc. X X
Nomura Securities Co. Ltd. X X X
Tudor Investment Company X X
TELECOMMUNICATIONS
ACC Long Distance Corp. X
Bell Atlantic Internet Solutions, Inc. X X
Fiberlink Communications Corp. X
Omnipoint Communications X X X
MEDIA
ABC Radio Network Inc. X X
CBS, Inc. X X X
CMP Publications, Inc. X X X
C-NET: The Computer Network X X
Comedy Central Network X
Economist Intelligence Unit X X X
John Wiley & Sons, Inc. X X
Wire Networks, Inc. (Women's Wire) X X
TRAVEL
Galileo International X X X
KLM Royal Dutch Airlines X
Swissair X X
Swissotel X X X
RETAIL/CONSUMER PRODUCTS
Eastman Kodak Company X X
Kobra International (Nicole Miller) X X
INFORMATION SERVICES
The Associated Press X X X
Bloomberg Financial Markets Inc. X X
INSURANCE AND HEALTHCARE
Group Health, Inc. X X X
Insurance Services Office, Inc. X X X
Metropolitan Life Insurance Co. X X
National Preferred Provider Network, Inc. X X X
<PAGE>
<PAGE>
__________________________________ __________________________________
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
------------------------
TABLE OF CONTENTS
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................................................................... 3
Risk Factors..................................................................................................... 8
Use of Proceeds.................................................................................................. 20
Dividend Policy.................................................................................................. 20
Dilution......................................................................................................... 21
Capitalization................................................................................................... 22
Selected Financial Data.......................................................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 24
Business......................................................................................................... 33
Management....................................................................................................... 48
Certain Transactions............................................................................................. 54
Principal and Selling Stockholders............................................................................... 55
Description of Capital Stock..................................................................................... 57
Shares Eligible For Future Sale.................................................................................. 60
Certain United States Federal Tax Consequences to Non-U.S. Holders............................................... 61
Underwriting..................................................................................................... 63
Notice to Canadian Residents..................................................................................... 65
Legal Matters.................................................................................................... 66
Experts.......................................................................................................... 66
Available Information............................................................................................ 66
Glossary......................................................................................................... 67
Index to Financial Statements.................................................................................... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING)
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, 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.
[LOGO]
3,850,000 Shares
Common Stock
($.001 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
BANCAMERICA
ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
__________________________________ __________________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses, other than underwriting
discounts and commissions, in connection with the issuance and distribution of
the securities being registered hereby. All such expenses will be borne by the
registrant; none shall be borne by any selling stockholder.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......................................... $ 18,783
NASD filing fee............................................................................. 6,699
Nasdaq listing fees......................................................................... 50,000
Legal fees and expenses..................................................................... 200,000
Accounting fees and expenses................................................................ 200,000
Transfer agent fees......................................................................... 2,000
Printing and engraving expenses............................................................. 350,000
Miscellaneous............................................................................... 22,518
--------
Total.................................................................................. $850,000
--------
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
Section 145 of the General Corporation Law of Delaware provides that
directors, officers, employees or agents of Delaware corporations are entitled,
under certain circumstances, to be
indemnified against expenses (including attorneys' fees) and other liabilities
actually and reasonably incurred by them in connection with any suit brought
against them in their capacity as a director, officer, employee or agent, if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, if they had no reasonable cause to believe their
conduct was unlawful. Section 145 also provides that directors, officers,
employees and agents may also be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by them in connection with a
derivative suit bought against them in their capacity as a director, officer,
employee or agent, as the case may be, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification may be made without court
approval if such person was adjudged liable to the corporation.
Article Eleventh of the Restated Certificate of Incorporation provides that
the registrant shall indemnify any and all persons to the fullest extent
permitted by the General Corporation Law of Delaware.
Section 7 of the Underwriting Agreement (Exhibit 1.1) provides for
indemnification by the underwriters of the Selling Stockholders for certain
liabilities, including certain liabilities under the Securities Act of 1933,
under certain circumstances.
The Company maintains a directors and officers liability insurance policy
with Rock River Insurance Company. The policy insures the directors and officers
of the Company against loss arising from certain claims made against such
directors or officers by reason of certain wrongful acts. The policy provides
combined limit of liability of $5,000,000 per policy year for both directors'
and officers' liability coverage at an annual premium of $90,000.
II-1
<PAGE>
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) On May 30, 1997, the registrant effected a 6 for 1 stock split of its
Common Stock. For each share of Common Stock outstanding on May 30, 1997, the
holder thereof received six shares of Common Stock.
(b) In January 1996, the Company sold 422,607 shares of Series A
Convertible Participating Preferred Stock, par value $.01 per share ('Series A
Preferred Stock'), at $23.33 per share, each of which is convertible into shares
of Common Stock at a price of $6.02 per share, and issued between January and
March 1996 five-year warrants to purchase 15,635 shares of Common Stock at an
exercise price of $.01 per share.
Between May 1997 and September 1997, the Company sold 180,240 shares of 10%
PIK Series B Convertible Participating Preferred Stock, par value $.01 per share
('Series B Preferred Stock'), at $100.00 per share, each of which is convertible
into shares of Common Stock at a price of $6.02 per share and between March 1997
and September 1997 issued ten-year warrants to purchase 880,710 shares of Common
Stock at an exercise price of $6.02 per share and 52,544 shares of Common Stock
at an exercise price of $.0275 per share.
The issuance of securities set forth in (a) above is believed by the
registrant to be exempt from registration under the Securities Act of 1933 in
reliance upon Section 3(a)(9) of such Act. The issuance of securities set forth
in (b) above is believed by the registrant to be exempt from registration in
reliance upon Section 4(2) of such Act as transactions not involving any public
offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ -----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
3.1'D' -- Form of Restated Certificate of Incorporation of the registrant.
3.2'D' -- Form of Restated By-laws of the registrant.
4.1 -- Specimen Copy of Stock Certificate for shares of Common Stock of the registrant.
4.2 -- Form of Investors' Rights Agreement between the registrant and each of the holders of its Series A
Convertible Participating Preferred Stock.
4.3'D' -- Form of Registration Rights Agreement between the registrant and each of the holders of its 10% PIK
Series B Convertible Participating Preferred Stock.
4.4 -- Form of warrant with certain registration rights of the registrant.
5.1 -- Opinion of Parker Chapin Flattau & Klimpl, LLP as to the legality of the securities being registered.
10.1'D' -- Employment Agreement dated as of December 4, 1995 between the registrant and Scott A. Baxter, as
amended.
10.2'D' -- Employment Agreement dated as of December 4, 1995 between the registrant and Richard M. Brown, as
amended.
10.3'D' -- Employment Agreement dated as of December 4, 1995 between the registrant and Scott Harmolin, as amended.
10.4'D' -- Employment Agreement dated February 1997 between the registrant and Frank C. Cicio, Jr.
10.5'D' -- Employment Agreement dated March 21, 1997 between the registrant and Kenneth J. Hall.
10.6 -- 1995 Stock Option Plan of the registrant.
10.7'D' -- Form of Stock Option Contract granted to employees of the registrant.
10.8'D' -- Form of Stock Option Contract of the registrant granted to executive officers certain and key employees
of the registrant.
10.9'D' -- Lease dated November 3, 1995 between the registrant and Hartz-PW Tower B Limited Partnership as
supplemented on November 15, 1995.
10.10 -- Financing Agreement dated August 13, 1996 between the registrant and The CIT Group/Business Credit, Inc.
10.11'D' -- Master Service Agreement dated June 29, 1995 between the registrant and MFS Datanet, Inc. (the 'MFS
Agreement').
10.12 -- Addendum No. 1 dated June 29, 1995 to the MFS Agreement. Confidential treatment has been sought as to
various portions of this exhibit. Such portions have been omitted pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission.
10.13'D' -- Modification Agreement to Addendum No. 1 to the MFS Agreement.
10.14'D' -- Indirect Value Added Reseller Agreement dated November 2, 1992 between the registrant and Sun
Microsystems Computer Company, as amended through December 13, 1996.
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ -----------------------------------------------------------------------------------------------------------
10.15'D' -- Master Value Added Reseller Agreement as amended through October 31, 1996 between the registrant and
Cisco Systems Inc.
<C> <S>
10.16 -- Global Service Provider Agreement dated October 17, 1997 between the registrant and Bell Atlantic
Internet Solutions, Inc.
10.17 -- Application for Data Services dated February 11, 1997 between the registrant and WorldCom Inc.
10.18'D' -- Interconnection Agreement effective as of August 18, 1997 between the registrant and UUNET Technologies,
Inc.
10.19'D' -- Intercreditor Agreement dated August 13, 1996 among the registrant, The CIT Group/Business Credit, Inc.
and Access Graphics, Inc.
11.1 -- Computation of per share earnings.
23.1 -- Consent of Price Waterhouse LLP.
23.2 -- Consent of Parker Chapin Flattau & Klimpl, LLP (included in their opinion filed as Exhibit 5.1)
24.1'D' -- Power of Attorney.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
'D' Previously filed.
(b) Financial Statement Schedules, and Reports of Independent Accountants.
The following financial statement schedule of the registrant is filed
herewith:
(B) SCHEDULE
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as requested by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 6th day of February, 1998.
Icon CMT Corp.
By: /s/ Scott A. Baxter
...................................
SCOTT A. BAXTER
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND
CHAIRMAN OF THE BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ Scott A. Baxter President, Chief Executive Officer and February 6, 1998
......................................... Chairman of the Board of Directors
(SCOTT A. BAXTER) (Principal Executive Officer)
/s/ Richard M. Brown Vice President -- Information Technologies, February 6, 1998
......................................... Secretary and Director
(RICHARD M. BROWN)
/s/ Scott Harmolin Senior Vice President, Chief Technology February 6, 1998
......................................... Officer, and Director
(SCOTT HARMOLIN)
/s/ Kenneth J. Hall Senior Vice President, Chief Financial February 6, 1998
......................................... Officer and Treasurer (Principal Financial
(KENNETH J. HALL) Officer and Principal Accounting Officer)
/s/ Samuel A. Plum Director February 6, 1998
.........................................
(SAMUEL A. PLUM)
/s/ Wayne B. Weisman Director February 6, 1998
.........................................
(WAYNE B. WEISMAN)
* By
....................................
(SCOTT A. BAXTER)
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
<PAGE>
SCHEDULE II
ICON CMT CORP.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1994................. $ 22 $ 81 -- -- $ 103
Year ended December 31, 1995................. 103 225 -- -- 328
Year ended December 31, 1996................. 328 109 -- -- 437
Nine months ended September 30, 1997......... 437 79 -- -- 516
VALUATION RESERVE -- DEFERRED TAX ASSETS
Year ended December 31, 1994................. -- -- -- -- --
Year ended December 31, 1995................. -- -- -- -- --
Year ended December 31, 1996................. -- 3,296 -- -- 3,296
Nine months ended September 30, 1997......... 3,296 4,190 -- -- 7,486
</TABLE>
STATEMENT OF DIFFERENCES
The Japanese Yen sign shall be expressed as ................................ 'Y'
The dagger symbol shall be expressed as .................................... 'D'
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------------ --------------------------------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.
3.1'D' -- Form of Restated Certificate of Incorporation of the registrant.
3.2'D' -- Form of Restated By-laws of the registrant.
4.1 -- Specimen Copy of Stock Certificate for shares of Common Stock of the registrant.
4.2 -- Form of Investors' Rights Agreement between the registrant and each of the holders of its Series
A Convertible Participating Preferred Stock.
4.3'D' -- Form of Registration Rights Agreement between the registrant and each of the holders of its 10%
PIK Series B Convertible Participating Preferred Stock.
4.4 -- Form of warrant with certain registration rights of the registrant.
5.1 -- Opinion of Parker Chapin Flattau & Klimpl, LLP as to the legality of the securities being
registered.
10.1'D' -- Employment Agreement dated as of December 4, 1995 between the registrant and Scott A. Baxter, as
amended.
10.2'D' -- Employment Agreement dated as of December 4, 1995 between the registrant and Richard M. Brown,
as amended.
10.3'D' -- Employment Agreement dated as of December 4, 1995 between the registrant and Scott Harmolin, as
amended.
10.4'D' -- Employment Agreement dated February 1997 between the registrant and Frank C. Cicio, Jr.
10.5'D' -- Employment Agreement dated March 21, 1997 between the registrant and Kenneth J. Hall.
10.6 -- 1995 Stock Option Plan of the registrant.
10.7'D' -- Form of Stock Option Contract granted to employees of the registrant.
10.8'D' -- Form of Stock Option Contract granted to executive officers and certain key employees of the
registrant.
10.9'D' -- Lease dated November 3, 1995 between the registrant and Hartz-PW Tower B Limited Partnership as
supplemented on November 15, 1995.
10.10 -- Financing Agreement dated August 13, 1996 between the registrant and The CIT Group/Business
Credit, Inc.
10.11'D' -- Master Service Agreement dated June 29, 1995 between the registrant and MFS Datanet, Inc. (the
'MFS Agreement').
10.12 -- Addendum No. 1 dated June 29, 1995 to the MFS Agreement. Confidential treatment has been sought
as to various portions of this exhibit. Such portions have been omitted pursuant to a request for
confidential treatment with the Securities and Exchange Commission.
10.13'D' -- Modification Agreement to Addendum No. 1 to the MFS Agreement.
10.14'D' -- Indirect Value Added Reseller Agreement dated November 2, 1992 between the registrant and Sun
Microsystems Computer Company, as amended through December 13, 1996.
10.15'D' -- Master Value Added Reseller Agreement as amended through October 31, 1996 between the registrant
and Cisco Systems Inc.
10.16 -- Global Service Provider Agreement dated October 17, 1997 between the registrant and Bell
Atlantic Internet Solutions, Inc.
10.17 -- Application for Data Services dated February 11, 1997 between the registrant and WorldCom Inc.
10.18'D' -- Interconnection Agreement effective as of August 18, 1997 between the registrant and UUNET
Technologies, Inc.
10.19'D' -- Intercreditor Agreement dated August 13, 1996 among the registrant, The CIT Group/Business
Credit, Inc. and Access Graphics, Inc.
11.1 -- Computation of per share earnings.
23.1 -- Consent of Price Waterhouse LLP.
23.2 -- Consent of Parker Chapin Flattau & Klimpl, LLP (included in their opinion filed as Exhibit 5.1)
24.1'D' -- Power of Attorney.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
'D' Previously filed.
<PAGE>
<PAGE>
3,850,000 Shares
ICON CMT CORP.
Common Stock
($.001 par value)
UNDERWRITING AGREEMENT
February , 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
BANCAMERICA ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Icon CMT Corp., a Delaware corporation (the "Company"),
proposes to issue and sell 3,850,000 shares of its Common Stock, par value $.001
per share (the "Securities") (such 3,850,000 shares of Securities being
hereinafter referred to as the "Firm Securities"). The Company also proposes to
sell to the Underwriters (as defined below), at the option of the Underwriters,
an aggregate of not more than [ ] additional shares of its Securities, and
certain stockholders listed in Schedule A hereto (the "Selling Stockholders")
also propose to sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than [ ] additional outstanding shares of the Company's
Securities, as set forth below (such 577,500 additional shares being hereinafter
referred to as the "Optional Securities"). The Firm Securities and the Optional
Securities are herein collectively called the "Offered Securities". The Company
and the Selling Stockholders hereby agree with the several Underwriters named in
Schedule B hereto (the "Underwriters") as follows:
2. Representations and Warranties of the Company and the Selling
Stockholders. (a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) A registration statement (No. 333-38339) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission (the "Commission") and either (A) has
been declared effective under the Securities Act of 1933 (the "Act") and is
not proposed to be amended or (B) is proposed to be amended by amendment or
post-effective amendment. If such registration statement (the "initial
registration statement") has been
<PAGE>
<PAGE>
2
declared effective, either (A) an additional registration statement (the
"additional registration statement") relating to the Offered Securities may
have been filed with the Commission pursuant to Rule 462(b) ("Rule 462(b)")
under the Act and, if so filed, has become effective upon filing pursuant
to such Rule and the Offered Securities all have been duly registered under
the Act pursuant to the initial registration statement and, if applicable,
the additional registration statement or (B) such an additional
registration statement is proposed to be filed with the Commission pursuant
to Rule 462(b) and will become effective upon filing pursuant to such Rule
and upon such filing the Offered Securities will all have been duly
registered under the Act pursuant to the initial registration statement and
such additional registration statement. If the Company does not propose to
amend the initial registration statement or if an additional registration
statement has been filed and the Company does not propose to amend it, and
if any post-effective amendment to either such registration statement has
been filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (A) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (B) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are hereinafter referred to collectively as the
"Registration Statements" and individually as a "Registration Statement".
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("Rule
424(b)") under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "Prospectus". No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
rules and regulations of the Commission (the "Rules and Regulations") and
did not include any untrue
<PAGE>
<PAGE>
3
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, (B) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed or will conform,
in all respects to the requirements of the Act and the Rules and
Regulations and did not include, or will not include, any untrue statement
of a material fact and did not omit, or will not omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (C) on the date of this Agreement,
the Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and delivery of
this Agreement, the Additional Registration Statement each conforms, and at
the time of filing of the Prospectus pursuant to Rule 424(b) or (if no such
filing is required) at the Effective Date of the Additional Registration
Statement in which the Prospectus is included, each Registration Statement
and the Prospectus will conform, in all respects to the requirements of the
Act and the Rules and Regulations, and neither of such documents includes,
or will include, any untrue statement of a material fact or omits, or will
omit, to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. If the Effective Time of the
Initial Registration Statement is subsequent to the execution and delivery
of this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and the Prospectus will
conform in all respects to the requirements of the Act and the Rules and
Regulations, neither of such documents will include any untrue statement of
a material fact or will omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
and no Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only
such information is that described as such in Section 7(c) hereof.
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its
business as described in the Prospectus; and the Company is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of
its business requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the condition
(financial or other), business, properties or results of operations of the
Company (a "Material Adverse Effect").
(iv) The Company does not have any subsidiaries.
(v) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized and will, after payment
therefor in accordance herewith, be validly issued, fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus; and the stockholders of the Company have no preemptive rights
with respect to the Securities, other than those that have been waived.
(vi) There are no contracts, agreements or understandings between the
Company and any person that would give rise to a valid claim against the
Company or any Underwriter for a brokerage commission, finder's fee or
other like payment in connection with the offering of the Offered
Securities.
(vii) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to a Registration
<PAGE>
<PAGE>
4
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act, except as
disclosed in the Registration Statements.
(viii) The Securities have been approved for listing subject to notice
of issuance on The Nasdaq Stock Market's National Market.
(ix) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required to be obtained or
made by the Company for the consummation of the transactions contemplated
by this Agreement in connection with the offer and sale of the Offered
Securities, except such as have been obtained and made under the Act and
such as may be required under state securities laws.
(x) The execution, delivery and 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 statute, any rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any of its properties, or any agreement or
instrument to which the Company is a party or by which the Company is bound
or to which any of the properties of the Company is subject, or the charter
or by-laws of the Company, except for such breaches, violations or defaults
under any such agreements or instruments that would not have a Material
Adverse Effect.
(xi) This Agreement has been duly authorized, executed and delivered
by the Company.
(xii) The Company has good and marketable title to all properties and
assets owned by it, in each case free from liens, encumbrances and defects
that would materially affect the value thereof or materially interfere with
the use made or to be made thereof by it; and the Company holds any leased
real or personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or to be made
thereof by it.
(xiii) The Company possesses adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies necessary to
conduct the business now operated by it and has not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the
Company, would individually or in the aggregate have a Material Adverse
Effect.
(xiv) No labor dispute with the employees of the Company exists or, to
the knowledge of the Company, is imminent that would have a Material
Adverse Effect.
(xv) The Company owns, possesses or can acquire on reasonable terms,
adequate trademarks, trade names and other rights to inventions, know-how,
patents, copyrights, confidential information and other intellectual
property (collectively, "intellectual property rights") necessary to
conduct the business now operated by it, or presently employed by it,
except for such intellectual property rights that the failure to so own,
possess or acquire would not individually or in the aggregate have a
Material Adverse Effect, and has not received any notice of infringement of
or conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company would
individually or in the aggregate have a Material Adverse Effect.
(xvi) To the Company's knowledge, the Company is not in violation of
any statute, any rule, regulation, decision or order of any governmental
agency or body or any court, domestic or foreign, relating to the use,
disposal or release of hazardous or toxic substances or relating to the
<PAGE>
<PAGE>
5
protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "environmental laws"), does not own or
operate any real property contaminated with any substance that is subject
to any environmental laws, is not liable for any off-site disposal or
contamination pursuant to any environmental laws, and is not subject to any
claim relating to any environmental laws, which violation, contamination,
liability or claim would individually or in the aggregate have a Material
Adverse Effect; and the Company is not aware of any pending investigation
which might lead to such a claim.
(xvii) There are no pending actions, suits or proceedings against or
affecting the Company or any of its properties that, if determined
adversely to the Company, would individually or in the aggregate have a
Material Adverse Effect, or would materially and adversely affect the
ability of the Company to perform its obligations under this Agreement; and
no such actions, suits or proceedings are, to the Company's knowledge,
threatened or contemplated.
(xviii) The Company has in effect all regulatory licenses, permits,
authorizations, consents and approvals ("Licenses") required to be obtained
in order for the Company to conduct its business as presently conducted,
except for Licenses that the failure to obtain would not have a Material
Adverse Effect. The Federal Communications Commission ("FCC") has not
actively sought to regulate the type of business that is presently
conducted by the Company. The Company is not required to obtain any
Licenses or to file any tariffs for telecommunications services in the
States of New York, New Jersey or in any other State where the Company is
currently qualified to transact business, because the Company does not
offer or provide intrastate telecommunications services within the United
States. To the Company's knowledge, the Licenses obtained by the Company
have been duly and validly issued and are in full force and effect.
(xix) The financial statements, together with the related schedules
and notes thereto, included in each Registration Statement and the
Prospectus present fairly in all material respects the financial position
of the Company as of the dates shown and its results of operations and cash
flows for the periods shown, and such financial statements have been
prepared in conformity with the generally accepted accounting principles in
the United States applied on a consistent basis and the schedules included
in each Registration Statement present fairly in all material respects the
information required to be stated therein.
(xx) Since the date of the latest audited financial statements
included in the Prospectus there has been no material adverse change, nor
any development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results of
operations of the Company, and there has been no dividend or distribution
of any kind declared, paid or made by the Company on any class of its
capital stock, except (a) accrued dividends payable in the form of shares
(or fractions thereof) of 10% PIK Series B Convertible Participating
Preferred Stock, par value $.01 per share ("Series B Preferred Stock"), at
an annual rate of 0.10 share of Series B Preferred Stock on each share of
Series B Preferred Stock outstanding and (b) any accretion of the Series A
Convertible Participating Preferred Stock, par value $.01 per share,
through a special liquidation preference dividend, each as provided in the
Company's [Restated Certificate of Incorporation].
(xxi) The Company is not, and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be, an "investment company" as
defined in the Investment Company Act of 1940.
<PAGE>
<PAGE>
6
(b) Each Selling Stockholder severally represents and warrants to, and
agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on each Optional Closing Date
hereinafter mentioned on which Optional Securities are purchased from the
Selling Stockholders will have, valid and unencumbered title to the
Optional Securities to be delivered by such Selling Stockholder on such
Optional Closing Date and full right, power and authority to enter into
this Agreement and to sell, assign, transfer and deliver the Optional
Securities to be delivered by such Selling Stockholder on such Optional
Closing Date hereunder; and upon the delivery of and payment for the
Optional Securities on such Optional Closing Date hereunder the several
Underwriters will acquire valid and unencumbered title to the Optional
Securities to be delivered by such Selling Stockholder on such Optional
Closing Date.
(ii) If any Optional Securities are purchased by the several
Underwriters pursuant to this Agreement: (A) if the Effective Time of the
Initial Registration Statement is prior to the execution and delivery of
this Agreement: (x) on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement conformed in all respects to
the requirements of the Act and the Rules and Regulations and did not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (y) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the requirements of the Act
and the Rules and Regulations did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (z) on the date of this
Agreement, the Initial Registration Statement and, if the Effective Time of
the Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects to
the requirements of the Act and the Rules and Regulations, and neither of
such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading; and (B) if the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this Agreement: on
the Effective Date of the Initial Registration Statement, the Initial
Registration Statement and the Prospectus will conform in all respects to
the requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The two preceding sentences
apply only to the extent that any statements in or omissions from a
Registration Statement or the Prospectus are based on written information
furnished to the Company by such Selling Stockholder specifically for use
therein.
(iii) There are no contracts, agreements or understandings between
such Selling Stockholder and any person that would give rise to a valid
claim against such Selling Stockholder or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection with the
offering of the Optional Securities.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to each
Underwriter, and each Underwriter agrees, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, that number of Firm
Securities set forth opposite the name of such Underwriter in Schedule B hereto.
<PAGE>
<PAGE>
7
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by wire transfer to an account at a bank reasonably acceptable
to Credit Suisse First Boston Corporation ("CSFBC") drawn to the order of the
Company, at the office of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth
Avenue, New York, N.Y. 10019-9745, at 10:00 a.m., New York time, on February ,
1998, or at such other time not later than seven full business days thereafter
as CSFBC and the Company determine, such time being herein referred to as the
"First Closing Date". The certificates for the Firm Securities so to be
delivered will be in definitive form, in such denominations and registered in
such names as CSFBC requests, and will be made available for checking and
packaging at the above office of Cravath, Swaine & Moore at least 24 hours prior
to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company and the
Selling Stockholders from time to time not more than 30 days subsequent to the
date of the Prospectus, the Underwriters may purchase all or less than all of
the Optional Securities at the purchase price per Security to be paid for the
Firm Securities; provided that, if any shares of Optional Securities are
purchased by the Underwriters, (i) up to and including an aggregate of [ ]
shares of Optional Securities shall be purchased first from the Selling
Stockholders and (ii) the remaining [ ] shares of Optional Securities shall
be purchased from the Company. The Selling Stockholders agree, severally and not
jointly, to sell to the Underwriters the respective numbers of Optional
Securities obtained by multiplying the number of shares of Optional Securities
specified in such notice(s) up to and including an aggregate of [ ] shares of
Optional Securities by a fraction the numerator of which is the number of shares
set forth opposite the names of such Selling Stockholders in Schedule A hereto
under the caption "Number of Optional Securities to be Sold" and the denominator
of which is [ ] (subject to adjustment by CSFBC to eliminate fractions); and
the Company agrees to sell to the Underwriters the number of shares of Optional
Securities specified in such notice(s) up to and including [ ] shares of
Optional Securities, provided that the Underwriters shall have purchased at such
time an aggregate of [ ] shares of Optional Securities from the Selling
Stockholders. Such Optional Securities shall be purchased from the Company and
each Selling Stockholder for the account of each Underwriter in the same
proportion as the number of Firm Securities set forth opposite such
Underwriter's name bears to the total number of Firm Securities (subject to
adjustment by CSFBC to eliminate fractions) and may be purchased by the
Underwriters only for the purpose of covering over-allotments made in connection
with the sale of the Firm Securities. No Optional Securities shall be sold or
delivered unless the Firm Securities previously have been, or simultaneously
are, sold and delivered. The right to purchase the Optional Securities or any
portion thereof may be exercised from time to time and to the extent not
previously exercised may be surrendered and terminated at any time upon notice
by CSFBC to the Company and the Selling Stockholders.
Certificates in negotiable form for the Optional Securities to be sold
by the Selling Stockholders hereunder have been placed, prior to the execution
of this Agreement, in custody, for delivery under this Agreement, under Custody
Agreements made with Parker Chapin Flattau & Klimpl, LLP, as custodian
("Custodian"). Each Selling Stockholder agrees that the shares represented by
the certificates held in custody for the Selling Stockholders under such Custody
Agreements are subject to the interests of the Underwriters hereunder, that the
arrangements made by the Selling Stockholders for such custody are to that
extent irrevocable, and that the obligations of the Selling Stockholders
hereunder shall not be terminated by operation of law, whether by the death of
any individual Selling Stockholder or the occurrence of any other event, or in
the case of a trust, by the death of any trustee or trustees or the termination
of such trust. If any individual Selling Stockholder or any such trustee or
trustees should die, or if any other such event should occur, or if any of such
trusts should terminate, before the delivery of the Optional Securities
hereunder, certificates for such Optional Securities shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death or other event or termination had not occurred, regardless of whether
or not the Custodian shall have received notice of such death or other event or
termination.
<PAGE>
<PAGE>
8
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company and the Custodian
will deliver the Optional Securities being purchased on each Optional Closing
Date to the Representatives for the accounts of the several Underwriters,
against payment of the purchase price therefor in Federal (same day) funds by
wire transfer to an account at a bank reasonably acceptable to CSFBC drawn to
the order of the Company in the case of [ ] Optional Securities, Scott A.
Baxter in the case of [ ] Optional Securities, Richard M. Brown in the case
of [ ] Optional Securities and Scott Harmolin, in the case of [ ] Optional
Securities, at the above office of Cravath, Swaine & Moore. The certificates for
the Optional Securities being purchased on each Optional Closing Date will be in
definitive form, in such denominations and registered in such names as CSFBC
requests upon reasonable notice prior to such Optional Closing Date and will be
made available for checking and packaging at the above office of Cravath, Swaine
& Moore at a reasonable time in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Offered Securities for sale to the public as set forth in
the Prospectus.
5. Certain Agreements of the Company and the Selling Stockholders. (a) The
Company agrees with the several Underwriters and the Selling Stockholders that:
(i) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 p.m., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(ii) The Company will advise CSFBC promptly of any proposal to amend
or supplement the initial or any additional registration statement as filed
or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent; and the
Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(iii) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a
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9
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act, the
Company will promptly notify CSFBC of such event and will promptly prepare
and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an amendment
which will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(iv) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(v) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC requests. The Prospectus shall be so
furnished on or prior to 3:00 p.m., New York time, on the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other such
documents shall be so furnished as soon as available. The Company will pay
the expenses of printing and distributing to the Underwriters all such
documents.
(vi) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(vii) During the period of 10 years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (A) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (B) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
(viii) For a period of 180 days after the date of the Prospectus, the
Company will not (A) offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Commission a
registration statement under the Act relating to, any additional shares of
the Securities or securities convertible into or exchangeable or
exercisable for any shares of Securities, or publicly disclose the
intention to make any such offer, sale, pledge, disposition or filing, or
(B) enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of such shares of
Securities, whether any transaction described in clause (A) or (B) above is
to be settled by delivery of shares of Securities or such other securities,
in cash or otherwise, in each case without the prior written consent of
CSFBC,
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10
except (x) issuances of Securities pursuant to the conversion or exchange
of convertible or exchangeable securities or the exercise of warrants or
options, in each case outstanding on the date hereof, and (y) grants of
employee stock options pursuant to the terms of the Company's Amended and
Restated 1995 Stock Option Plan, issuances of Securities pursuant to the
exercise of such options (the "Plan Shares") and the filing of a
registration statement on Form S-8 under the Act to register the Plan
Shares.
(ix) The Company agrees with the several Underwriters that the Company
will pay all expenses incident to the performance of the obligations of the
Company and the Selling Stockholders, as the case may be, under this
Agreement, for any filing fees and other expenses (including fees and
disbursements of counsel) in connection with qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and the printing of memoranda relating thereto, for the filing
fee incident to, and the reasonable fees and disbursements of counsel to
the Underwriters in connection with, the review by the National Association
of Securities Dealers, Inc. of the Offered Securities, for any travel
expenses of the Company's officers and employees and any other expenses of
the Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities, for any transfer taxes on
the sale by the Selling Stockholders of the Offered Securities to the
Underwriters and for expenses incurred in distributing preliminary
prospectuses and the Prospectus (including any amendments and supplements
thereto) to the Underwriters.
(b) Each Selling Stockholder agrees, severally and not jointly, with
the several Underwriters and the Company that:
(i) Such Selling Stockholder shall deliver to CSFBC, Attention:
Transactions Advisory Group, on or prior to the First Closing Date a
properly completed and executed United States Treasury Department Form W-9
(or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(ii) Such Selling Stockholder shall, for a period of 180 days after
the date of the Prospectus, not (A) offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, any shares of the
Securities or securities convertible into or exchangeable or exercisable
for any shares of Securities, or publicly disclose the intention to make
any such offer, sale, contract to sell, pledge or disposition, or (B) enter
into any swap or other agreement that transfers, in whole or in part, any
of the economic consequences of ownership of such shares of Securities,
whether any transaction described in clause (A) or (B) above is to be
settled by delivery of shares of Securities or such other securities, in
cash or otherwise, in each case without the prior written consent of CSFBC;
provided, however, that (x) such Selling Stockholder may sell up to the
number of Optional Securities set forth opposite such Selling Stockholder's
name in Schedule A hereto and (y) such Selling Stockholder may make bona
fide gifts or similar transfers to or for the benefit, directly or
indirectly, of members of such Selling Stockholder's family for estate
planning purposes provided that such gifts or transfers are made other than
on any securities exchange or in the over-the-counter market and that such
donees or transferees execute an agreement for the benefit of the Company
and the Underwriters containing terms substantially similar to the
foregoing.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein, to
the accuracy of the statements
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11
of Company officers made pursuant to the provisions hereof, to the performance
by the Company and the Selling Stockholders of their obligations hereunder and
to the following additional conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on the date of this Agreement or, if the Effective Time
of the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Price Waterhouse LLP, confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating
to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(ii) on the basis of a reading of the latest available interim
financial statements of the Company, inquiries of officials of the
Company who have responsibility for financial and accounting matters
and other specified procedures, nothing came to their attention that
caused them to believe that:
(A) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more
than three business days prior to the date of this Agreement,
there was any change in the capital stock or any increase in
long-term debt of the Company or, at the date of the latest
available balance sheet read by such accountants, there was any
decrease in net current assets (working capital) or stockholders'
equity, as compared with amounts shown on the latest balance
sheet included in the Prospectus; or
(B) for the period from the closing date of the latest
statement of operations included in the Prospectus to the closing
date of the latest available statement of operations read by such
accountants there were any decreases or increases, as compared
with the corresponding period of the previous year and with the
period of corresponding length ended the date of the latest
statement of operations included in the Prospectus, in total
revenues, net or total amounts of loss, respectively; and
(iii) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the regularly maintained general accounting records
of the Company subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the Initial Registration
Statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the
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12
Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration
Statement is subsequent to such execution and delivery, "Registration
Statements" shall mean the Initial Registration Statement and the
additional registration statement as proposed to be filed or as proposed to
be amended by the post-effective amendment to be filed shortly prior to its
Effective Time, and (iii) "Prospectus" shall mean the prospectus included
in the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 p.m., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 p.m., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of any Selling Stockholder, the Company or the Representatives,
shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company which, in the
judgment of a majority in interest of the Underwriters including the
Representatives, is material and adverse and makes it impractical or
inadvisable to proceed with completion of the public offering or the sale
of and payment for the Offered Securities; (ii) any downgrading in the
rating of any debt securities or preferred stock of the Company by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities or preferred stock of the Company (other than an announcement
with positive implications of a possible upgrading, and no implication of a
possible downgrading, of such rating); (iii) any suspension or limitation
of trading in securities generally on the New York Stock Exchange, or any
setting of minimum prices for trading on such exchange, or any suspension
of trading of any securities of the Company on any exchange or in the
over-the-counter market; (iv) any banking moratorium declared by U.S.
Federal or New York authorities; or (v) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of war
by Congress or any other substantial national or international calamity or
emergency if, in the judgment of a majority in interest of the Underwriters
including the Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and payment
for the Offered Securities.
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13
(d) The Representatives shall have received written opinions, dated
such Closing Date, of Parker Chapin Flattau & Klimpl, LLP, special counsel
for the Company, Wiley, Rein & Fielding, special FCC/regulatory counsel for
the Company, and David L. Goret, Vice President--Business Affairs and
General Counsel of the Company(1) to the effect that:
(i) the Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except where
the failure to be so qualified would not have a Material Adverse
Effect;
(ii) the Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have
been duly authorized and, after payment therefor in accordance
herewith, will be validly issued, are fully paid and nonassessable and
conform to the description thereof contained in the Prospectus; and
the stockholders of the Company have no statutory preemptive rights
and, to the best of such counsel's knowledge after due inquiry, no
contractual preemptive rights with respect to the Securities, other
than those that have been waived;
(iii) there are no contracts, agreements or understandings known
to such counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the
Act, except as described in the Registration Statements;
(iv) the Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940;
(v) no consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by the Company for the consummation of the
transactions contemplated by this Agreement in connection with the
sale of the Offered Securities, except such as have been obtained and
made under the Act and except such as may be required under state
securities laws (as to which such counsel need not express any
opinion);
(vi) the execution, delivery and performance of this Agreement
and the consummation of the transactions herein or therein
contemplated will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any statute,
any rule, regulation or, to the best of such counsel's knowledge after
due inquiry, order of any governmental agency or body or any court
having jurisdiction over the Company or any of its properties, or, to
the best of such counsel's knowledge after due inquiry,
- -----------------
(1) The requested opinions may be allocated among the three opinion-givers as
they see fit, provided that Parker Chapin is requested at a minimum to render
the opinions in clauses (vi) and (vii) and Mr. Goret is requested at a minimum
to render a "10b-5" opinion.
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14
any agreement or instrument to which the Company is a party or by
which the Company is bound or to which any of the properties of the
Company is subject, or the charter or by-laws of the Company, except
for such breaches, violations and defaults under any such agreements
or instruments that would not have a Material Adverse Effect;
(vii) the Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best knowledge of such
counsel after due inquiry, no stop order suspending the effectiveness
of a Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its Effective
Date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading (except as to the financial statements and other financial
and accounting data contained therein, as to which such counsel need
not express any opinion); or that the Prospectus or any amendment or
supplement thereto, as of its issue date or as of such Closing Date,
contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading;
(viii) the descriptions in the Registration Statements and
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents, including under "Business--Governmental
Regulation", are accurate and fairly present the information required
to be shown; and to the best of such counsel's knowledge after due
inquiry, there are no legal or governmental proceedings or statutes or
regulations required to be described in a Registration Statement or
the Prospectus which are not described as required or of any contracts
or documents of a character required to be described in a Registration
Statement or the Prospectus or to be filed as exhibits to a
Registration Statement which are not described and filed as required;
(ix) this Agreement has been duly authorized, executed and
delivered by the Company; and
(x) the Company has in effect all Licenses required to be
obtained in order for the Company to conduct its business as presently
conducted, except for Licenses that the failure to obtain would not
have a Material Adverse Effect. The FCC has not actively sought to
regulate the type of business that is presently conducted by the
Company as described in the Registration Statements and the
Prospectus. The Company is not required to obtain any Licenses or to
file any tariffs for telecommunications services in the States of New
York, New Jersey or in any other State where the Company is currently
qualified to transact business, because the Company does not offer or
provide intrastate telecommunications services within the United
States. To the best of such counsel's knowledge after due inquiry, the
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15
Licenses obtained by the Company have been duly and validly issued and
are in full force and effect.
(e) the Representatives shall have received the opinion contemplated
in the Power of Attorney executed and delivered by each Selling Stockholder
and an opinion, dated such Optional Closing Date, of Parker Chapin Flattau
& Klimpl, LLP, counsel for the Selling Stockholders, to the effect that:
(i) to the best of such counsel's knowledge after due inquiry,
each Selling Stockholder had valid and unencumbered title to the
Offered Securities delivered by such Selling Stockholder on such
Optional Closing Date and, assuming no knowledge by any of the several
Underwriters of any adverse claims, the several Underwriters have
acquired valid and unencumbered title to the Offered Securities
purchased by them from the Selling Stockholders on such Optional
Closing Date hereunder;
(ii) no consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by any Selling Stockholder for the consummation of
the transactions contemplated by the Custody Agreements or this
Agreement in connection with the offer and sale of the Offered
Securities sold by the Selling Stockholders, except such as have been
obtained and made under the Act and except such as may be required
under state securities laws (as to which such counsel need not express
any opinion);
(iii) to the best of such counsel's knowledge after due inquiry,
there are no contracts, agreements or understandings between such
Selling Stockholder and any person that would give rise to a valid
claim against such Selling Stockholder or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection
with the offering of the Optional Securities;
(iv) the execution, delivery and performance of the Custody
Agreements and this Agreement, and the consummation of the
transactions therein and herein contemplated will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation, or to
the best of such counsel's knowledge after due inquiry, order of any
governmental agency or body or any court having jurisdiction over any
Selling Stockholder or any of his properties, or, to the best of such
counsel's knowledge after due inquiry, any agreement or instrument to
which any Selling Stockholder is a party or by which any Selling
Stockholder is bound or to which any of the properties of any Selling
Stockholder is subject;
(v) the Custody Agreement with respect to each Selling
Stockholder has been duly executed and delivered by such Selling
Stockholder and constitutes a valid and legally binding obligation of
each such Selling Stockholder enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles; and
(vi) this Agreement has been duly executed and delivered by each
Selling Stockholder.
(f) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the
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16
incorporation of the Company, the validity of the Offered Securities
delivered on such Closing Date, the Registration Statements, the Prospectus
and other related matters as the Representatives may require, and the
Selling Stockholders and the Company shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass
upon such matters.
(g) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the date of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company.
(h) The Representatives shall have received a letter, dated such
Closing Date, of Price Waterhouse LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three business days prior
to such Closing Date for the purposes of this subsection.
The Selling Stockholders and the Company will furnish the Representatives with
such conformed copies of such opinions, certificates, letters and documents as
the Representatives reasonably request. CSFBC may in its sole discretion waive
on behalf of the Underwriters compliance with any conditions to the obligations
of the Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (c) below; and provided, further,
that, with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary prospectus, the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Offered Securities concerned, to the extent that a
prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter results from the fact that
there was not sent or given to such person, at or prior to the
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17
written confirmation of the sale of such Offered Securities to such person, a
copy of the Prospectus if the Company had previously furnished copies thereof to
such Underwriter.
(b) Each Selling Stockholder, severally and not jointly, will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case 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 information relating to such Selling Stockholder furnished in
writing by or on behalf of such Selling Stockholder expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto, and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by such Underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that each Selling
Stockholder's liability under this subsection (b) is limited to the amount of
the proceeds of the sale of Offered Securities by such Selling Stockholder.
(c) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company and each Selling Stockholder against any losses, claims,
damages or liabilities to which the Company or such Selling Stockholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company and each Selling Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred, it being understood and agreed that the only such information
furnished by any Underwriter consists of the following information in the
Prospectus furnished on behalf of each Underwriter: the last paragraph at the
bottom of the cover page concerning the terms of the offering by the
Underwriters, the legend concerning over-allotments and stabilizing on the
inside front cover page, the concession and reallowance figures appearing in the
fourth paragraph under the caption "Underwriting".
(d) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under
subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party,
except to the extent that the failure or delay in giving such notification
materially prejudices the indemnifying party's defense of such claim or action
or is otherwise provided under subsections (a), (b) or (c) above. In case any
such action is brought against any indemnified party and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel chosen by such indemnifying party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under
<PAGE>
<PAGE>
18
this Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that if the indemnified party
concludes that there are legal defenses available to the indemnified party that
conflict with those available to the indemnifying party, the indemnified party
shall be entitled to select separate counsel to assert such legal defenses and
to otherwise participate in the defense of the indemnified party and the
indemnifying party shall be liable to the indemnified party under this Section 7
for any legal or other expenses incurred by the indemnified party in connection
with the defense thereof. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(e) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or
(c) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a), (b) or (c) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other from the offering of the Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders on
the one hand and the Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company and the Selling Stockholders bear to the total underwriting discounts
and commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Stockholders or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (e).
Notwithstanding the provisions of this subsection (e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(e) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under this
Section shall be in addition to any liability which the Company and the Selling
Stockholders may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company, to each officer of the Company who has signed a
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
<PAGE>
<PAGE>
19
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company and the Selling Stockholders for
the purchase of such Offered Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date, the
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Offered Securities that such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of shares of
Offered Securities with respect to which such default or defaults occur exceeds
10% of the total number of shares of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC, the Company and the Selling Stockholders for the purchase of such Offered
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholders, except as
provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Selling Stockholders, of the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, any Selling
Stockholder, the Company or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the Offered Securities. If this Agreement is terminated pursuant to Section
8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by them pursuant to Section 5, and the
respective obligations of the Company, the Selling Stockholders, and the
Underwriters pursuant to Section 7 shall remain in effect, and if any Offered
Securities have been purchased hereunder the representations and warranties in
Section 2 and all obligations under Section 5 shall also remain in effect. If
the purchase of the Offered Securities by the Underwriters is not consummated
for any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause (iii),
(iv) or (v) of Section 6(c), the Company will reimburse the Underwriters for all
out-of-pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Icon CMT Corp., 1200
Harbor Boulevard, Weehawken, N.J. 07087, Attention: Chief Executive Officer, or,
if sent to any Selling Stockholder, will be mailed, delivered or telegraphed and
confirmed to such Selling Stockholder at Icon CMT Corp., 1200 Harbor Boulevard,
Weehawken, N.J. 07087, and in the case of any communications hereunder sent to
the Company or to any Selling Stockholder, with a copy to Michael Weinsier,
Esq., Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New
York, N.Y. 10036; provided, however, that any notice to an Underwriter pursuant
to Section 7 will be mailed, delivered or telegraphed and confirmed to such
Underwriter.
<PAGE>
<PAGE>
20
11. Successors. This Agreement will enure to the benefit of and be binding
upon the parties hereto and their respective personal representatives and
successors and the officers and directors and controlling persons referred to in
Section 7, and no other person will have any right or obligation hereunder.
12. Representation. The Representatives will act for the several
Underwriters in connection with the transactions contemplated by this Agreement,
and any action under this Agreement taken by the Representatives jointly or by
CSFBC will be binding upon all the Underwriters. [Attorney-in-Fact] will act for
the Selling Stockholders in connection with such transactions, and any action
under or in respect of this Agreement taken by [Attorney-in-Fact] will be
binding upon all the Selling Stockholders.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company hereby submits to the nonexclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement among the Selling
Stockholders, the Company and the several Underwriters in accordance with its
terms.
Very truly yours,
ICON CMT CORP.,
By
--------------------------------
Name:
Title:
SELLING STOCKHOLDERS,
----------------------------------
Scott A. Baxter
----------------------------------
Richard M. Brown
----------------------------------
Scott Harmolin
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
<PAGE>
<PAGE>
21
CREDIT SUISSE FIRST BOSTON CORPORATION
BANCAMERICA ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION
Acting on behalf of themselves and as
the Representatives of the several
Underwriters.
By CREDIT SUISSE FIRST BOSTON CORPORATION
By
-------------------------------------
Name:
Title:
<PAGE>
<PAGE>
SCHEDULE A
Number of Optional
Selling Stockholder Securities to be Sold
- ------------------- ---------------------
Scott A. Baxter .....................................
Richard M. Brown....................................
Scott Harmolin ......................................
--------------
Total ...............................
==============
<PAGE>
<PAGE>
SCHEDULE B
Number of
Firm Securities
Underwriter to be Purchased
- ----------- ---------------
Credit Suisse First Boston Corporation ................
BancAmerica Robertson Stephens.........................
Donaldson, Lufkin & Jenrette Securities Corporation ...
--------------
Total .................................
==============
<PAGE>
<PAGE>
COMMON STOCK ICON CMT CORP. COMMON STOCK
PAR VALUE $.001 CUSIP 450918 10 7
SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES that
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
ICON CMT CORP. (hereinafter called the "Corporation"), transferable on the books
of the Corporation by the holder hereof in person or by duly authorized
attorney, upon surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SEAL]
/s/ Richard M. Brown /s/ Scott A. Baxter
- ------------------------------- -------------------------------------
SECRETARY CHIEF EXECUTIVE OFFICER AND PRESIDENT
Countersigned and Registered:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Transfer Agent and Registrar
By
Authorized Signature
<PAGE>
<PAGE>
ICON CMT CORP.
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:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ..............Custodian ..............
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right Act .............................
of survivorship and not as (State)
tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list
For value received, ___________________ hereby sells, assigns and transfers 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 capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint .............................................
................................................................................
Attorney to transfer the said Capital stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated, ...............................
.........................................
SIGNATURE GUARANTEED:
By ______________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION. (Banks,
Stockbrokers, Savings and Loan Associations
and Credit Unions) WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
<PAGE>
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 15th day of
March, 1996, by and among ICon CMT Corp., a Delaware corporation (the
"Company"), Scott A. Baxter, Richard M. Brown and Scott Harmolin and the persons
executing this Agreement as "Investors" on the signature pages hereof (each, an
"Investor").
RECITALS
WHEREAS, the Company and the Investors are parties to the
Subscription Agreement of even date herewith (the "Subscription Agreement")
relating to the purchase by the Investors of the Series A convertible
participating preferred stock, par value $.01 per share, of the Company (the
"Series A Preferred Stock");
WHEREAS, in order to induce the Company to enter into the
Subscription Agreement and to induce the Investors to invest funds in the
Company pursuant to the Subscription Agreement, the Investors and the Company
hereby agree that this Agreement shall govern the rights of the Investors to
cause the Company to register shares of the Common Stock, par value $.01 per
share, of the Company (the "Common Stock") issuable to the Investors upon the
conversion of the Series A Preferred Stock and certain other matters as set
forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Holder" means any person owning or having the
right to acquire Registrable Securities.
<PAGE>
<PAGE>
(c) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(d) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
order of effectiveness of such registration statement or document.
(e) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock and
(ii) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i) above and in this subparagraph (ii),
excluding in all cases (x) any Registrable Securities sold by a person in a
transaction in which his rights under this Section 1 are not assigned or are
assigned in violation of this Agreement and (y) any Registrable Securities that
have already been registered under the Act or which are freely transferable
without registration under the Act due to the lapse of time or otherwise and
which are not subject to any sales volume limitation under Rule 144 (as
hereafter defined) based on the Investor's holdings of Registrable Securities.
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable pursu
ant to then exercisable or convertible securities which are, Registrable
Securities.
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration
(a) At any time after 180 days after the Closing of an
underwritten public offering of Common Stock pursuant to an effective
registration statement under the Act, or, if earlier, the third anniversary of
the date hereof, and until the seventh anniversary of the date hereof, the
Holders shall be entitled to demand registration of the Registrable Securities
under the terms and conditions hereinafter set forth. If the Company receives a
written request from any Holders of at least 125,000 of the Registrable
Securities (as adjusted to reflect any dividend
2
<PAGE>
<PAGE>
or distribution thereon or any split, combination or other reclassification
thereof) that the Company file a registration statement on Form S-1, S-2, S-3 or
other Form available to the Company for registration under the Act covering the
registration of the Registrable Securities (a "Registration") then, the Company
shall, subject to the limitations set forth in this Agreement (including the
limitations of subsection 1.2(b)), (x) within twenty (20) days of the receipt
thereof, give written notice of such request to all Holders (the "Notice of
Request for Registration") and (y) as soon as practicable, use its best efforts
to effect such registration under the Act covering all Registrable Securities
which the Holders request to be registered by notice to the Company within
twenty (20) days of the mailing of the Notice of Request for Registration by the
Company in accordance with this Section 1.2(a) and Section 4.6.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as part of their request made pursuant to subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2 to the contrary, if the underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated 75% to all Holders thereof participating in such
Registration, including the Initiating Holders, and 25% to holders of other
securities of the Company that request inclusion in such Registration, and among
all Holders participating in the Registration in proportion (as nearly as
practicable) to the amount of Registrable Securities owned by each Holder or as
they may otherwise agree. A registration shall not count as a
3
<PAGE>
<PAGE>
Demand Registration pursuant to this Section 1.2 unless the Holders are able to
register and sell at least eighty percent (80%) of the Registrable Securities
requested to be included in such registration pursuant to Section 1.2(a).
(c) Notwithstanding the foregoing, the Company shall not be
obligated to effect any registration pursuant to this Section 1.2 if at the time
of any request to register Registrable Securities pursuant to this Section 1.2,
the Company is engaged, or has fixed plans to engage within ninety (90) days of
the time of the request, in a registered public offering or is engaged, or has
fixed plans to engage within ninety (90) days of time of the request, in any
other activity that, in the good faith determination of the Board of Directors
of the Company, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of one hundred twenty
(120) days from the effective date of such offering, or the date of commencement
of such other material activity, as the case may be, such rights to delay a
request to be exercised by the Company not more than once in any twelve month
period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) if a Registration, has become effective and the
Holders have been able to include thereon all of the
shares as to which they have requested registration
pursuant to this Section 1.2 and such Registration
remains effective for at least one year from the
effective date thereof; or
(ii) within one hundred and twenty (120) days after the
effective date of any registration statement effected
by the Company whether for its own account or for the
account of others.
1.3 "Piggy-back" Registration Rights. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for stockholders other than the
Holders) any of its stock or other securities under the Act in connection with
the public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan, a registration on any form
4
<PAGE>
<PAGE>
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities or a registration in which the only Common Stock being registered is
Common Stock issuable upon conversion of debt securities which are also being
registered), the Company shall, at such time, promptly give each Holderwritten
notice of such registration. Upon the written request of each Holder given
within thirty (30) days after mailing of such notice by the Company in
accordance with Section 4.6, the Company shall, subject to the limitations set
forth in this Agreement (including the limitations of Section 1.2(b) and the
provisions of Section 1.8), include in the Company's registration statement
under the Act all of the Registrable Securities that each such Holder has
requested to be registered; provided, however, that nothing in this Section 1.3
shall prevent the Company from at any time abandoning or delaying any such
registration without obligation to any Holder.
1.4 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities or to include
Registrable Securities in a Company registration statement, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to (i) in the case of a
Registration pursuant to Section 1.2, one year or (ii) in the case of all other
Registrations, one hundred twenty (120) days or, in either case, if sooner,
until the distribution contemplated in the Registration Statement has been
completed; provided, however, that such 120 day or one year period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company, and provided
further that if applicable rules under the Act governing the obligation to file
a post-effective amendment permits, in lieu of filing a post-effective amendment
which (x) includes any prospectus required by Section 10(a)(3) of the Act or (y)
reflects facts or events representing a material or fundamental change in the
information set forth in the registration statement, the Company may incorporate
by reference information required to be included in (x) and (y) above to the
extent such information is contained in periodic reports filed pursuant to
Section 13 or 15(d) of the 1934 Act in the registration statement,
5
<PAGE>
<PAGE>
provided it promptly sends copies of incorporated by reference information to
the Holders.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
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(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding the Holder, the Registrable Securities
held by the Holder, and the intended method of disposition of such securities as
shall be required to effect the registration of such Holder's Registrable
Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 if, due to the operation of
subsection 1.5(a), the number of shares of the Registrable Securities to be
included in the registration does not equal or exceed the number of shares
required to originally trigger the Company's obligation to initiate such
registration as specified in subsection 1.2(a).
1.6 Expenses of the Registrations. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees and fees and disbursements of counsel for the Company shall
be borne by the Company; provided, however, that the Company shall not bear the
cost of any professional fees or costs of accounting, financial or legal
advisors to any of the Holders other than the reasonable fees (not to exceed
$5,000) of one counsel for the Holders; provided, further, that the Company
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to Section 1.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered in which case, unless the reason for the withdrawal
is a material adverse change in the Company's business or financial condition,
all participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to their one
Registration, pursuant to Section 1.2. Notwithstanding the foregoing, each
Holder shall pay all registration expenses which such Holder is required to pay
under applicable law.
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1.7 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder, including (without limitation) all
registration, filing, and qualification fees, reasonable fees (not to exceed
$5,000) of one counsel, printers and accounting fees relating or apportionable
thereto, but excluding underwriting discounts and commissions relating to
Registrable Securities; provided, however, that the Company shall not bear the
cost of any professional fees or costs of accounting, financial or legal
advisors to any of the Holders other than the reasonable fees (not to exceed
$5,000) of one counsel to the Holders. Notwithstanding the foregoing, each
Holder shall pay all registration expenses which such Holder is required to pay
under applicable law.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the "Allocated
Securities"), the Allocated Securities to be apportioned 75% to Holders
participating in the offering and 25% to holders of other securities of the
Company participating in the offering, and among all Holders participating in
the offering in proportion (as nearly as practicable) to the amount of
Registrable Securities owned by each Holder or as they may otherwise agree.
1.9 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
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1.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each officer, director and each person, if any, who controls such
Holder or underwriter within the meaning of the Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, or the 1934 Act, or the securities laws or
regulations of any state or other political jurisdiction ("Blue Sky Laws")
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any Blue Sky Law
or any rule or regulation promulgated under the Act, the 1934 Act or any Blue
Sky Law, and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably delayed, conditioned or withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder
severally but not jointly will indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration statement,
each person, if any, who controls the Company within the meaning of the Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing
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persons may become subject, under the Act, the 1934 Act or any Blue Sky Law
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel selected by
the indemnifying party and approved by the indemnified party (whose approval
shall not be unreasonably withheld); provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
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(d) If the indemnification provided for in this Section 1.10
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the registration statement filed in connection with
an initial public offering ("IPO") by the Company;
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(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the registration
statement filed by the Company in connection with an IPO), the Act and the 1934
Act (at any time after it has become subject to such reporting requirements),
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
1.12 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after January 31,
2003.
2. Pre-emptive Rights.
2.1 Notices; Elections. If, at any time or from time to time
after the date hereof, the Company proposes to issue and sell any securities to
any person, the Company shall, not less than fifteen (15) nor more than sixty
(60) business days prior to the proposed date of sale, give written notice to
each holder of record of Registrable Securities at such holder's address as it
appears on the stock records of the Company, setting forth therein in reasonable
detail the terms and conditions of such securities and the proposed sale
thereof, including without limitation the aggregate amount of securities, the
aggregate purchase price and price per share or unit thereof, and the date of
such issuance and sale. Each Holder shall have the right, but not any
obligation, to purchase, upon such terms and conditions, up to such number or
amount of the securities offered in proportion to the ratio of (1) the number of
Holder Securities (as defined in Section 3.1(a)) then held by such Holder to (2)
the aggregate number of Holder Securities held by all Holders, and all
outstanding shares of Common Stock (excluding any shares of Common Stock that
are Holder Securities). Any Holder electing so to purchase such securities shall
give written notice to such effect to the Company at its principal executive
offices and the Company shall, upon the closing of the sale of such securities,
subject to the payment of the purchase price therefor and the
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satisfaction of any and all conditions thereto, sell to the Holder the
securities which such Holder shall have elected to purchase.
2.2 Exceptions.
Notwithstanding the provisions of Section 2.1, no Holder shall
be entitled to purchase or acquire by reason of this Section 2 any securities of
the Company that are issued or sold (a) to any directors, officers, employees or
consultants of the Company, principally for compensatory or incentive purposes,
whether or not issued or sold pursuant to a registration statement on Form S-8
or a written plan or agreement, provided that the total number of shares so
issued does not exceed 550,000 (as adjusted), (b) in connection with any merger,
consolidation, acquisition of assets (including, without limitation, any
exchange of securities of the Company for securities of another issuer so that
as a result thereof, the Company shall directly or indirectly own 20% or more of
the equity securities of such issuer), joint venture or similar transaction, or
(c) in any public offering of securities subject to an effective registration
statement under the Act. Neither the giving of any notice by the Company nor the
election by any Holder to purchase any securities in accordance with Section 2.1
shall be deemed, in itself, to constitute any offer, agreement to sell or sale
of such securities to such Holder (such offer, agreement and sale of such
securities being effected solely upon the execution and delivery, and in
accordance with the terms and conditions, of the subscription or purchase
agreements or other documentation relating thereto).
3. Come Along/Bring Along Rights
3.1 Come Along
(a) Until the earlier of such time as (a) all the Registrable
Securities have been included, or all the Holders have been afforded an
opportunity to include the Registrable Securities issued or issuable to such
Holder, in a registration statement relating to a sale of securities of the
Company to the public that has become effective under the Act and (b) the
seventh anniversary of the date hereof, whenever any of Scott A. Baxter, Richard
M. Brown and Scott Harmolin (each, a "Management Stockholder") proposes to sell,
exchange or otherwise dispose of any shares of Common Stock, so that the
cumulative aggregate number of shares sold by such Management Stockholders in
one or more transactions after the date hereof exceeds 450,000 (as adjusted to
reflect any dividend or distribution thereon or split, combination or
reclassification thereof), each Holder shall have
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the right (but not the obligation) to sell, exchange or otherwise dispose of
Holder Securities held by such Holder, on the same terms and conditions as those
applicable to such Management Stockholders, as to the same proportion of Holder
Securities held by such Holder as the number of shares of Common Stock proposed
to be sold, exchanged or otherwise disposed of by such Management Stockholders
bears to the total number of shares of Common Stock held by such Management
Stockholders. The term "Holder Securities" shall mean securities of the Company
which constitute securities described in clause (i) of the definition of
Registrable Securities in Section 1.1(e) or in clause (ii) of such definition
(without giving effect to the exclusion set forth in subclause (y) of clause
(ii)).
(b) Not less than ten (10) nor more than sixty (60) business
days prior to the sale, exchange or other disposition of such shares by such
Management Stockholders, the Company shall give written notice to each holder of
record of Holder Securities at such holder's address as it appears on the stock
records of the Company, setting forth therein in reasonable detail the terms and
conditions of such proposed sale, exchange or other disposition, including
without limitation the price per share to be received in such transaction, the
kind and method of payment and the expected date of Closing thereof. Each Holder
may elect to sell, exchange or otherwise dispose of the Series A Preferred Stock
or Registrable Securities held by such holder in accordance with subsection
3.1(a) by giving written notice to such effect to the Company at its principal
executive offices, and the Company and/or the Management Stockholders shall
cause such Holder's shares to be included in such sale, exchange or other
disposition; provided, that such holder shall execute and deliver any agreements
or other documents, and satisfy any other conditions, required of the selling
holders in connection with such proposed sale, exchange or other disposition.
The giving of any notice by the Holder shall not be deemed, in itself, to
constitute any offer, agreement to sell or sale of such securities subject to
such Holder's notice (such offer, agreement and sale of such securities being
effected solely upon the execution and delivery, and in accordance with the
terms and conditions, of the subscription or purchase agreements or other
documentation relating thereto).
(c) If a Holder elects to exercise its rights under Section
3.1(a), it shall be a condition to the closing of any sale, exchange or other
disposition of stock by a Management Stockholder that such electing Holder shall
have received for each share of Holder Securities which the Holder elects to
have included in such sale, exchange or disposition pursuant to Section 3.1, a
total consideration per share which equals or exceeds the Applicable Price. The
term "Applicable Price"
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shall mean (a) if the sale, exchange or other disposition closes before January
1, 1997, $29.16 per share of Common Stock (as adjusted to reflect any dividend
or distribution of securities thereon or any split, combination or
reclassification thereof) and (b) if the sale, exchange or other disposition
closes on or after January 1, 1997, $35 per share of Common Stock (as so
adjusted).
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3.2 Bring Along
(a) If, at any time after the date hereof, the Management
Stockholders propose to sell, exchange or otherwise dispose of a majority of the
shares of Common Stock held by the Management Stockholders (including any merger
or consolidation of the Company with or into another corporation or other
person, whether or not the Company is the surviving or emerging corporation),
such Management Stockholders shall have the right (but not the obligation) to
require each Holder to sell, exchange or otherwise dispose of the same
proportion of the Series A Preferred Stock or Holder Securities owned by such
Holder as the proportion of the shares proposed to be sold, exchanged or
otherwise disposed of by the Management Stockholders bears to the total number
of shares of Common Stock held by such Management Stockholders, for fair value
and on no less favorable terms and conditions than those applicable to the
Management Stockholders and to vote in favor of, or consent to, any transaction
(or series of related transactions) including such proposed sale, exchange or
other disposition.
(b) If the Management Stockholders elect, in accordance with
Section 3.2(a), to require the Holders to sell, exchange or otherwise dispose of
the Series A Preferred Stock or Holder Securities owned by such holders, such
Management Stockholders shall give, or cause the Company to give, not less than
ten (10) nor more than sixty (60) business days prior to the proposed date of
such sale, exchange or disposition, written notice to such effect to each holder
of record of such Series A Preferred Stock or Holder Securities at such holder's
address as it appears on the stock records of the Company, setting forth therein
in reasonable detail the terms and conditions of such proposed sale, exchange or
other disposition, including without limitation the purchase price per share or
unit to be received by such Holder and the expected date of closing of such
sale, exchange or other disposition. Each Holder shall be required to sell,
exchange or otherwise dispose of the Series A Preferred Stock or Holder
Securities owned by such Holder in accordance with such terms and conditions,
and for this purpose, to execute and deliver any purchase agreement or other
documentation no less favorable nor more burdensome to the Holders than that
applicable to the holders of Common Stock and to deliver any certificates
representing such shares at the Closing of such sale, exchange or other
disposition.
(c) Notwithstanding Section 3.2(a) and Section 3.2(b), a
Holder shall not be required to sell, exchange or otherwise dispose of its
Holder Securities or to vote in favor of, or consent to, any transaction (or
series of related
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transactions) including such proposed sale, exchange or other disposition,
unless such Holder shall receive for each share of Holder Securities to be
included in such sale, exchange or disposition, a total consideration per share
which equals or exceeds the Applicable Price.
4. Miscellaneous.
4.1 Successors and Assigns. Except as otherwise provided in
section 4.2 below and elsewhere herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including transferees of any shares of
Holder Securities). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assign any rights, remedies, obligations, or liabilities under or
by reason of this Agreement, except as expressly provided in this Agreement.
4.2 Transfer of Rights.
(a) The rights granted to the Investors pursuant to Section 1
may not be transferred or assigned, except that such rights are assignable to
(a) an Investor Affiliate and (b) anyone who acquires at least such number of
shares of Series A Preferred Stock as equals the lesser of (i) eighty percent
(80%) of the aggregate number of shares of Series A Preferred Stock purchased by
the Investor and (ii) 50,000 shares of Series A Preferred Stock, subject to
adjustment for stock dividends, distributions, splits, combinations and
recapitalizations; provided, however, that the Company is given written notice
by the transferee at the time of any such permitted transfer stating the name
and address of the transferee and identifying the shares of Series A Preferred
Stock with respect to which such rights are being assigned. An "Investor
Affiliate" is any person controlled by or under common control with an Investor
or another fund as to which an Investor provides investment management or
advisory services.
(b) Notwithstanding anything to the contrary herein, if the
Investor is a partnership, it may transfer rights granted pursuant hereto any of
its partners to whom shares of Series A Preferred Stock are transferred. In the
event of such transfer, such partner shall deemed to be the Investor of such
shares of Series A Preferred Stock and may, subject to paragraph (a) above,
again transfer such right to any other person or entity which acquires such
shares from such partner.
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4.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New York as applied to agreements among
New York residents entered into and to be performed entirely within New York
without regard to principles of conflicts of law.
4.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.5 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
4.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, upon
confirmed delivery by a recognized courier or messenger service or upon deposit
with the United States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the address indicated for
such party on the signature page hereof, or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties.
4.7 Expenses. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
4.8 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Holder Securities then outstanding. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Holder Securities then outstanding, each future holder of all such Holder
Securities, and the Company.
4.9 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its
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terms. The parties hereto shall endeavor to replace any such unenforceable
provision or provisions with a valid and enforceable provision or provisions
which shall have substantially the same economic effect as the unenforceable
provision or provisions.
4.10 Entire Agreement; Amendment; Waiver. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
ICON CMT CORP.
By:
---------------------------------
Scott A. Baxter
President
Address: 420 Lexington Avenue
New York, New York 10170
INVESTOR:
By:
---------------------------------
Address:
---------------------------------
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_________ WARRANTS
THESE WARRANTS AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THESE
WARRANTS (THE "WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") OR UNDER APPLICABLE STATE SECURITIES LAWS.
THE WARRANT SHARES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH REGISTRATION, PROVIDED THAT THE
SELLER DELIVERS TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
CONFIRMING THE AVAILABILITY OF SUCH EXEMPTION.
_________ ___, 1996
ICON CMT CORP.
Warrants for the Purchase of Shares of Common Stock
FOR VALUE RECEIVED, ICon CMT Corp., a Delaware corporation
(the "Company"), hereby certifies that BEAR, STEARNS & CO. INC., or its
registered assigns (the "Holder"), is entitled, subject to the provisions
contained herein, to purchase from the Company _________ fully paid and
non-assessable shares of Common Stock (as defined below), subject to adjustment
as provided herein, at an exercise price per share of Common Stock of $0.01 (the
"Exercise Price").
The term "Common Stock" means the Common Stock, par value $.01
per share, of the Company as constituted on the date hereof. The number of
shares of Common Stock to be received upon the exercise of these Warrants may be
adjusted from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter referred to as "Warrant Stock." The term "Other Securities" means
any other securities that may be issued by the Company in addition to, or in
substitution for, the Warrant Stock.
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The term "Non-Surviving Combination" means any merger,
consolidation or other business combination by the Company with one or more
Persons (other than the Company or a wholly-owned subsidiary of the Company) in
which the other Person is the survivor, or any merger, consolidation or other
business combination by the Company with one or more Persons (other than the
Company or a wholly-owned subsidiary of the Company) in which the Company is the
survivor but as a result of which the Company is not required to file reports
with respect to its Common Stock with the Securities and Exchange Commission
(the "Commission") pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or a sale of all or substantially all of
the assets of the Company to one or more such other Persons, and with respect to
which cash or non-cash consideration is distributed to holders of Common Stock.
The term "Person" means a corporation, a limited liability
company, an association, a partnership, an organization, a business, an
individual, a government or political subdivision thereof or a governmental
agency.
The term "Registration Statement" means any registration
statement of the Company which covers any of the Common Stock, including the
prospectus, amendments and supplements to such Registration Statement, including
post-effective amendments, all exhibits and all material incorporated by
reference in such Registration Statement.
The term "Affiliate" means any Person (and such Person's
spouse, parents and grandparents and their spouses, collateral and lineal
descendants and any other Person related to such Person by affinity or
consanguinity) (a) who is a director or officer of the Company or any of its
Subsidiaries, or (b) directly or indirectly controlling or controlled by or
under common control with the Company or any Subsidiary, including (without
limitation) any Person beneficially owning or holding 5% or more of any class of
voting securities of the Company or any Subsidiary or any other corporation of
which the Company or any Subsidiary owns or holds 5% or more of any class of
voting securities, provided that, for purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
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References herein to the "Company" are to (i) ICon CMT Corp.
and any successor thereto, (ii) any successor corporation resulting from the
merger or consolidation of ICon CMT Corp., or any successor thereto, with
another corporation or (iii) any corporation to which ICon CMT Corp., or any
successor thereto, has transferred its property or assets as an entirety or
substantially as an entirety.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of these
Warrants, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of these
Warrants, if mutilated, the Company shall execute and deliver new Warrants of
like tenor and date. Any such new Warrants, upon execution and delivery, shall
constitute an additional contractual obligation on the part of the Company,
whether or not these Warrants so lost, stolen, destroyed or mutilated shall be
at any time enforceable by anyone.
The Holder agrees with the Company that these Warrants are
issued, and all the rights hereunder shall be held subject to, all of the
conditions, limitations and provisions set forth herein, including the
following:
1. Exercise of Warrants. These Warrants may be exercised, in
whole or in part, at any time, after the first anniversary of the date of the
closing (the "Closing") of the transactions contemplated by the Subscription
Agreement dated March 15, 1996 between the Company and each of the purchasers
listed on the signature pages thereto, but prior to the fifth anniversary of the
date of the Closing by presentation and surrender of these Warrants to the
Company at its principal office (which on the date hereof is 420 Lexington
Avenue, New York, New York 10170), with the Warrant Exercise Form attached
hereto duly executed and accompanied by payment (either in cash or by certified
or official bank check or checks, payable to the order of the Company) of the
Exercise Price for the number of shares specified in such form. If these
Warrants are exercised in part only, the Company shall, upon surrender of these
Warrants for cancellation, execute and deliver new Warrants evidencing the
rights of the Holder thereof to purchase the balance of Warrant Stock (and Other
Securities) purchasable hereunder. Upon receipt by the Company of these
Warrants, together with the Exercise Price, at its office, or by the Company's
stock transfer agent at its office, in proper form for exercise, the Holder
shall be deemed to be the holder of record of the Warrant Stock (and Other
Securities) issuable upon such exercise, notwithstanding that the transfer books
of the Company shall then be closed or that certificates representing such
Warrant Stock (or Other Securities) shall not then be actually
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delivered to the Holder. The Company shall pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
Warrant Stock (and Other Securities) upon exercise of these Warrants.
2. Reservation of Shares and Other Securities. The Company
will at all times reserve for issuance and delivery upon exercise of these
Warrants all shares of Warrant Stock and other shares of capital stock of the
Company (and Other Securities) from time to time receivable upon exercise of
these Warrants. All such shares (and Other Securities) shall be duly authorized
and, when issued upon such exercise, shall be validly issued, fully paid and
non-assessable and free and clear of all preemptive rights.
3. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issuable upon the exercise of these
Warrants, but the Company shall pay the Holder an amount in cash equal to the
fair market value of such fractional share in lieu of each fraction of a share
otherwise issuable upon any exercise of these Warrants, as determined by the
Board of Directors of the Company in its reasonable discretion.
4. Exchange of Warrants. These Warrants are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations, entitling the Holder hereof to
purchase in the aggregate the same number of shares of Warrant Stock (and Other
Securities) purchasable hereunder.
5. Registration Rights of Holders.
5.1 Incidental Registration. If at any time during the
five-year period commencing on the first anniversary of the date hereof, the
Company shall file a registration statement for the registration of Common Stock
under the Securities Act with the Commission (other than a registration
statement on Form S-4 or S-8 or any successor form), the Company shall give at
least 30 calendar days prior written notice to the Holders. The Company shall
not request that the Commission declare such registration statement effective
earlier than 30 calendar days after the giving of such notice and shall use its
best efforts to delay effective ness of such registration statement until at
least 30 calendar days after the giving of such notice. Subject to the
succeeding paragraph, each Holder shall have the right to request that the
Company include in such offering the Warrant Stock (and Other
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Securities), and the Company shall enter into an underwriting agreement with one
or more underwriters which shall provide that the underwriters shall purchase
the Warrants from requesting Holders or their Warrant Stock (or Other
Securities) after exercise of the Warrants at the price paid by the underwriters
for Common Stock (or if securities convertible into or exchangeable or
exercisable for, or rights to purchase, Common Stock are being issued, then the
conversion, exchange, exercise or purchase price for the Common Stock provided
for by such securities less the conversion, exchange or exercise premium on the
date of such offering) sold by the Company and/or selling stockholders, as each
requesting Holder may elect.
The Company shall use its best efforts to have such requesting
Warrant Stock (and Other Securities) (to the extent requested by the Holders
within 20 calendar days after delivery of the Company's written notice) included
in such offering except to the extent the underwriters (or any managing
underwriter), in their (or its) sole judgement, shall advise the Company in
writing that, in their opinion, inclusion of such number of shares of Warrant
Stock (or Other Securities) will materially adversely affect the price or
distribution of any securities to be offered solely for the account of the
Company. The Company shall promptly furnish each Holder requesting registration
with a copy of such written advice. If (x) the prospective offering is not
entirely a secondary offering, (y) the prospective offering is to be
underwritten, and (z) in the event that the number of shares of Warrant Stock
(or Other Securities) which Holders have requested to be included and the shares
of Common Stock and securities exercisable or exchangeable for, or convertible
into Common Stock which selling securityholders have requested to be included in
such offering exceeds the total number of shares of Warrant Stock (or Other
Securities) and such securities of selling securityholders which, pursuant to
the advice of the underwriters (or any managing underwriter), in their (or its)
sole judgement, may be distributed without materially adversely affecting the
price or distribution of any securities to be sold solely for the Company's
account (such shares of Warrant Stock (or Other Securities) and the shares of
Common Stock and the shares of Common Stock underlying the securities which are
exercisable or exchangeable for, or convertible into Common Stock of such
selling securityholders which may be included without materially adversely
affecting the price or distribution of securities to be sold solely for the
Company's account being the "Includible Securities"), then the aggregate number
of shares of Warrant Stock (or Other Securities) entitled to be included in such
registration statement for the prospective offering shall be the product of (1)
a fraction, the numerator of which is the number of shares of Warrant Stock (or
Other Securities) which Holders have
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requested to be included and the denominator of which is the total number of
securities, including such Warrant Stock (or Other Securities), the holders of
which have requested to be included in such offering (such fraction is hereafter
referred to as the "Holders' Percentage") and (2) the total number of Includible
Securities, and the Company may include in such registration statement
Includible Securities other than Warrant Stock (and Other Securities) such that
the number of such other Includible Securities does not exceed the difference
between the total number of Includible Securities and the aforementioned
aggregate number of shares of Warrant Stock (and Other Securities) which are
entitled to be included in such registration statement. The Company shall
allocate the number of shares of Warrant Stock entitled to be included in such
Registration Statement among each requesting Holder in proportion to the
respective numbers of shares of Warrant Stock (or Other Securities) that such
Holder requested be registered. If (x) the prospective offering is entirely a
secondary offering and (y) the prospective offering is to be underwritten, then
the Holders shall have the right to include a number of shares of Warrant Stock
(and Other Securities) which is equal to the product of (1) the Holders'
Percentage and (2) the total number of securities to be offered. The number of
shares of Warrant Stock (or Other Securities) included in such registration
statement shall be allocated pro rata among Holders as set forth in the
preceding sentence.
If the prospective offering is not to be underwritten, then
the Warrant Stock (and Other Securities) of all Holders requesting inclusion in
such prospective offering, or such greater amount of the Warrant Stock (and
Other Securities) as the Company may choose, shall be included in the
registration statement for the prospective offering. The Holders of securities
included in any registration statement pursuant to this subsection 5.1 are
referred to herein as "Selling Holders".
Notwithstanding the foregoing, if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall reasonably determine for any good corporate
reason either not to register, to discontinue registration or to delay
registration of such securities, the Company may, at its election, give written
notice of such determination to each Selling Holder and, thereupon, (i) in the
case of a determination not to register or to discontinue registration, shall be
relieved of its obligation to register any Includible Securities in connection
with such registration and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any
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Includible Securities for the same period as the delay in registering such other
securities. The Company shall pay the reasonable expenses of such registration.
The Holders shall be entitled to have their shares included in
an unlimited number of registrations pursuant to this Subsection 5.1.
5.2 Duties and Rights Upon a Non-Surviving Combination. In the
case of any proposed merger, consolidation or other business combination by the
Company with, or sale of all or substantially all of the assets of the Company
to, one or more other Persons (the "Acquirer") which, if consummated, would
constitute a Non-Surviving Combination, the Company shall give at least 30
calendar days prior written notice thereof to the Holders. In the case of (i) a
Non-Surviving Combination by the Company in which cash is distributed to holders
of Common Stock, as a condition to the consummation of such merger,
consolidation or other business combination with the Company, the Acquirer shall
be obligated to purchase all of each Holder's Warrants (and Other Securities)
which shall not have been exercised prior to the consummation of such
Non-Surviving Combination for a cash payment equal to the cash amount that
would have been distributable on account of the Warrant Stock (and Other
Securities) if such Warrants had been exercised in full immediately prior to
such Non-Surviving Combination; and (ii) a Non-Surviving Combination by the
Company in which any non-cash consideration is distributed to holders of Common
Stock, as a condition to the consummation of such merger, consolidation or other
business combination with the Company, the Acquirer shall execute an instrument
pursuant to which it shall be obligated (a) to distribute to each Holder in
respect of such Holder's Warrants (and Other Securities) which shall not have
been exercised prior to the consummation of such Non-Surviving Combination,
upon the exercise of such Warrants, the number of shares of stock or other
securities or other property (including any cash) of the Acquirer that would
have been distributable on account of the Warrant Stock (and Other Securities)
if the Holder's Warrants had been exercised in full immediately prior to such
Non-Surviving Combination, and (b) to adjust the number and kind of shares of
stock or other securities deliverable upon exercise of the Warrants upon the
occurrence of certain events with respect to the Acquirer in the manner set
forth in the anti-dilution provisions contained in Section 7 hereof; provided
that in the event holders of Common Stock are entitled to exercise rights of
election as to the kind and amount of consideration receivable upon such
Non-Surviving Combination, holders of Warrants shall be entitled to exercise the
same rights of election with respect to the kind and amount of consideration
receivable upon such
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Non-Surviving Combination (and Company shall give at least 10 calendar days
prior written notice of any such rights of election).
In the event of any Non-Surviving Combination under (i) above,
the Acquirer shall transfer the cash owing to Holders hereunder to the
respective Holders by mailing by first-class mail a check to each such Holder at
such Holder's address shown in the Company's records, or as it may be otherwise
directed in writing by each Holder, upon surrender of such Holder's Warrants.
In the event of any Non-Surviving Combination under (ii)
above, if the opinion referred to in the following paragraph states that the
non-cash consideration may be distributed and immediately resold without
violation of the Securities Act or otherwise resulting in a violation of law,
then the Warrants shall be immediately exercisable upon the receipt by the
Company of such opinion and the closing of the transaction constituting such
Non-Surviving Combination and if such opinion states that registration under the
Securities Act or other actions are required prior to distribution or resale of
the non-cash consideration, then the Warrants shall be immediately exercisable
upon the effectiveness of such registration statement or the taking of such
other actions. In either case, the Company will promptly give notice to the
Holders of the date the Warrants become exercisable.
In the event of any Non-Surviving Combination in which
non-cash consideration is received or to be received by Holders, the Acquirer
shall obtain the written opinion of independent counsel as to whether or not (x)
any securities constituting such non-cash consideration may, in the opinion of
such counsel, be delivered to the Holders upon exercise and resold, in whole or
in part, immediately after the closing of the Non-Surviving Combination by a
holder without the registration of such securities under the Securities Act, and
(y) any property other than cash or securities may be delivered to the Holders
upon exercise and resold, in whole or in part, immediately after the closing of
the Non-Surviving Combination by a holder without violation of law. Such opinion
shall be provided to the Holders, and at least 30 calendar days prior written
notice given to the Holders. In the event such counsel shall be of the opinion
that such registration is required or a violation of law would occur, the
Acquirer shall be obligated either (A) to register such securities with respect
to the Warrant Stock (and Other Securities) and maintain the effectiveness of
such registration statement for a period of one year and promptly give notice
thereof to all Holders of such securities who received such securities upon
exercise of Warrants and take such other ac-
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tions with respect to such other property so as to make its distribution or
resale not a violation of law, or (B) to pay Holders in cash in accordance with
the provisions of clause (i) of the first paragraph of this Subsection 5.2, the
current market value of such securities as of the date of consummation of such
Non-Surviving Combination.
5.3 General Provisions Regarding Registration.
(a) Compliance with Federal and State Laws. The Company
shall effect the registration or qualification of the Warrant Stock (and Other
Securities) registered pursuant to Section 5 and give such notifications to or
obtain approval of any governmental authority under any federal or state law
(including, without limitation, state securities laws or Blue Sky laws), or
effect listing with any securities exchange on which the Common Stock is or is
to be listed as may be necessary to permit the sale of Warrant Stock (and Other
Securities) through underwriters, or, if such Warrant Stock (and Other
Securities) is not to be sold pursuant to an underwritten offering, as the
Holders may reasonably request.
(b) Registration Expenses; Withdrawal Rights. Any
registration, qualification, notification, approval or listing made pursuant to
Section 5 shall be at the sole expense of the Company, provided that the Company
shall not be responsible for underwriters' or brokers' discounts and commissions
for any Selling Holder or for transfer taxes, and further provided that the
Company shall only be responsible for the reasonable fees and expenses of one
counsel retained by the Selling Holders and approved by the Company, which
approval shall not be unreasonably withheld, in connection with each
Registration Statement. The Company will withdraw from registration any Warrant
Stock (and Other Securities) on request of a Holder, at the expense of the
Company.
(c) Amendments and Supplements. The Company shall, from
time to time, amend or supplement the prospectus and Registration Statement used
in connection with any registration pursuant to this Warrant to the extent
necessary to comply with applicable law (including, without limitation, to
reflect additional information relating to the plan of distribution), and shall
immediately advise the Selling Holders if any such prospectus or Registration
Statement does not so comply and if any stop order or similar order is issued or
threatened or any request for amendment or supplement is received from any
regulatory agency. The Company shall make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest
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possible moment. The Company shall comply with all other applicable laws in
connection with any offering of Warrant Stock (and Other Securities) and will
promptly make available an earnings statement in accordance with Section 11(a)
of the Securities Act, and the regulations promulgated thereunder.
(d) Underwriting and Other Agreements. The Company shall
enter into and execute all agreements and deliver all other instruments
(including opinions of counsel and comfort letters) customary and appropriate
in connection with public offerings (including underwriting agreements, if such
offering is to be underwritten, with indemnification and contribution provisions
in customary form), and the Company and its Affiliates shall agree to refrain
from selling any Common Stock for such period as may be reasonably requested by
the underwriters, if such offering is to be underwritten, and shall cause its
officers and directors to, cooperate with any underwriters, if such offering is
to be underwritten, to facilitate sales of the Warrant Stock (and Other
Securities) to the same extent as if they were being offered by the Company. The
Company shall furnish each Selling Holder such number of copies of Registration
Statements and prospectuses, and any amendments and supplements thereto, as such
Holder may reasonably request and take all such other steps as are advisable to
facilitate the disposition of such Warrant Stock (and Other Securities). The
Selling Holders shall provide to the Company such information with respect to
themselves as may be reasonably required for inclusion in the Registration
Statement pursuant to the Securities Act and the rules and regulations
thereunder, shall cooperate with the Company in the preparation of, and during
the effectiveness of, the Registration Statement, and shall enter into and
execute all agreements and deliver all other instruments (including an
underwriting agreement, if such offering is to be underwritten, with customary
indemnification and contribution provisions and including any undertaking to
pay for costs payable by Selling Holders) that are customary and appropriate for
selling stockholders to execute in connection with secondary public offerings,
provided that any underwriters' or brokers' discounts, commissions or other fees
and expenses payable (on a per share basis) by such Selling Holders shall not be
in excess of such underwriters' or brokers' discounts, commissions or other fees
and expenses payable (on a per share basis) by the Company. The Selling Holders
shall inform the Company upon request as to the manner in which they have
effected sales of Warrant Stock (and Other Securities) under the Registration
Statement.
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(e) Indemnification and Contribution.
(i) Indemnification by the Company. In connection
with any registration of Warrant Stock (and Other Securities) pursuant
to the provisions of Section 5, the Company agrees to indemnify and
hold harmless each Person who participates as an underwriter
("Underwriter"), each Selling Holder and each director and officer of
any Selling Holder or Underwriter and each person, if any, who controls
any Selling Holder or Underwriter within the meaning of Section 15 of
the Securities Act as follows:
(I) against any and all losses, liabilities, claims,
damages and expenses whatsoever arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which any
Warrant Stock (and Other Securities) were or are to be registered under
the Securities Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
preliminary prospectus or the prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(II) against any and all losses, liabilities, claims,
damages and expenses whatsoever to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company, which consent shall
not be unreasonably withheld; and
(III) against any and all expenses whatsoever
(including, without limitation, reasonable fees and disbursements of
counsel chosen by the Indemnified Party (as defined herein) incurred by
such Indemnified Party in any action or proceeding between the Company
and the Indemnified Party or between the Indemnified Party and any
third party or other-
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wise) reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under subparagraph (I) or (II) above;
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense suffered by any Selling Holder or any
Underwriter to the extent arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Selling Holder or such
Underwriter, respectively, expressly for use in any Registration Statement (or
any amendment thereto) or any preliminary prospectus or the prospectus (or any
amendment or supplement thereto). The foregoing indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of any
Selling Holder or any Underwriter, and shall survive the transfer of such
securities by such Selling Holder.
(ii) Indemnification by Selling Holder. Each Selling
Holder whose Warrant Stock (and Other Securities) are sold under any
Registration Statement pursuant to Section 5 severally agrees to
indemnify and hold harmless the Company, each Underwriter and the other
Selling Holders, and each of their respective directors and officers
(including each officer of the Company who signed the Registration
Statement), and each Person, if any, who controls the Company, any
Underwriter or any other Selling Holder within the meaning of Section
15 of the Securities Act (each, an "Indemnified Party"), against any
and all losses, liabilities, claims, damages and expenses described in
the indemnity contained in Subsection 5.3(e)(i) hereof, but only with
respect to untrue statements or omissions, or alleged untrue statements
or omissions, made in any Registration Statement (or any amendment
thereto) or any preliminary prospectus or the prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity
with written information furnished to the Company, any Underwriter or
the other Selling Holders by such Selling Holder expressly for use in
the Registration Statement (or any amendment thereto) or such
preliminary prospectus or the prospectus (or any amendment or
supplement thereto). The liability of each Selling Holder under this
paragraph shall be limited to the net proceeds received by each such
Selling Holder from the sale of its Warrant
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Stock (and Other Securities) under the Registration Statement
registering such Warrant Stock (and Other Securities).
(iii) Conduct of Indemnification Proceedings. Each
Indemnified Party shall give prompt notice to each indemnifying party
(the "Indemnifying Party") of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so
notify an Indemnifying Party shall not relieve it from any liability
which it may have otherwise than pursuant to this indemnity agreement
or if the Indemnifying Party is not materially prejudiced in its
defense thereby. An Indemnifying Party may, at its own expense,
participate in and direct the defense of such action. In no event
shall the Indemnifying Parties be liable for the fees and expenses of
more than one counsel for all Indemnified Parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances.
(iv) Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnity
agreement provided for in this Subsection 5.3(e) is for any reason held
to be unenforceable although applicable in accordance with its terms,
the Company, the Selling Holders and the Underwriter, as among
themselves, shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company, the Selling Holders and
the Underwriter in such proportions that the Underwriter is
responsible only for that portion represented by the percentage that
the underwriting discount appearing on the cover page of the prospectus
bears to the initial public offering price appearing thereon and the
Company is responsible for the balance (except that each of the Selling
Holders shall be responsible for the aggregate losses, liabilities,
claims, damages and expenses arising with respect to untrue statements
or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or any preliminary
prospectus or the prospectus (or any amendment or supplement thereto)
in reliance upon and in conformity with written information furnished
to the Company, any Underwriter or the other Selling Holders by such
Selling Holder expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the prospectus
(or any amendment or supplement thereto)); provided, however, that no
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribu-
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tion from any Person who was not guilty of such fraudulent
misrepresentation. For purposes of this Subsection 5.3(e), each
Person, if any, who controls an Underwriter or Selling Holder within
the meaning of Section 15 of the Securities Act shall have the same
rights to contribution as such Underwriter or Selling Holder, and each
director of the Company, each officer of the Company who signed the
Registration Statement, and each Person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act shall
have the same rights to contribution as the Company.
6. ADJUSTMENTS
6.1 Adjustments. The number of shares of Common Stock issuable
upon exercise of each Warrant shall be subject to adjustment from time to time
as follows:
(1) Stock Dividends; Stock Splits; Reverse Stock Splits;
Reclassification. In case at any time or from time to time the Company shall
(i) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of, its
Common Stock, (ii) subdivide its outstanding shares of any class or series of
Common Stock into a larger number of any class or series of shares of Common
Stock, or (iii) combine its outstanding shares of any class or series of Common
Stock into a smaller number of shares of any class or series of Common Stock, or
(iv) increase or decrease the number of shares of its capital stock in a
reclassification of the Common Stock (including any such reclassification in
connection with a merger, consolidation or other business combination in which
the Company is the continuing corporation), then the number of shares of Common
Stock issuable upon exercise of each Warrant immediately prior to the record
date for such dividend or the effective date of such subdivision or combination
shall be adjusted so that the Holder of each Warrant shall thereafter be
entitled to receive the kind and number of shares of Warrant Stock or other
securities of the Company that such Holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such Warrant been exercised immediately prior to the happening of such event
or any record date with respect thereto. An adjustment made pursuant to this
Section 6.1(1) shall become effective immediately after the effective date of
such event.
(2) Adjustments on Consolidation and Merger. Except as
provided herein, if the Company shall consolidate or merge with another
corporation, and
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the Company is the surviving corporation, then the Holders of the Warrants shall
have the right to receive upon exercise of the Warrants, such number of shares
of Common Stock and other property which such Holder would have been entitled to
receive upon or as a result of such consolidation or merger had such Warrant
been exercisable and exercised immediately prior to such event.
(3) Issuance of Common Stock at Less Than Fair Market Value.
In case the Company shall sell and issue shares of any class or series of Common
Stock, or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of any class or series
of Common Stock (excluding (i) shares, rights, options, warrants or convertible
or exchangeable securities issued in any of the transactions described in
Section 6.1(1) or (2) above, (ii) Common Stock or securities convertible into,
or exchangeable for, Common Stock or rights to acquire Common Stock or such
securities, issued or to be issued or granted to directors, officers or
employees of the Company in an amount not to cumulatively exceed 15% of the
Common Stock outstanding on the date hereof on a fully diluted basis (including
such shares and assuming the exercise of all Warrants) at any time during which
Warrants are outstanding, and (iii) the Warrants and any shares issued on
exercise thereof, but including shares, rights, options, warrants or convertible
or exchangeable securities issued as consideration in any merger, consolidation
or other business combination), at a price per share of Common Stock (determined
in the case of such rights, options, warrants or convertible or exchangeable
securities, by dividing (X) the total amount receivable by the Company in
consideration of the sale and issuance of such rights, options, warrants or
convertible or exchangeable securities, plus the total consideration payable to
the Company upon exercise, conversion or exchange thereof, by (Y) the total
number of shares of Common Stock covered by such rights, options, warrants or
convertible or exchangeable securities) that is lower than the then current
market value per share of Common Stock in effect immediately prior to such sale
and issuance, then the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted and shall be that number determined
by multiplying the number of shares of Common Stock issuable upon exercise
immediately prior to such adjustment by a fraction, the numerator of which is
the total number of shares of Common Stock outstanding immediately after such
sale or issuance and the denominator of which is an amount equal to the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
sale and issuance plus (B) the number of shares of Common Stock which the
aggregate consideration received (determined as provided below) for such sale or
issuance would purchase at current market value per share. Such adjustment shall
be made
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successively whenever such an issuance is made. For the purposes of such
adjustments, the shares of Common Stock which the holder of any such rights,
options, warrants or convertible or exchangeable securities shall be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding as of the
date of the sale and issuance of the rights, warrants or convertible or
exchangeable securities and the consideration received by the Company therefor
shall be deemed to be the consideration received by the Company for such rights,
options, warrants or convertible or exchangeable securities, plus the
consideration or premiums stated in such rights, options, warrants or
convertible or exchangeable securities to be paid for the shares of Common Stock
covered thereby. In case the Company shall sell and issue shares of Common Stock
or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then in determining the "price per share of Common Stock" and
the "consideration received by the Company" for purposes of the first sentence
of this Subsection 6.1(4), the Board of Directors of the Company shall
determine, in good faith, the fair value of said property.
(5) Expiration of Rights, Options and Conversion Privileges.
Upon the expiration of any rights, options, warrants or conversion or exchange
privileges, the issuance of which caused an adjustment pursuant to Section
6.1(4) hereof, if any thereof shall not have been exercised, the number of
shares of Common Stock issuable upon the exercise of each Warrant shall, upon
such expiration, be readjusted and shall thereafter, upon any future exercise,
be such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (A) the only
shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange rights and (B) such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Company upon such
exercise plus the consideration, if any, actually received by the Company for
issuance, sale or grant of all such rights, options, warrants or conversion or
exchange rights whether or not exercised; provided, further, that no such
readjustment shall have the effect of decreasing the number of shares issuable
upon exercise of each Warrant by a number in excess of the number of the
adjustment initially made with respect to the issuance, sale or grant of such
rights, options, warrants or conversion or exchange rights.
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(6) De Minimis Adjustments. The adjustments required by the
preceding Subsections of this Section 6.1 shall be made whenever and as often as
any specified event requiring an adjustment shall occur, except that no
adjustment of the number of shares of Common Stock issuable upon exercise of
Warrants that would otherwise be required shall be made (except in the case of a
subdivision or combination of shares of Common Stock, as provided for in Section
6.1(1)) unless and until such adjustment either by itself or with other
adjustments not previously made increases or decreases by at least 5% of the
number of shares of Common Stock issuable upon exercise of Warrants immediately
prior to the making of such adjustment. Any adjustment representing a change of
less than such minimum amount (except as aforesaid) shall be carried forward and
made as soon as such adjustment, together with other adjustments required by
this Section and not previously made, would result in a minimum adjustment or,
if sooner, upon exercise of the Warrant. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence. All calculations shall be made to the nearest
one-thousandth of a share.
(7) Fractional Interests. In computing adjustments under this
Section 6, fractional interests in Common Stock shall be taken into account to
the nearest one-thousandth of a share.
(8) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders thereof, legally
abandon its plan to pay or deliver such dividend, distribution, subscription or
purchase rights, then thereafter no adjustment shall be required by reason of
the taking of such record and any such adjustment previously made in respect
thereof shall be rescinded and annulled.
(9) Other Actions. In case at any time or from time to time
the Company shall take any action in respect of its Common Stock which give rise
to anti-dilution adjustments under any option, warrant, convertible security or
other right to acquire Common Stock, whether outstanding on the date of issuance
of this Warrant or hereafter issued and together with any agreements related
thereto (but excluding anti-dilution or other adjustment rights with respect to
the Warrants), then the Company shall promptly make proportional, equitable and
corresponding adjustments in the number of shares of Common Stock issuable upon
exercise of each Warrant to protect the holder thereof against dilution as a
result of such event.
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6.2 Notice of Adjustment. Whenever the number of shares of
Common Stock or other stock or property issuable upon the exercise of each
Warrant is adjusted, as herein provided, the Company shall promptly mail to each
Holder notice in accordance with Section 8 of such adjustment or adjustments and
shall deliver to each Holder a certificate of a firm of certified public
accountants selected by the Board of Directors of the Company (who may be the
regular accountants employed by the Company) setting forth the number of shares
of Common Stock or other stock or property issuable upon the exercise of each
Warrant after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which such
adjustment was made.
6.3 Notice of Certain Corporate Action. In case the Company
shall propose (a) to pay any dividend payable in securities of any class to the
holders of the Common Stock or to make any other distribution to the holders of
the Common Stock, or (b) to offer the holders of the Common Stock rights to
subscribe for or to purchase any securities convertible into shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, or (c) to issue any Common Stock, securities convertible into shares of
Common Stock, options, rights or exchangeable securities to Persons other than
(i) the holders of the Common Stock and (ii) any Holders of Warrants upon the
exercise of such Warrants (other than options, warrants, convertible securities
or other rights excluded from the scope of Section 6.1(3)), or (d) to effect any
capital reorganization, consolidation or merger, then, in each such case, the
Company shall give the Holders of the Warrants a notice in accordance with
Section 8 of such proposed action, which shall specify the date on which a
record is to be taken for the purposes of such dividend, distribution or rights,
or the date such issuance is to take place and the date of participation therein
by the holders of Common Stock, if any, such date is to be fixed, and shall be
reasonably necessary to indicate the effect of such action on the Common Stock
and the number and kind of any other shares of stock and other property, if any,
after giving effect to any adjustment which will be required as a result of such
action. Such notice shall be so given in the case of any action covered by
clause (a) or (b) above at least 10 calendar days prior to the record date for
determining holders of the Common Stock for purposes of such action and, in the
case of any other such action, at least 20 calendar days prior to the date of
the taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be the earlier.
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6.4 Statement on Warrant Certificates. Irrespective of any
adjustment in the number or kind of shares issuable upon the exercise of the
Warrants, Warrant certificates theretofore or thereafter issued may continue to
express the same number and kind of shares as are stated in the Warrant
certificates initially issued.
6.5 Notice to Holders of Dissolution, Liquidation or Winding
Up. Notwithstanding any other provision herein, in the event that, at any time
after the date hereof and prior to the expiration of all Warrants and the
termination of the rights of Holders as provided in Section 1, there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the Company,
then the Company shall mail to each Holder of an outstanding Warrant at the
earliest practicable time (and, in any event, not less than 20 calendar days
before any date set for definitive action) notice in accordance with Section 10
of the date on which such dissolution, liquidation or winding up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of the shares of record of Common Stock or other securities issuable
upon exercise of the Warrants shall be entitled to exchange their shares for
securities, money or other property deliverable upon such dissolution,
liquidation or winding up, as the case may be, on which date each Holder of
outstanding Warrants shall be entitled to receive upon surrender of the Warrants
the cash or other property that such Holder would have been entitled to receive
had the Warrants been exercisable and exercised immediately prior to such
dissolution, liquidation or winding up and any and all rights of a Holder to
exercise the Warrants shall terminate in their entirety. In case of any such
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the Company shall, after receipt of surrendered Warrants, make payment in
appropriate amount to such Person or Persons as it may be directed in writing by
the Holder surrendering such Warrants.
6.6 Compliance with Governmental Requirements. The Company
will take from time to time any corporate action that shall, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon exercise of
Warrants in accordance with this Warrant, including, but not limited to, making
all necessary allocations of surplus to the capital account of the Company in
respect of the shares of Warrant Stock (and Other Securities) that are issuable
upon exercise of the Warrants.
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The Company covenants that if any shares of Common Stock
required to be reserved for purposes of exercise of Warrants require, under any
Federal or state law or rule or regulation of any national securities exchange,
registration with or approval of any governmental authority, or listing on any
national securities exchange before such shares may be issued upon exercise, the
Company will in good faith and as expeditiously as possible endeavor to cause
such shares to be duly registered, approved or listed on the relevant national
securities exchange, as the case may be; provided, however, that in no event
shall such shares of Common Stock be issued, and the Company is hereby
authorized to suspend the exercise of all Warrants, for the period during which
such registration, approval or listing is required but not in effect.
6.7 No Impairment. The Company shall not take any action,
including, without limitation, amending its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issuance or sale of securities or any other voluntary action,
designed to avoid the observance or performance of any material terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be reasonably necessary
or appropriate to protect the rights of the Holders against impairment. The
foregoing shall not limit or impair the Company's ability to take any action
that in its sole judgment is reasonably necessary for the conduct of its
business.
Without limiting the generality of the foregoing, the Company
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant. Upon the reasonable request of
the Holder, the Company will at any time during the period this Warrant is
outstanding acknowledge in writing, in form reasonably satisfactory to the
Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. Restrictions on Transfer of Warrants, Warrant Stock and
Other Securities. The Warrant Stock and Other Securities may not be sold,
transferred or otherwise disposed of unless registered under the Securities Act
of 1933 (the "Securities Act") and any applicable state securities laws or
pursuant to available exemptions from such registration, provided that the
seller delivers to the Company an opinion of counsel satisfactory to the Company
confirming the availability of such exemption. Unless the shares of Warrant
Stock or Other Securities have been registered under the Securities Act, upon
exercise of any of
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these Warrants and the issuance of any of the shares of Warrant Stock or Other
Securities, all certificates representing such securities shall bear on the face
thereof substantially the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") OR UNDER APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AVAILABLE
EXEMPTIONS FROM SUCH REGISTRATION, PROVIDED THAT THE SELLER
DELIVERS TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY CONFIRMING THE AVAILABILITY OF SUCH EXEMPTION.
8. Notices. All notices required hereunder shall be in writing
and shall be deemed given when telegraphed, delivered personally or within two
days after mailing when mailed by certified or registered mail, return receipt
requested, to the Company at its principal office, or to the Holder at the
address set forth on the record books of the Company, or at such other address
of which the Company or the Holder has been advised by notice in writing
hereunder.
9. Applicable Law. These Warrants shall be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to conflicts of law principles.
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IN WITNESS WHEREOF, the Company has caused these Warrants to
be signed on its behalf, in its corporate name, by its duly authorized officer,
all as of the day and year first above written.
ICon CMT Corp.
By:
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Name:
Title: President
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WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise Warrants to purchase
_______ shares of Common Stock of ICon CMT Corp., a Delaware corporation, and
hereby makes payment of $________ in full satisfaction therefor.
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Signature
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Signature, if jointly held
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Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the Holder of the within Warrants)
Name
----------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Social Security or Taxpayer Identification Number
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[PARKER CHAPIN FLATTAU & KLIMPL, LLP LETTERHEAD]
February 6, 1998
Icon CMT Corp.
1200 Harbor Boulevard
Weehawken, New Jersey 07087
Gentlemen:
We have acted as counsel to Icon CMT Corp., a Delaware
corporation (the "Company"), in connection with its filing of a registration
statement on Form S-1 (File No. 333-38339) (the "Registration Statement")
covering 4,427,500 shares of Common Stock, par value $.001 per share (the
"Shares"), of which an aggregate of up to 250,000 Shares, or such greater number
of Shares as will represent $3,000,000 in aggregate gross proceeds in the
offering contemplated by the Registration Statement (the "Insider Shares"), may
be sold by Mr. Scott A. Baxter, Mr. Richard M. Brown and/or Mr. Scott Harmolin
and the balance of which Shares will be sold by the Company (all such Shares to
be sold by the Company are collectively referred to herein as the "New Shares"),
all as more particularly described in the Registration Statement.
In our capacity as counsel to the Company, we have examined
originals or copies, satisfactory to us, of the Company's (i) Certificate of
Incorporation, (ii) By-laws and (iii) resolutions of the Company's Board of
Directors. We have also reviewed such other matters of law and examined and
relied upon such corporate records, agreements, certificates and other documents
as we have deemed relevant and necessary as a basis for the opinion hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with the original documents of all documents submitted to us as
copies or facsimiles. As to any facts material to such opinion, we have, to the
extent that relevant facts were not independently established by us, relied on
certificates of public officials and certificates of officers or other
representatives of the Company.
On the basis of the foregoing, we are of the opinion that:
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1. The New Shares have been validly authorized and, when sold as
contemplated in the Registration Statement, will be legally issued, fully paid
and non-assessable.
2. The Insider Shares have been validly authorized and legally
issued and are fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference made to us under the caption
"Legal Matters" in the prospectus constituting part of the Registration
Statement.
Very truly yours,
/s/ PARKER CHAPIN FLATTAU & KLIMPL, LLP
-----------------------------------------
PARKER CHAPIN FLATTAU & KLIMPL, LLP
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<PAGE>
AMENDED AND RESTATED
1995 STOCK OPTION PLAN
OF
ICON CMT CORP.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan")
is designed to provide an incentive to key employees (including directors and
officers who are key employees) and to consultants and directors who are not
employees of Icon CMT Corp., a Delaware corporation (the "Company"), and its
present and future Subsidiaries (as defined in Paragraph 19), and to offer an
additional inducement in obtaining the services of such persons. The Plan
provides for the grant of "incentive stock options" ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and nonqualified stock options which do not qualify as ISOs ("NQSOs"), but the
Company makes no representation or warranty, express or implied, as to the
qualification of any option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of common stock, $.001 par value
per share, of the Company ("Common Stock") for which options may be granted
under the Plan shall not exceed 2,181,818 (after giving effect to a 1-for-2.75
reverse split of the outstanding shares of Common Stock to be effected
immediately prior to the consummation of the Company's initial public offering).
Such shares of Common Stock may, in the discretion of the Board of Directors of
the Company (the "Board of Directors"), consist either in whole or in part of
authorized but unissued shares of Common Stock or shares of Common Stock held in
the treasury of the Company. Subject to the provisions of Paragraph 13, any
shares of Common Stock subject to an option which for any reason expires, is
canceled or is terminated unexercised or which ceases for any reason to be
exercisable shall again become available for the granting of options under the
Plan. The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by the Board of Directors. A majority of the members of the Board of Directors
shall constitute a quorum, and the acts of a majority of the members present at
any meeting at which a quorum is present, and any acts approved in writing by
all members without a meeting, shall be the acts of the Board of Directors.
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Subject to the express provisions of the Plan, the Board of
Directors shall have the authority, in its sole discretion, with respect to
Employee Options and Consultant Options (as defined in Paragraph 19): to
determine the key employees who shall be granted Employee Options and the
consultants and advisors who shall be granted Consultant Options; the times when
options shall be granted; whether an Employee Option shall be an ISO or a NQSO;
the number of shares of Common Stock to be subject to each option; the term of
each option; the date each option shall become exercisable; whether an option
shall be exercisable in whole, in part or in installments and, if in
installments, the number of shares of Common Stock to be subject to each
installment, whether the installments shall be cumulative, the date each
installment shall become exercisable and the term of each installment; whether
to accelerate the date of exercise of any option or installment; whether shares
of Common Stock may be issued upon the exercise of an option as partly paid and,
if so, the dates when future installments of the exercise price shall become due
and the amounts of such installments; the exercise price of each option; the
form of payment of the exercise price; whether to restrict the sale or other
disposition of the shares of Common Stock acquired upon the exercise of an
option and, if so, whether to waive any such restriction; whether to subject the
exercise of all or any portion of an option to the fulfillment of contingencies
as specified in the contract referred to in Paragraph 11 (the "Contract"),
including without limitation, contingencies relating to entering into a covenant
not to compete with the Company, any of its Subsidiaries or a Parent (as defined
in Paragraph 19), to financial objectives for the Company, any of its
Subsidiaries or a Parent, a division of any of the foregoing, a product line or
other category, and/or the period of continued employment of the optionee with
the Company, any of its Subsidiaries or a Parent, and to determine whether such
contingencies have been met; whether an optionee is Disabled (as defined in
Paragraph 19); and with respect to Employee Options and Consultant Options, the
amount, if any, necessary to satisfy the Company's obligation to withhold taxes
or other amounts; the fair market value of a share of Common Stock; to construe
the respective Contracts and the Plan; with the consent of the optionee, to
cancel or modify an option, provided, that the modified provision is permitted
to be included in an option granted under the Plan on the date of the
modification, and further, provided, that in the case of a modification (within
the meaning of Section 424(h) of the Code) of an ISO, such option as modified
would be permitted to be granted on the date of such modification under the
terms of the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; and to make all other determinations necessary or
advisable for administering the Plan. Any controversy or claim arising out of or
relating to the Plan, any option granted under the Plan or any Contract shall be
determined unilaterally by the Board of Directors in its sole discretion. The
determinations of the Board of Directors on the matters referred to in this
Paragraph 3 shall be conclusive and binding on the parties.
No member or former member of the Board of Directors shall be
liable for any action, failure to act or determination made in good faith with
respect to the Plan or any option hereunder.
4. ELIGIBILITY; GRANTS. The Board of Directors may from time
to time, in its sole discretion, consistent with the purposes of the Plan, grant
Employee Options to key employees (including officers and directors who are key
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employees) of, and Consultant Options to consultants to, the Company or any of
its Subsidiaries. Such options granted shall cover such number of shares of
Common Stock as the Board of Directors may determine, in its sole discretion;
provided, however, that the maximum number of shares subject to Employee Options
that may be granted to any individual during any calendar year under the Plan
(the "162(m) Maximum") shall not exceed 100,000 shares; and further, provided,
that the aggregate market value (determined at the time the option is granted in
accordance with Paragraph 5) of the shares of Common Stock for which any
eligible employee may be granted ISOs under the Plan or any other plan of the
Company, or of a Parent or a Subsidiary of the Company, which are exercisable
for the first time by such optionee during any calendar year shall not exceed
$100,000. Such limitation shall be applied by taking ISOs into account in the
order in which they were granted. Any option (or the portion thereof) granted in
excess of such amount shall be treated as a NQSO.
On the date an individual first becomes a Non-Employee
Director (as defined in Paragraph 19), he shall be granted a Non-Employee
Director Option (as defined in Paragraph 19) to purchase 3,273 shares of Common
Stock. In addition, immediately following each annual meeting of stockholders at
which directors are elected, every individual who, at such time, is a
Non-Employee Director (whether or not elected at such meeting) shall be granted
at such time a Non-Employee Director Option to purchase 2,182 shares of Common
Stock. In the event the remaining shares available for grant under the Plan are
not sufficient to grant the Non-Employee Director Options to each such
Non-Employee Director at any time, the number of shares subject to the
Non-Employee Director Options to be granted at such time shall be reduced
proportionately. The Board of Directors shall not have any discretion with
respect to the selection of directors to receive Non-Employee Director Options
or the amount, the price or the timing with respect thereto. A Non-Employee
Director shall not be entitled to receive any options under the Plan other than
Non-Employee Director Options.
5. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each Employee Option and Consultant Option shall be determined by
the Board of Directors in its sole discretion; provided, however, that the
exercise price of an ISO shall not be less than the fair market value of the
Common Stock subject to such option on the date of grant; and further, provided,
that if, at the time an ISO is granted, the optionee owns (or is deemed to own
under Section 424(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, of any of its
Subsidiaries or of a Parent, the exercise price of such ISO shall not be less
than 110% of the fair market value of the Common Stock subject to such ISO on
the date of grant. The exercise price of the shares of Common Stock under each
Non-Employee Director Option shall be equal to the fair market value of the
Common Stock subject to such option on the date of grant.
The fair market value of a share of Common Stock on any day
shall be (a) if the principal market for the Common Stock is a national
securities exchange, the average of the highest and lowest sales prices per
share of Common Stock on such day as reported by such exchange or
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on a composite tape reflecting transactions on such exchange, (b) if the
principal market for the Common Stock is not a national securities exchange and
the Common Stock is quoted on The Nasdaq Stock Market ("Nasdaq"), and (i) if
actual sales price information is available with respect to the Common Stock,
the average of the highest and lowest sales prices per share of Common Stock on
such day on Nasdaq, or (ii) if such information is not available, the average of
the highest bid and lowest asked prices per share of Common Stock on such day on
Nasdaq, or (c) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is not quoted on Nasdaq, the average of
the highest bid and lowest asked prices per share of Common Stock on such day as
reported on the OTC Bulletin Board Service or by National Quotation Bureau,
Incorporated or a comparable service; provided, however, that if clauses (a),
(b) and (c) of this Paragraph are all inapplicable, or if no trades have been
made or no quotes are available for such day, the fair market value of the
Common Stock shall be determined by the Board by any method consistent with
applicable regulations adopted by the Treasury Department relating to stock
options.
6. TERM. The term of each Employee Option and Consultant
Option granted pursuant to the Plan shall be such term as is established by the
Board of Directors, in its sole discretion; provided, however, that the term of
each ISO granted pursuant to the Plan shall be for a period not exceeding 10
years from the date of grant thereof; and further, provided, that if, at the
time an ISO is granted, the optionee owns (or is deemed to own under Section
424(d) of the Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, of any of its Subsidiaries or of a
Parent, the term of the ISO shall be for a period not exceeding five years from
the date of grant. Employee Options and Consultant Options shall be subject to
earlier termination as hereinafter provided. Subject to earlier termination as
hereinafter provided, each Non-Employee Director Option shall be exercisable for
a term of five years commencing on the date of grant.
7. EXERCISE. An option (or any part or installment thereof),
to the extent then exercisable, shall be exercised by giving written notice to
the Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Contract with respect to an
Employee Option permits installment payments) (a) in cash or by certified check
or (b) in the case of an Employee Option or a Consultant Option, if the
applicable Contract permits, with previously acquired shares of Common Stock
having an aggregate fair market value on the date of exercise (determined in
accordance with Paragraph 5) equal to the aggregate exercise price of all
options being exercised, or with any combination of cash, certified check or
shares of Common Stock
The Board of Directors may, in its sole discretion, permit
payment of the exercise price of an option by delivery by the optionee of a
properly executed notice, together with a copy of his irrevocable instructions
to a broker acceptable to the Board of Directors to deliver promptly to the
Company the amount of sale or loan proceeds sufficient to pay such exercise
price. In
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connection therewith, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of
an option shall not have the rights of a stockholder with respect to such shares
of Common Stock until the date of issuance of a stock certificate to him for
such shares; provided, however, that until such stock certificate is issued, any
optionee using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a stockholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be
purchased or issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be
expressly provided in the applicable Contract, any holder of an Employee Option
or Consultant Option whose relationship with the Company, its Parent and
Subsidiaries as an employee or a consultant has terminated for any reason (other
than in the case of an individual optionee his the death or Disability) may
exercise such option, to the extent exercisable on the date of such termination,
at any time within three months after the date of termination, but not
thereafter and in no event after the date the option would otherwise have
expired; provided, however, that if such relationship is terminated either (a)
for cause, or (b) without the consent of the Company, such option shall
terminate immediately.
For the purposes of the Plan, an employment relationship shall
be deemed to exist between an individual and a corporation if, at the time of
the determination, the individual was an employee of such corporation for
purposes of Section 422(a) of the Code. As a result, an individual on military,
sick leave or other bona fide leave of absence shall continue to be considered
an employee for purposes of the Plan during such leave if the period of the
leave does not exceed 90 days, or, if longer, so long as the individual's right
to reemployment with the Company (or a related corporation) is guaranteed either
by statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave.
Except as may otherwise be expressly provided in the
applicable Contract, Employee Options and Consultant Options granted under the
Plan shall not be affected by any change in the status of the optionee so long
as the optionee continues to be an employee of, or a consultant or advisor to,
the Company, or any of the Subsidiaries or a Parent (regardless of having
changed from one to the other or having been transferred from one corporation to
another).
Except as provided below, a Non-Employee Director Option may
be exercised at any time during its five year term. The Non-Employee Director
Option shall not be affected by the optionee ceasing to be a director of the
Company or becoming an employee of, or consultant to,
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the Company, any of its Subsidiaries or a Parent; provided, however, that if he
is terminated for cause, such option shall terminate immediately.
Nothing in the Plan or in any option granted under the Plan
shall confer on any optionee any right to continue in the employ of, or as a
consultant or advisor to, the Company, any of its Subsidiaries or a Parent, or
as a director of the Company, or interfere in any way with any right of the
Company, any of its Subsidiaries or a Parent to terminate the optionee's
relationship at any time for any reason whatsoever without liability to the
Company, any of its Subsidiaries or a Parent.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise
be expressly provided in the applicable Contract, if an individual optionee dies
(a) while he is an employee of, or consultant to, the Company, any of its
Subsidiaries or a Parent, (b) within three months after the termination of such
relationship (unless such termination was for cause or without the consent of
the Company) or (c) within one year following the termination of such
relationship by reason of his Disability, his Employee Option or Consultant
Option may be exercised, to the extent exercisable on the date of his death, by
his Legal Representative (as defined in Paragraph 19) at any time within one
year after death, but not thereafter and in no event after the date the option
would otherwise have expired.
Except as may otherwise be expressly provided in the
applicable Contract, any individual optionee whose relationship as an employee
of, or consultant to, the Company, its Parent and Subsidiaries has terminated by
reason of such optionee's Disability may exercise his Employee Option or
Consultant Option, to the extent exercisable upon the effective date of such
termination, at any time within one year after such date, but not thereafter and
in no event after the date the option would otherwise have expired.
The term of a Non-Employee Director Option shall not be
affected by the death or Disability of the optionee. If an optionee holding a
Non-Employee Director Option dies during the term of such option, the option may
be exercised at any time during its term by his Legal Representative.
10. COMPLIANCE WITH SECURITIES LAWS. The Board of Directors
may require, in its sole discretion, as a condition to the exercise of any
option that either (a) a Registration Statement under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the shares of Common
Stock to be issued upon such exercise shall be effective and current at the time
of exercise, or (b) there is an exemption from registration under the Securities
Act for the issuance of the shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Company to register shares subject to
any option under the Securities Act or to keep any Registration Statement
effective or current.
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The Board of Directors may require, in its sole discretion, as
a condition to the exercise of any option that the optionee execute and deliver
to the Company his representations and warranties, in form, substance and scope
satisfactory to the Board of Directors, which the Board of Directors determines
are necessary or convenient to facilitate the perfection of an exemption from
the registration requirements of the Securities Act, applicable state securities
laws or other legal requirement, including without limitation that (a) the
shares of Common Stock to be issued upon the exercise of the option are being
acquired by the optionee for his own account, for investment only and not with a
view to the resale or distribution thereof, and (b) any subsequent resale or
distribution of shares of Common Stock by such optionee will be made only
pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior to any offer of
sale or sale of such shares of Common Stock provide the Company with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution.
In addition, if at any time the Board of Directors shall
determine, in its sole discretion, that the listing or qualification of the
shares of Common Stock subject to such option on any securities exchange, Nasdaq
or under any applicable law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition to, or in connection
with, the granting of an option or the issue of shares of Common Stock
thereunder, such option may not be exercised in whole or in part unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board of Directors.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced
by an appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Board of Directors.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding
any other provision of the Plan, in the event of a stock dividend, split-up,
combination, reclassification, recapitalization, merger in which the Company is
the surviving corporation, or exchange of shares or the like which results in a
change in the number or kind of shares of Common Stock which are outstanding
immediately prior to such event, the aggregate number and kind of shares subject
to the Plan, the aggregate number and kind of shares subject to each outstanding
option and the exercise price thereof, and the number and kind of shares subject
to future Non-Employee Director Options and the 162(m) Maximum shall be
appropriately adjusted by the Board of Directors, whose determination shall be
conclusive and binding on all parties.
In the event of (a) the liquidation or dissolution of the
Company, or (b) a merger in which the Company is not the surviving corporation
or a consolidation, any outstanding options
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shall terminate upon the earliest of any such event, unless other provision is
made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors and approved by the Company's stockholders on
October 23, 1995. No option may be granted under the Plan after October 22,
2005. The Board of Directors, without further approval of the Company's
stockholders, may at any time suspend or terminate the Plan, in whole or in
part, or amend it from time to time in such respects as it may deem advisable,
including, without limitation, in order that ISOs granted hereunder meet the
requirements for "incentive stock options" under the Code, to comply with the
provisions of Rule 16b-3 (or any successor rule or regulation) promulgated under
the Securities Exchange Act of 1934, as amended (as the same may be in effect
and interpreted from time to time, "Rule 16b-3"), Section 162(m) of the Code, or
any change in applicable law, regulations, rulings or interpretations of
administrative agencies; provided, however, that no amendment shall be effective
without the requisite prior or subsequent stockholder approval which would (a)
except as contemplated in Paragraph 12, increase the maximum number of shares of
Common Stock for which options may be granted under the Plan or the 162(m)
Maximum, (b) materially increase the benefits accruing to participants under the
Plan or (c) change the eligibility requirements to receive options hereunder.
Notwithstanding the foregoing, the provisions regarding the selection of
directors for participation in, and the amount, the price or the timing of,
Non-Employee Director Options shall not be amended more than once every six
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act or the rules thereunder. No termination, suspension or
amendment of the Plan shall, without the consent of the holder of an existing
and outstanding option affected thereby, adversely affect his rights under such
option. The power of the Board of Directors to construe and administer any
options granted under the Plan prior to the termination or suspension of the
Plan nevertheless shall continue after such termination or during such
suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under
the Plan shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.
15. WITHHOLDING TAXES. The Company may withhold (a) cash, (b)
subject to any limitations under Rule 16b-3, shares of Common Stock to be issued
with respect thereto having an aggregate fair market value on the exercise date
(determined in accordance with Paragraph 5), or (c) any combination thereof, in
an amount equal to the amount which the Board of Directors determines is
necessary to satisfy the Company's obligation to withhold Federal, state and
local income taxes or other amounts incurred by reason of the grant or exercise
of an option, its
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disposition, or the disposition of the underlying shares of Common Stock.
Alternatively, the Company may require the holder to pay to the Company such
amount, in cash, promptly upon demand. The Company shall not be required to
issue any shares of Common Stock pursuant to any such option until all required
payments have been made.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws, (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock, or (c) permit the Company to determine the
occurrence of a "disqualifying disposition," as described in Section 421(b) of
the Code, of the shares of Common Stock issued or transferred upon the exercise
of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares
of Common Stock pursuant to the exercise of options under the Plan shall be
added to the general funds of the Company and used for such corporate purposes
as the Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Board of Directors may, without further approval by the stockholders,
substitute new options for prior options of a Constituent Corporation (as
defined in Paragraph 19) or assume the prior options of such Constituent
Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms
shall be defined as set forth below:
(a) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, any of
its Subsidiaries or a Parent in a transaction to which Section 424(a) of the
Code applies (or would apply if the option assumed or substituted were an ISO),
or any Parent or any Subsidiary of such corporation.
(b) Consultant Option. The term "Consultant Option"
shall mean a NQSO granted pursuant to the Plan to a person who, at the time of
grant, is a consultant to the
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Company or a Subsidiary of the Company, and at such time is neither a common law
employee of the Company or any of its Subsidiaries nor a director of the
Company.
(c) Disability. The term "Disability" shall mean a
permanent and total disability within the meaning of Section 22(e)(3) of the
Code.
(d) Employee Option. The term "Employee Option" shall
mean an option granted pursuant to the Plan to an individual who, at the time of
grant, is a key employee of the Company or any of its Subsidiaries.
(e) Legal Representative. The term "Legal
Representative" shall mean the executor, administrator or other person who at
the time is entitled by law to exercise the rights of a deceased or
incapacitated optionee with respect to an option granted under the Plan.
(f) Non-Employee Director. The term "Non-Employee
Director" shall mean a person who is a director of the Company, but is not a
common law employee of the Company, any of its Subsidiaries or a Parent.
(g) Non-Employee Director Option. The term
"Non-Employee Director Option" shall mean a NQSO granted pursuant to the Plan to
a person who, at the time of the grant, is a Non-Employee Director.
(h) Parent. The term "Parent" shall have the same
definition as "parent corporation" in Section 424(e) of the Code.
(i) Subsidiary. The term "Subsidiary" shall have the
same definition as "subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may
be granted hereunder and all related matters shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without regard to
conflict of law provisions.
Neither the Plan nor any Contract shall be construed or
interpreted with any presumption against the Company by reason of the Company
causing the Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan or any Contract shall not affect
the validity, legality or enforceability of any other provision, all of which
shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
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FINANCING AGREEMENT
The CIT Group/Business Credit, Inc.
(as Lender)
And
ICON CMT CORP.
(as Borrower)
Dated: August 13, 1996
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<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1. Definitions.....................................................3
SECTION 2. Conditions Precedent............................................8
SECTION 3. Revolving Loans................................................10
SECTION 4. Intentionally Omitted..........................................12
SECTION 5. Letters of Credit..............................................12
SECTION 6. Collateral.....................................................14
SECTION 7. Representations, Warranties and Covenants......................17
SECTION 8. Interest, Fees and Expenses....................................21
SECTION 9. Powers.........................................................22
SECTION 10. Events of Default and Remedies.................................22
SECTION 11. Termination....................................................24
SECTION 12. Miscellaneous..................................................25
Schedule I -- List of UCC Filing Locations
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THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation,
(hereinafter "CITBC") with offices located at 1211 Avenue of the Americas, New
York, NY 10036, is pleased to confirm the terms and conditions under which CITBC
shall make revolving loans, advances and other financial accommodations to ICON
CMT CORP. (herein the "Company"), a Delaware corporation with a principal place
of business at 1200 Harbor Boulevard, Weehawken, NJ 07087.
SECTION 1. DEFINITIONS
ACCESS GRAPHICS shall mean Access Graphics, Inc., a Delaware corporation.
ACCOUNTS shall mean all of the Company's now existing and future: (a) accounts
receivable, (whether or not specifically listed on schedules furnished to
CITBC), and any and all instruments, documents, contract rights, chattel paper,
general intangibles, including, without limitation, all accounts created by or
arising from all of the Company's sales of goods or rendition of services to its
customers, and all accounts arising from sales or rendition of services made
under any of the Company's trade names or styles, or through any of the
Company's divisions; (b) unpaid seller's rights (including rescission, replevin,
reclamation and stoppage in transit) relating to the foregoing or arising
therefrom; (c) rights to any goods represented by any of the foregoing,
including rights to returned or repossessed goods; (d) reserves and credit
balances arising hereunder; (e) guarantees or collateral for any of the
foregoing; (f) insurance policies or rights relating to any of the foregoing;
and (g) cash and non-cash proceeds of any and all the foregoing.
ANNIVERSARY DATE shall mean the date occurring one (1) year from the date hereof
and the same date in every year thereafter.
AVAILABILITY shall mean at any time the excess of Eligible Accounts Receivable
multiplied by the percentage provided for in paragraph I of Section 3 of this
Financing Agreement over the sum of x) the outstanding aggregate amount of all
Obligations of the Company, y) the Availability Reserve, and z) after the
occurrence of an Event of Default and until such time that the Event of Default
is waived in writing by CITBC, all payments of the Company to CITBC coming due
within sixty (60) days from the date of computation.
AVAILABILITY RESERVE shall mean, at any time of determination, the sum of i) the
then outstanding amount of all Letters of Credit; ii) $500,000.00, iii) all then
outstanding deposits given the Company by customers or prospective customers;
iv) $10,000.00 to cover the maximum amount that the Company's casualty insurance
carrier may set-off for past due premiums owed by the Company under its
insurance policy therewith, as set forth in the insurance loss payable
endorsement issued by such insurance carrier on or about the date hereof and
acceptable to CITBC ("Insurance Premium Reserve"), against all amounts payable
to CITBC under such insurance policy as loss payee, or such other amount of
Insurance Premium Reserve (higher or lower) that must be acceptable to CITBC
with respect to such policy or any other casualty insurance policy entered into
by the Company after the date hereof and V) at the sole discretion of CITBC, an
amount equal to the sum of two (2) times the monthly rent ( "Rental Reserve")
for each leased location where a Company has Inventory and/or Equipment but for
which CITBC has not received a Landlord Waiver, provided, however, that solely
with respect to any lease in effect on the date hereof, a Rental Reserve shall
not be taken by CITBC with respect thereto if a duly executed Landlord Waiver is
delivered to CITBC within ninety (90) days from the date hereof.
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BALANCE SHEET shall mean a balance sheet for the Company and prepared in
accordance with GAAP.
BUSINESS DAY shall mean any day on which both CITBC and The Chase Manhattan Bank
are open for business.
CHASE MANHATTAN BANK Rate shall mean the rate of interest per annum announced by
The Chase Manhattan Bank from time to time as its prime rate in effect at its
principal office in the City of New York. (The prime rate is not intended to be
the lowest rate of interest charged by Chase Manhattan Bank to its borrowers).
COLLATERAL shall mean all present and future Accounts, Inventory, Equipment,
Documents of Title and General Intangibles of the Company.
COLLATERAL MANAGEMENT FEE shall mean the sum of $18,000.00 which shall be paid
to CITBC in accordance with paragraph 8 of Section 8 hereof to offset the
expenses and costs of CITBC in connection with record keeping, periodic
examinations, analyzing and evaluating the Collateral.
CUSTOMARILY PERMITTED LIENS shall mean
(a) liens of local or state authorities for franchise or other like taxes
provided the aggregate amounts of such liens shall not exceed $50,000 in the
aggregate at any one time;
(b) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such liens) and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP;
(c) deposits made (and the liens thereon) in the ordinary course of business
(including, without limitation, security deposits for leases, surety bonds and
appeal bonds) in connection with workers' compensation, unemployment insurance
and other types of social security benefits or to secure the performance of
tenders, bids, contracts (other than for the repayment or guarantee of borrowed
money or purchase money obligations), statutory obligations and other similar
obligations arising as a result of progress payments under government contracts;
and
(d) easements (including, without limitation, reciprocal easement agreements
and utility agreements), encroachments, minor defects or irregularities in
title, variation and other restrictions, charges or encumbrances (whether or not
recorded) affecting the Real Estate.
DEFAULT shall mean any event specified in Section 10 hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.
DEFAULT RATE OF INTEREST shall mean a rate of interest per annum equal to the
sum of: a) four percent (4%) and b) the Chase Manhattan Bank Rate, which CITBC
shall be entitled to charge the Company on all Obligations due CITBC by the
Company to the extent provided in paragraph 2 of Section 10 of this Financing
Agreement.
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DEPOSITORY ACCOUNT shall mean those accounts owned by CITBC and designated for
the deposit of proceeds of Collateral.
DOCUMENTATION FEE shall mean i) the amount, which shall be included in the Loan
Facility Fee, intended to compensate CITBC for the use of CITBC's in-house Legal
Department and facilities in documenting, in whole or in part, the initial
transaction solely on behalf of CITBC, exclusive of Out-of-Pocket Expenses, and
ii) CITBC's standard fees relating to any and all modifications, waivers,
releases, amendments or additional collateral with respect to this Financing
Agreement, the Collateral and/or the Obligations.
DOCUMENTS OF TITLE shall mean all present and future warehouse receipts, bills
of lading, shipping documents, chattel paper, instruments and similar documents,
all whether negotiable or not and all goods and inventory relating thereto and
all cash and non-cash proceeds of the foregoing.
EARLY TERMINATION DATE shall mean the date on which the Company terminates this
Financing Agreement or the Line of Credit which date is prior to the second
Anniversary Date.
EARLY TERMINATION FEE shall: i) mean the fee CITBC is entitled to charge the
Company in the event the Company terminates the Line of Credit or this Financing
Agreement on a date prior to the second Anniversary Date; and ii) be determined
by calculating the average daily loan balance under the Revolving Loan for the
period from the date of this Financing Agreement to the Early Termination Date
and multiplying that number by one percent (1%) per annum for the number of days
from the Early Termination Date to the second Anniversary Date provided,
however, that no Early Termination Fee shall be due and payable by the Company
hereunder in the event the Company terminates the Line of Credit or this
Financing Agreement as a direct result of an initial public offering of the
Company's capital stock or a similar private equity financing.
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of this
Financing Agreement.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean the gross amount of the Company's
accounts receivable that conform to the warranties contained herein and at all
times continue to be acceptable to CITBC in the exercise of its reasonable
business judgment, less, without duplication, the sum of a) any returns,
discounts, claims, credits and allowances of any nature (whether issued, owing,
granted or outstanding) and b) reserves for: i) sales to the United States of
America or to any agency, department or division thereof, ii) foreign sales
other than sales x) secured by stand-by letters of credit (in form and substance
satisfactory to CITBC in its reasonable business discretion) issued or confirmed
by, and payable at, banks having a place of business in the United States of
America and payable in United States currency, and which sales otherwise comply
with all other criteria for eligibility hereunder or y) to customers residing in
Canada provided such sales otherwise comply with all of the other criteria for
eligibility hereunder, are payable in United States currency and such sales do
not exceed $750,000.00 in the aggregate at any one time; iii) accounts that
remain unpaid more than ninety (90) days from invoice date; iv) contras; v)
sales to any subsidiary or to any company affiliated with the Company in any
way; vi) bill and hold (deferred shipment) or consignment sales; vii) sales to
any customer which is a) insolvent, b) the debtor in any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any
federal or state law, c) negotiating, or has called a meeting of its creditors
for purposes of negotiating, a compromise of its debts or d) financially
unacceptable to CITBC or has a credit rating unacceptable to CITBC; viii) all
sales to any customer if fifty percent (50%) or more
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of either x) all outstanding invoices or y) the aggregate dollar amount of all
outstanding invoices, are unpaid more than ninety (90) days from invoice date;
ix) all sales to Access Graphics; x) any other reasons deemed necessary by CITBC
in its reasonable business judgment and which are customary either in the
commercial finance industry or in the lending practices of CITBC; and xi) an
amount representing, historically, returns, discounts, claims, credits and
allowances.
EQUIPMENT shall mean all present and hereafter acquired machinery, equipment,
furnishings and fixtures, and all additions, substitutions and replacements
thereof, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto and all proceeds
of whatever sort.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended
from time to time and the rules and regulations promulgated thereunder from time
to time.
GAAP shall mean generally accepted accounting principles in the United States of
America as in effect from time to time and for the period as to which such
accounting principles are to apply.
GENERAL INTANGIBLES shall have the meaning set forth in the Uniform Commercial
Code as in effect in the State of New York and shall include, without
limitation, all present and future right, title and interest in and to all
tradenames, trademarks (together with the goodwill associated therewith),
patents, licenses, customer lists, distribution agreements, supply agreements
and tax refunds, together with all monies and claims for monies now or hereafter
due and payable in connection with any of the foregoing or otherwise, and all
cash and non-cash proceeds thereof.
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or
otherwise, which are any of the following: (a) obligations in respect of
borrowed money or for the deferred purchase price of property, services or
assets, other than Inventory, or (b) lease obligations which, in accordance with
GAAP, have been, or which should be capitalized.
INTERCREDITOR AGREEMENT shall mean that certain intercreditor agreement between
CITBC and Access Graphics, in form and substance satisfactory to CITBC, pursuant
to which Access Graphics agrees that any security interest and lien it may have
in or on any Accounts or Inventory of the Company is subject and subordinate to
CITBC's lien thereupon or security interest therein.
INVENTORY shall mean all of the Company's present and hereafter acquired
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same; in all
stages of production - from raw materials through work-in-process to finished
goods - and all proceeds thereof of whatever sort.
ISSUING BANK shall mean the bank issuing Letters of Credit for the Company.
LANDLORD WAIVER shall mean a waiver executed by a landlord of a premises not
owned by the Company but otherwise leased, used, or occupied thereby, in form
and substance satisfactory to CITBC, containing provisions that, inter alia, (i)
waive any lien such party may have on any of the Inventory and/or Equipment of
the Company and ii) grant to CITBC access rights to the premises.
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LETTERS OF CREDIT shall mean all letters of credit issued with the assistance of
CITBC by the Issuing Bank for or on behalf of the Company.
LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by CITBC to the
Issuing Bank of the Company's reimbursement obligation under the Issuing Bank's
Reimbursement Agreement, Application for Letter of Credit or other like
document.
LETTER OF CREDIT GUARANTY FEE shall mean the fee CITBC may charge the Company
under paragraph 3 of Section 8 of this Financing Agreement for: i) issuing the
Letter of Credit Guaranty or ii) otherwise aiding the Company in obtaining
Letters of Credit.
LINE OF CREDIT shall mean the commitment of CITBC to make loans and advances
pursuant to Section 3 of this Financing Agreement and to assist the Company in
obtaining Letters of Credit under Section 4 of this Financing Agreement in the
aggregate amount equal to $10,000,000.00.
LINE OF CREDIT FEE shall: I) mean the fee due CITBC at the end of each month for
the Line of Credit, and II) be determined by multiplying the difference between
the Line of Credit and the sum of a) the average daily Revolving Loans of the
Company for said month and b) the average daily balance of outstanding Letters
of Credit by .3 75% per annum for the number of days in said month.
LOAN FACILITY FEE shall mean the fee payable to CITBC in accordance with, and
pursuant to, the provisions of paragraph 7 of Section 8 of this Financing
Agreement.
OBLIGATIONS shall mean all loans and advances made or to be made by CITBC to the
Company or to others for the Company's account; any and all indebtedness and
obligations which may at any time be owing by the Company to CITBC howsoever
arising, whether now in existence or incurred by the Company from time to time
hereafter; whether secured by pledge, hen upon or security interest in any of
the Company's assets or property or the assets or property of any other person,
firm entity or corporation; whether such indebtedness is absolute or contingent,
joint or several, matured or unmatured, direct or indirect and whether the
Company is liable to CITBC for such indebtedness as principal, surety, endorser,
guarantor or otherwise. Obligations shall also include indebtedness owing to
CITBC by the Company under this Financing Agreement or under any other agreement
or arrangement now or hereafter entered into between the Company and CITBC;
indebtedness or obligations incurred by, or imposed on, CITBC as a result of
environmental claims arising out of the Company's operation, premises or waste
disposal practices or sites; the Company's liability to CITBC as maker or
endorser on any promissory note or other instrument for the payment of money;
the Company's liability to CITBC under any instrument of guaranty or indemnity,
or arising under any guaranty, endorsement or undertaking which CITBC may make
or issue to others for the Company's account, including any accommodation
extended with respect to applications for Letters of Credit, CITBC's acceptance
of drafts or CITBC's endorsement of notes or other instruments for the Company's
account and benefit.
OUT-OF-POCKET EXPENSES shall mean all of CITBC's future expenses incurred
relative to this Financing Agreement, whether incurred heretofore or hereafter,
which expenses shall include, without being limited to, the cost of record
searches, all costs and expenses incurred by CITBC in opening bank accounts,
depositing checks, receiving and
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transferring funds, and any charges imposed on CITBC due to "insufficient funds"
of deposited checks and CITBC's standard fees relating thereto, any amounts paid
by, incurred by or charged to, CITBC by the Issuing Bank under the Letter of
Credit Guaranty or the Company's Reimbursement Agreement, Application for Letter
of Credit or other like document which pertain either directly or indirectly to
such Letters of Credit, and CITBC's standard fees relating to the Letters of
Credit and any drafts thereunder, local counsel fees (if any), fees and taxes
relative to the filing of financing statements, and all expenses, costs and fees
set forth in paragraph 3 of Section 10 of this Financing Agreement.
PERMITTED ENCUMBRANCES shall mean: i) liens expressly permitted, or consented
to, by CITBC; ii) Purchase Money Liens; iii) Customarily Permitted Liens; iv)
liens granted CITBC by the Company; v) liens of judgment creditors provided such
hens do not exceed, in the aggregate, at any time, $50,000.00 (other than liens
bonded or insured to the reasonable satisfaction of CITBC); and vi) liens for
taxes not yet due and payable or which are being diligently contested in good
faith by the Company by appropriate proceedings and which liens are not x) other
than with respect to Real Estate, senior to the liens of CITBC or y) for taxes
due the United States of America.
PERMITTED INDEBTEDNESS shall mean: i) current indebtedness maturing in less than
one year and incurred in the ordinary course of business for raw materials,
supplies, equipment, services, taxes or labor; ii) the indebtedness secured by
the Purchase Money Liens; iii) indebtedness arising under the Letters of Credit
and this Financing Agreement; iv) deferred taxes and other expenses incurred in
the ordinary course of business, v) indebtedness arising under that certain
letter of credit, issued by The Chase Manhattan Bank (formerly known as
"Chemical Bank"); in the face amount of $500,000.00, provided that such letter
of credit is not secured by a lien upon or a security interest in any of the
Collateral of the Company; and vi) other indebtedness existing on the date of
execution of this Financing Agreement and listed in the most recent financial
statement delivered to CITBC or otherwise disclosed to CITBC in writing.
PURCHASE MONEY LIENS shall mean liens on any item of Equipment acquired after
the date of this Financing Agreement provided that i) each such lien shall
attach only to the property to be acquired, ii) a description of the property so
acquired is furnished to CITBC, and iii) the debt incurred in connection with
such acquisitions shall not exceed in the aggregate $2,000,000.00 in any fiscal
year.
REAL ESTATE shall mean the Company's fee and/or leasehold interests in real
property.
REVOLVING LOANS shall mean the loans and advances made, from time to time, to or
for the account of the Company by CITBC pursuant to Section 3 of this Financing
Agreement.
SECTION 2. CONDITIONS PRECEDENT
The obligation of CITBC to make loans hereunder is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
making of such loans, the following conditions precedent (unless otherwise
indicated below):
a) LIEN SEARCHES - CITBC shall have received tax, judgment and Uniform
Commercial Code searches satisfactory to CITBC for all locations presently
occupied or used by the Company.
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b) CASUALTY INSURANCE - The Company shall have delivered to CITBC evidence
satisfactory to CITBC that casualty insurance policies listing CITBC as loss
payee or mortgagee, as the case may be, are in full force and effect, all as set
forth in Section 7, paragraph 5 of this Financing Agreement.
c) UCC FILINGS - Any documents (including without limitation, financing
statements) required to be filed in order to create, in favor of CITBC, a first
and exclusive perfected security interest in the Collateral with respect to
which a security interest may be perfected by a filing under the Uniform
Commercial Code shall have been properly filed in each office in each
jurisdiction required in order to create in favor of CITBC a perfected lien on
the Collateral. CITBC shall have received acknowledgment copies of all such
filings (or, in lieu thereof, CITBC shall have received other evidence
satisfactory to CITBC that all such filings have been made); and CITBC shall
have received evidence that all necessary filing fees and all taxes or other
expenses related to such filings have been paid in full.
d) EXAMINATION & VERIFICATION - CITBC shall have completed to the
satisfaction of CITBC an examination and verification of the Accounts,
Inventory, and books and records of the Company.
e) OPINIONS - Counsel for the Company shall have delivered to CITBC opinions
satisfactory to CITBC opining, inter alia, that, subject to the i) filing,
priority and remedies provisions of the Uniform Commercial Code, ii) the
provisions of the Bankruptcy Code, insolvency statutes or other like laws, iii)
the equity powers of a court of law and iv) such other matters as may be agreed
upon with CITBC all documents of the Company are x) valid, binding and
enforceable according to their terms, y) are duly authorized and z) do not
violate any terms, provisions, representations or covenants in the charter or
by-laws of the Company or, to the best knowledge of such counsel, of any loan
agreement, mortgage, deed of trust, note, security or pledge agreement or
indenture to which the Company is a signatory or by which the Company or its
assets are bound.
f) ADDITIONAL DOCUMENTS - The Company shall have executed and delivered to
CITBC all loan documents necessary to consummate the lending arrangement
contemplated between the Company and CITBC.
g) CITBC COMMITMENT LETTER - The Company has fully complied, to the
satisfaction of CITBC, with all of the terms and conditions of the commitment
letter, dated July 16, 1996, issued by CITBC to, and accepted by, the Company.
h) BOARD RESOLUTION - CITBC shall have received a copy of the resolutions of
the Board of Directors of the Company authorizing the execution, delivery and
performance of (i) this Financing Agreement, and (ii) any related agreements, in
each case certified by the Secretary or Assistant Secretary of the Company as of
the date hereof, together with a certificate of the Secretary or Assistant
Secretary of the Company as to the incumbency and signature of the officers of
the Company executing this Financing Agreement and any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary.
i) CORPORATE ORGANIZATION CITBC shall have received (i) a copy of the
Certificate of Incorporation of the Company certified by the Secretary of State
of its incorporation, and (ii) a copy of the By-Laws (as amended through the
date hereof) of the Company and certified by the Secretary or Assistant
Secretary of the Company.
j) OFFICER'S CERTIFICATE - CITBC shall have received an executed Officer's
Certificate of the Company, satisfactory in form and substance to CITBC,
certifying that (i) the representations and warranties contained herein are true
and correct in all material respects on and as of the date hereof, (ii) the
Company is in compliance with all of the terms and provisions set forth herein;
and (iii) no Event of Default or Default has occurred.
k) ABSENCE OF DEFAULT - No Default, Event of Default or material adverse
change in the financial condition, business, prospects, profits, operations or
assets of the Company shall have occurred.
l) LEGAL RESTRAINTS/LITIGATION - At the date of execution of this Financing
Agreement, there shall be no x) litigation, investigation or proceeding
(judicial or administrative) pending or threatened against the Company or its
assets, by any agency, division or department of any county, city, state or
federal government, y) injunction, writ
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or restraining order restraining or prohibiting the consummation of the
financing arrangements contemplated under this Financing Agreement or z) suit,
action, investigation or proceeding (judicial or administrative) pending or
threatened against the Company or its assets, which, in the opinion of CITBC, if
adversely determined could have a material adverse effect on the business,
operation, assets, financial condition or Collateral of the Company.
m) DISBURSEMENT AUTHORIZATION - The Company shall have delivered to CITBC all
information necessary for CITBC to issue wire transfer instructions on behalf of
the Company for the initial and subsequent loans and/or advances to be made
under this Agreement including, but not limited to, disbursement authorizations
in form acceptable to CITBC.
n) INTERCREDITOR AGREEMENT - CITBC has received a fully executed
Intercreditor Agreement together with at least four (4) UCC-3 financing
statements for each of the locations listed on Schedule I attached hereto and
made a part hereof.
o) LANDLORD WAIVERS - Within ninety (90) days from the date hereof, CITBC
shall have received from the landlord of each premises not owned by the Company
but otherwise leased, used, or occupied thereby, a Landlord Waiver provided,
however, that the failure of the Company to deliver or have delivered to CITBC
any Landlord Waiver shall not be deemed to be a Default or an Event of Default
under this Financing Agreement.
Except as otherwise set forth hereinabove, upon the execution of this Financing
Agreement and the initial disbursement of loans hereunder, all of the above
Conditions Precedent shall have been deemed satisfied except as the Company and
CITBC shall otherwise agree herein or in a separate writing.
SECTION 3. REVOLVING LOANS
1. CITBC agrees, subject to the terms and conditions of this Financing
Agreement from time to time, and within the Availability and y) the Line of
Credit, but subject to CITBC's right to make "overadvances", to make loans and
advances to the Company on a revolving basis (i.e. subject to the limitations
set forth herein, the Company may borrow, repay and re-borrow Revolving Loans).
Such loans and advances shall be in amounts up to eighty percent (80%) of the
outstanding Eligible Accounts Receivable of the Company. All requests for loans
and advances must be received by an officer of CITBC no later than 1:00 p.m.,
New York time, of the Business Day on which such loans and advances are
required. Should CITBC for any reason honor requests for advances in excess of
the limitations set forth herein, such advances shall be considered
"overadvances" and shall be made in CITBC's sole discretion, subject to any
additional terms CITBC deems necessary.
2. In furtherance of the continuing assignment and security interest in the
Company's Accounts, the Company will, upon the creation of Accounts, execute and
deliver to CITBC in such form and manner as CITBC may reasonably require, solely
for CITBC's convenience in maintaining records of collateral, such confirmatory
schedules of Accounts as CITBC may reasonably request, and such other
appropriate reports designating, identifying and describing the Accounts as
CITBC may reasonably require. In addition, upon CITBC's request the Company
shall provide CITBC with copies of agreements with, or purchase orders from, the
Company's customers, and copies of invoices to customers, proof of shipment or
delivery and such other documentation and information relating to said Accounts
and other collateral as CITBC may reasonably require. Failure to provide CITBC
with any of the foregoing shall in no way affect, diminish, modify or otherwise
limit the security interests granted herein. The
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Company hereby authorizes CITBC to regard the Company's printed name or rubber
stamp signature on assignment schedules or invoices as the equivalent of a
manual signature by one of the Company's authorized officers or agents.
3. The Company hereby represents and warrants that: each Account is based on
an actual and bona fide sale and delivery of goods or rendition of services to
customers, made by the Company in the ordinary course of its business; the
Inventory being sold and the Accounts created are the exclusive property of the
Company and are not and shall not be subject to any lien, consignment
arrangement, encumbrance, security interest or financing statement whatsoever,
other than the Permitted Encumbrances; the invoices evidencing such Accounts are
in the name of the Company; and the customers of the Company have accepted the
goods or services, owe and are obligated to pay the full amounts stated in the
invoices according to their terms, without dispute, offset, defense,
counterclaim or contra, except for disputes and other matters arising in the
ordinary course of business of which the Company has advised CITBC pursuant to
paragraph 5 of this Section 3. The Company confirms to CITBC that any and all
taxes or fees relating to its business, its sales, the Accounts or goods
relating thereto, are its sole responsibility and that same will be paid by the
Company when due and that none of said taxes or fees represent a lien on or
claim against the Accounts. The Company also warrants and represents that it is
a duly and validly existing corporation and is qualified in all states where the
failure to so qualify would have an adverse effect on the business of the
Company or the ability of the Company to enforce collection of Accounts due from
customers residing in that state. The Company agrees to maintain such books and
records regarding Accounts as CITBC may reasonably require and agrees that the
books and records of the Company will reflect CITBC's interest in the Accounts.
Upon reasonable prior notice, all of the books and records of the Company will
be available to CITBC at normal business hours, including any records handled or
maintained for the Company by any other company or entity provided, however,
that CITBC is not required to provide any such prior notice upon the occurrence
of i) a Default that has not been waived in writing or cured to the satisfaction
of CITBC or ii) an Event of Default that has not been waived in writing by
CITBC.
4. The Company may and will enforce, collect and receive all amounts owing on
the Accounts for CITBC's benefit and on CITBC's behalf, but at the Company's
expense, however, such privilege shall terminate automatically upon the
institution by or against the Company of any proceeding under any bankruptcy or
insolvency law or, at the election of CITBC, upon the occurrence of any other
Event of Default and until such Event of Default is waived. Any checks, cash,
notes or other instruments or property received by the Company with respect to
any Accounts shall be held by the Company in trust for CITBC, separate from the
Company's own property and funds, and immediately turned over to CITBC with
proper assignments or endorsements by deposit to the Depository Accounts. All
amounts received by CITBC in payment of Accounts will be credited to the
Company's accounts upon CITBC's receipt of "collected funds" at CITBC's bank
account in New York, New York on the Business Day of receipt if received no
later than 1:00 pm or on the next succeeding Business Day if received after 1:00
pm. No checks, drafts or other instrument received by CITBC shall constitute
final payment to CITBC unless and until such instruments have actually been
collected.
5. The Company agrees to notify CITBC promptly of any matters materially
affecting the value, enforceability or collectibility of any Account and of all
material customer disputes, offsets, defenses, counterclaims, returns,
rejections and all reclaimed or repossessed merchandise or goods. The Company
agrees to issue credit memoranda promptly (with duplicates to CITBC upon request
after the occurrence of an Event of Default and until such Event of Default is
waived in writing by CITBC) upon accepting returns or granting allowances, and
may continue to do so until CITBC has notified the Company that an Event of
Default has occurred (that has not been waived in writing by
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CITBC) and that all future credits or allowances are to be made only after
CITBC's prior written approval. Upon the occurrence of an Event of Default and
until such time as such Event of Default is waived and on notice from CITBC, the
Company agrees that all returned, reclaimed or repossessed merchandise or goods
shall be set aside by the Company, marked with CITBC's name and held by the
Company for CITBC's account as owner and assignee.
6. CITBC shall maintain a separate account on its books in the Company's name
in which the Company will be charged with loans and advances made by CITBC to it
or for its account, and with any other Obligations, including any and all costs,
expenses and reasonable attorney's fees which CITBC may incur in connection with
the exercise by or for CITBC of any of the rights or powers herein conferred
upon CITBC, or in the prosecution or defense of any action or proceeding to
enforce or protect any rights of CITBC in connection with this Financing
Agreement or the Collateral assigned hereunder, or any Obligations owing to
CITBC by the Company. The Company will be credited with all amounts received by
CITBC from the Company or from others for the Company's account, including, as
above set forth, all amounts received by CITBC in payment of assigned Accounts
and such amounts will be applied to payment of the Obligations. In no event
shall prior recourse to any Accounts or other security granted to or by the
Company be a prerequisite to CITBC's right to demand payment of any Obligation.
Further, it is understood that CITBC shall have no obligation whatsoever to
perform in any respect any of the Company's contracts or obligations relating to
the Accounts.
7. After the end of each month, CITBC shall promptly send the Company a
statement showing the accounting for the charges, loans, advances and other
transactions occurring between CITBC and the Company during that month. The
monthly statements shall be deemed correct and binding upon the Company and
shall constitute an account stated between the Company and CITBC unless CITBC
receives a written statement of the exceptions within thirty (30)days of the
date of the monthly statement.
SECTION 4. INTENTIONALLY OMITTED
SECTION 5. LETTERS OF CREDIT
In order to assist the Company in establishing or opening Letters of
Credit with an Issuing Bank to cover the purchase of Equipment or otherwise,
(but not for the purchase of Inventory, nor to secure payment of the Company's
obligations to its suppliers) the Company has requested CITBC to join in the
applications for such Letters of Credit, and/or guarantee payment or performance
of such Letters of Credit and any drafts or acceptances thereunder through the
issuance of the Letters of Credit Guaranty, thereby lending CITBC's credit to
the Company and CITBC has agreed to do so. These arrangements shall be handled
by CITBC subject to the terms and conditions set forth below.
1. The amount, purpose and extent of the Letters of Credit and changes or
modifications thereof by the Company and/or the Issuing Bank of the terms and
conditions thereof shall in all respects be subject to the prior approval of
CITBC in the exercise of its reasonable discretion provided however, that: a) in
no event may the aggregate amount of all such outstanding Letters of Credit
exceed, in the aggregate, at any one time $500,000.00, and b) the Letter of
Credit and all documentation in connection therewith shall be in form and
substance satisfactory to the Company, CITBC and the Issuing Bank.
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2. CITBC shall have the right, without notice to the Company, to charge the
Company's account on CITBC's books with the amount of any and all indebtedness,
liability or obligation of any kind incurred by CITBC under the Letters of
Credit Guaranty at the earlier of a) payment by CITBC under the Letters of
Credit Guaranty, or b) the occurrence of an Event of Default that has not been
waived in writing by CITBC. Any amount charged to Company's loan account shall
be deemed a Revolving Loan hereunder and shall incur interest at the rate
provided in Section 8, paragraph 1 of this Financing Agreement.
3. The Company unconditionally indemnifies CITBC and holds CITBC harmless
from any and all loss, claim or liability incurred by CITBC arising from any
transactions or occurrences relating to Letters of Credit established or opened
for the Company's account, the collateral relating thereto and any drafts or
acceptances thereunder, and all Obligations thereunder, including any such loss
or claim due to any action taken by any Issuing Bank, other than for any such
loss, claim or liability arising out of the gross negligence or willful
misconduct by CITBC under the Letters of Credit Guaranty. The Company further
agrees to hold CITBC harmless from any errors or omission, negligence or
misconduct by the Issuing Bank. The Company's unconditional obligation to CITBC
hereunder shall not be modified or diminished for any reason or in any manner
whatsoever, other than as a result of CITBC's gross negligence or willful
misconduct. The Company agrees that any charges incurred by CITBC for the
Company's account by the Issuing Bank shall be conclusive on CITBC and may be
charged to the Company's account.
4. CITBC shall not be responsible for: the existence, character, quality,
quantity, condition, packing, value or delivery of the goods purporting to be
represented by any documents; any difference or variation in the character,
quality, quantity, condition, packing, value or delivery of the goods from that
expressed in the documents; the validity, sufficiency or genuineness of any
documents or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged;
the time, place, manner or order in which shipment is made; partial or
incomplete shipment, or failure or omission to ship any or all of the goods
referred to in the Letters of Credit or documents; any deviation from
instructions; delay, default, or fraud by the shipper and/or anyone else in
connection with the Collateral or the shipping thereof, or any breach of
contract between the shipper or vendors and the Company. Furthermore, without
being limited by the foregoing, CITBC shall not be responsible for any act or
omission with respect to or in connection with any Collateral.
5. The Company agrees that any action taken by CITBC, if taken in good faith,
or any action taken by any Issuing Bank, under or in connection with the Letters
of Credit, the guarantees, the drafts or acceptances, or the Collateral, shall
be binding on the Company and shall not put CITBC in any resulting liability to
the Company. In furtherance thereof but subject to paragraph 6 below, CITBC
shall have the full right and authority to clear and resolve any questions of
non-compliance of documents; to give any instructions as to acceptance or
rejection of any documents or goods; to execute any and all steamship or airways
guaranties (and applications therefore), indemnities or delivery orders; to
grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letters of Credit, drafts
or acceptances; all in CITBC's sole name, and the Issuing Bank shall be entitled
to comply with and honor any and all such documents or instruments executed by
or received solely from CITBC, all without any notice to or any consent from the
Company.
6. Without CITBC's express consent and endorsement in writing, the Company
agrees: a) not to execute any and all applications for steamship or airway
guaranties, indemnities or delivery orders; to grant any extensions of the
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maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents; or to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the applications, Letters of Credit, drafts or acceptances; and b) after the
occurrence of an Event of Default which is not waived by CITBC, not to i) clear
and resolve any questions of non-compliance of documents, or ii) give any
instructions as to acceptances or rejection of any documents or goods.
7. The Company agrees that any necessary import, export or other licenses or
certificates for the import or handling of Equipment will have been promptly
procured; all foreign and domestic governmental laws and regulations in regard
to the shipment and importation of Equipment, or the financing thereof will have
been promptly and full complied with; and any certificates in that regard that
CITBC may at any time request will be promptly furnished. In this connection,
the Company warrants and represents that all shipments made under any such
Letters of Credit are in accordance with the laws and regulations of the
countries in which the shipments originate and terminate, and are not prohibited
by any such laws and regulations. The Company assumes all risk, liability and
responsibility for, and agrees to pay and discharge, all present and future
local, state, federal or foreign taxes, duties, or levies. Any embargo,
restriction, laws, customs or regulations of any country, state, city, or other
political subdivision, where the Collateral is or may be located, or wherein
payments are to be made, or wherein drafts may be drawn, negotiated, accepted,
or paid, shall be solely the Company's risk, liability and responsibility.
8. Upon any payments made to the Issuing Bank under the Letter of Credit
Guaranty, CITBC shall acquire by subrogation, any rights, remedies, duties or
obligations granted or undertaken by the Company to the Issuing Bank in any
application for Letters of Credit, any standing agreement relating to Letters of
Credit or otherwise, all of which shall be deemed to have been granted to CITBC
and apply in all respects to CITBC and shall be in addition to any rights,
remedies, duties or obligations contained herein.
SECTION 6. COLLATERAL
1. As security for the prompt payment in full of all loans and advances made
and to be made to the Company from time to time by CITBC pursuant hereto, as
well as to secure the payment in full of the other Obligations, the Company
hereby pledges and grants to CITBC a continuing general lien upon and security
interest in all of its:
(a) present and hereafter acquired Equipment;
(b) present and future Accounts;
(c) present and hereafter acquired Inventory;
(d) present and future Documents of Title; and
(e) present and future General Intangibles.
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2. The security interests granted hereunder shall extend and attach to:
(a) All Collateral which is presently in existence and which is owned by the
Company or in which the Company has any interest, whether held by the Company or
others for its account, and, if any Collateral is Equipment, whether the
Company's interest in such Equipment is as owner or lessee (excluding any
Equipment for which the applicable lease prohibits the Company from granting an
assignment of rights therein or any lien thereon or security interest therein
solely with respect to such Equipment) or conditional vendee;
(b) All Equipment whether the same constitutes personal property or fixtures,
including, but without limiting the generality of the foregoing, component parts
thereof and additions thereto, as well as all accessories, motors, engines and
auxiliary parts used in connection with or attached to the Equipment; and
(c) All Inventory and any portion thereof which may be returned, rejected,
reclaimed or repossessed by either CITBC or the Company from the Company's
customers as well as to all supplied, goods, incidentals, packaging materials,
labels and any other items which contribute to the finished goods or products
manufactured or processed by the Company, or to the sale, promotion or shipment
thereof.
3. The Company agrees to dispose of Inventory only in the regular course of
the business of the Company as herein provided. Inventory may only be sold and
shipped by the Company to its customers in the ordinary course of the Company's
business, on open account and on terms currently being extended by the Company
to its customers, provided that all proceeds of all sales on open account
(including cash, accounts receivable, checks, notes, instruments for the payment
of money and similar proceeds) are forthwith transferred, endorsed, and turned
over and delivered to CITBC by deposit in the Depository Accounts. Sales of
Inventory in which a lien upon, or security interest in, Inventory is retained
by the Company shall be made by the Company only with the approval of CITBC, and
the proceeds of such sales or sales of Inventory for cash shall not be
commingled with the Company's other property, but shall be segregated, held by
the Company in trust for CITBC as CITBC's exclusive property, and shall be
delivered immediately by the Company to CITBC in the identical form received by
the Company by deposit to the Depository Accounts. Upon the sale, exchange, or
other disposition of Inventory, as herein provided, the security interest in the
Company's Accounts provided for herein shall, without further formality or act,
continue in, and attach to, all proceeds, including any instruments for the
payment of money, accounts receivable, contract rights, documents of title,
shipping documents, chattel paper and all other cash and non-cash proceeds of
such sale, exchange or disposition. As to any such sale, exchange or other
disposition, CITBC shall have all of the rights of an unpaid seller, including
stoppage in transit, replevin, rescission and reclamation.
4. The Company agrees at its own cost and expense to keep the Equipment in as
good and substantial repair and condition as the same is now or at the time the
lien and security interest granted herein shall attach thereto, reasonable wear
and tear excepted, making any and all repairs and replacements when and where
necessary. The Company also agrees to safeguard, protect and hold all Equipment
for CITBC's account and make no disposition thereof unless the Company first
obtains the prior written approval of CITBC. Any sale, exchange or other
disposition of any Equipment shall only be made by the Company with the prior
written approval of CITBC, and the proceeds of any such sales shall not be
commingled with the Company's other property, but shall be segregated, held by
the Company in trust for CITBC as CITBC's exclusive property, and shall be
delivered immediately by the Company to CITBC in the identical form received by
the Company by deposit to the Depository Accounts. Upon
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the sale, exchange, or other disposition of the Equipment, as herein provided,
the security interest provided for herein shall, without break in continuity and
without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, accounts receivable,
contract rights, documents of title, shipping documents, chattel paper and all
other cash and non-cash proceeds of such sales, exchange or disposition. As to
any such sale, exchange or other disposition, CITBC shall have all of the rights
of an unpaid seller, including stoppage in transit, replevin, rescission and
reclamation. Notwithstanding anything hereinabove contained to the contrary, the
Company may sell, exchange or otherwise dispose of obsolete Equipment or
Equipment no longer needed in the Company's operations, provided, however,
that (a) the then book value of the Equipment so disposed of does not exceed
$500,000.00 in the aggregate in any fiscal year and (b) the proceeds of such
sales or dispositions are delivered to CITBC in accordance with the foregoing
provisions of this paragraph, except that the Company may retain and use such
proceeds to purchase forthwith replacement Equipment which the Company
determines in its reasonable business judgment to have a collateral value at
least equal to the Equipment so disposed of or sold, provided, however, that the
aforesaid right shall automatically cease upon the occurrence of an Event of
Default which is not waived.
5. The rights and security interests granted to CITBC hereunder are to
continue in full force and effect, notwithstanding the termination of this
Financing Agreement or the fact that the account maintained in the Company's
name on the books of CITBC may from time to time be temporarily in a credit
position, until the final payment in full to CITBC of all Obligations and the
termination of this Financing Agreement. Any delay, or omission by CITBC to
exercise any right hereunder, shall not be deemed a waiver thereof, or be deemed
a waiver of any other right, unless such waiver be in writing and signed by
CITBC. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right or remedy on any future occasion.
6. To the extent that the Obligations are now or hereafter secured by any
assets or property other than the Collateral or by the guarantee, endorsement,
assets or property of any other person, then CITBC shall have the right in its
sole discretion to determine which rights, security, liens, security interests
or remedies CITBC shall at any time pursue, foreclose upon, relinquish,
subordinate, modify or take any other action with respect to, without in any way
modifying or affecting any of them, or any of CITBC's rights hereunder.
7. Any reserves or balances to the credit of the Company and any other
property or assets of the Company in the possession of CITBC may be held by
CITBC as security for any Obligations and applied in whole or partial
satisfaction of such Obligations when due. The liens and security interests
granted herein and any other lien or security interest CITBC may have in any
other assets of the Company, shall secure payment and performance of all now
existing and future Obligations. CITBC may in its discretion charge any or all
of the Obligations to the account of the Company when due.
8. The Company shall give to CITBC from time to time such pledge or security
agreements with respect to General Intangibles (now or hereafter acquired) and
of the Company as CITBC shall require to obtain valid first liens thereon. In
furtherance of the foregoing, the Company shall provide timely notice to CITBC
of any and all United States patents, trademarks, service marks, copyrights,
brand names, trade names, logos and other trade designations acquired or applied
for on or subsequent to the date hereof and the Company shall execute such
documentation as CITBC may reasonably require to obtain and perfect its lien
thereon.
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9. The Company shall give to CITBC or shall cause the appropriate party to
give to CITBC a Landlord Waiver from each landlord of any premises not owned but
otherwise leased, used, or occupied by the Company on or after the date hereof,
provided, however, that the failure of the Company to deliver or have delivered
to CITBC any Landlord Waiver shall not be a Default or Event of Default
hereunder.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
1. The Company hereby warrants and represents and/or covenants that: i) the
fair value of the Company's assets exceeds the book value of the Company's
liabilities; ii) the Company is generally able to pay its debts as they become
due and payable; and iii) the Company does not have unreasonably small capital
to carry on its business as it is currently conducted absent extraordinary and
unforeseen circumstances. The Company further warrants and represents that
except for the Permitted Encumbrances, the security interests granted herein
constitute and shall at all times constitute the first and only liens on the
Collateral; that, except for the Permitted Encumbrances, the Company is or will
be at the time Inventory or additional Collateral is acquired by it, the
absolute owner of such Inventory or the Collateral with full right to pledge,
sell, consign, transfer and create a security interest therein, free and clear
of any and all claims or liens in favor of others; that the Company will at its
expense forever warrant and, at CITBC's request, defend the same from any and
all claims and demands of any other person other than the Permitted
Encumbrances; that the Company will not grant, create or permit to exist, any
lien upon or security interest in the Inventory or Collateral, or any proceeds
thereof, in favor of any other person other than the holders of the Permitted
Encumbrances; and that the Equipment does not comprise a part of the Inventory
of the Company and that the Equipment is and will only be used by the Company in
its business and will not be held for sale or lease, or removed from its
premises, or otherwise disposed of by the Company without the prior written
approval of CITBC except as otherwise permitted in paragraph 4 of Section 6 of
this Financing Agreement.
2. The Company agrees to maintain books and records pertaining to the
Inventory and Collateral in such detail, form and scope as CITBC shall
reasonably require. The Company agrees that CITBC or its agents may enter upon
the Company's premises at any time after reasonable notice during normal
business hours, and from time to time, for the purpose of inspecting the
Collateral and the Inventory, and any and all records pertaining thereto
provided, however, that CITBC is not required to provide any such prior notice
upon the occurrence of i) a Default that has not been waived in writing or cured
to the satisfaction of CITBC or ii) an Event of Default that has not been waived
in writing by CITBC. The Company agrees to afford CITBC prior written notice of
any change in the location of any Collateral, other than to locations, that as
of the date hereof, are known to CITBC and at which CITBC has filed financing
statements and otherwise fully perfected its liens thereon. The Company is also
to advise CITBC promptly, in sufficient detail, of any material adverse change
relating to the type, quantity or quality of the Collateral or on the security
interests granted to CITBC therein.
3. The Company agrees to: execute and deliver to CITBC, from time to time,
solely for CITBC's convenience in maintaining a record of the Collateral, such
written statements, and schedules as CITBC may reasonably require, designating,
identifying or describing the Collateral pledged to CITBC hereunder. The
Company's failure, however, to promptly give CITBC such statements, or schedules
shall not affect, diminish, modify or otherwise limit CITBC's security interests
in the Collateral.
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4. The Company agrees to comply with the requirements of all state and
federal laws in order to grant to CITBC valid and perfected first security
interests in the Collateral, subject only to the Permitted Encumbrances. CITBC
is hereby authorized by the Company to file any financing statements covering
the Collateral whether or not the Company's signature appears thereon. The
Company agrees to do whatever CITBC may reasonably request, from time to time,
by way of filing notices of liens, financing statements, amendments, renewals
and continuations thereof, cooperating with CITBC's agents and employees;
keeping Collateral records; transferring proceeds of Collateral to CITBC's
possession; and performing such further acts as CITBC may reasonably require in
order to effect the purposes of this Financing Agreement.
5.(a) The Company agrees to maintain insurance on the Real Estate, Equipment
and Inventory under such policies of insurance, with such insurance companies,
in such reasonable amounts and covering such insurable risks as are at all times
reasonably satisfactory to CITBC. All policies covering the Inventory and
Equipment are, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to CITBC, to be made payable to CITBC, in case of loss,
under a standard non-contributory "mortgagee", "lender" or "secured party"
clause and are to contain such other provisions as CITBC may require to fully
protect CITBC's interest in the Inventory and Equipment and to any payments to
be made under such policies. All original policies or true copies thereof are to
be delivered to CITBC, premium prepaid, with the loss payable endorsement in
CITBC's favor, and shall provide for not less than thirty (30) days prior
written notice to CITBC of the exercise of any right of cancellation. At the
Company's request, or if the Company fails to maintain such insurance, CITBC may
arrange for such insurance, but at the Company's expense and without any
responsibility on CITBC's part for: obtaining the insurance, the solvency of the
insurance companies, the adequacy of the coverage, or the collection of claims.
Upon the occurrence of an Event of Default which is not waived, CITBC shall,
subject to the rights of any holders of Permitted Encumbrances holding claims
senior to CITBC, have the sole right, in the name of CITBC or the Company, to
file claims under any insurance policies, to receive, receipt and give
acquittance for any payments that may be payable thereunder, and to execute any
and all endorsements, receipts, releases, assignments, reassignments or other
documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.
(b) In the event of any loss or damage by fire or other casualty, insurance
proceeds relating to the Equipment or Inventory shall reduce the Company's
Revolving Loan.
6. The Company agrees to pay, when due, all taxes, assessments, claims and
other charges (herein "taxes") lawfully levied or assessed upon the Company or
the Collateral and if such taxes remain unpaid after the date fixed for the
payment thereof unless such taxes are being diligently contested in good faith
by the Company by appropriate proceedings or if any lien shall be claimed
thereunder x) for taxes due the United States of America or y) which in CITBC's
opinion might create a valid obligation having priority over the rights granted
to CITBC herein, CITBC may, on the Company's behalf, pay such taxes, and the
amount thereof shall be an Obligation secured hereby and due to CITBC on demand.
7. The Company: (a) agrees to comply with all acts, rules, regulations and
orders of any legislative, administrative or judicial body or official, which
the failure to comply with would have a material and adverse impact on the
Collateral, or any material part thereof, or on the operation of the Company's
business, provided that the Company may contest any acts, rules, regulations,
orders and directions of such bodies or officials in any reasonable manner which
will not, in CITBC's reasonable opinion, materially and adversely effect CITBC's
rights or priority in the Collateral; (b) agrees to comply with all
environmental statutes, acts, rules, regulations or orders as presently existing
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or as adopted or amended in the future, applicable to the ownership and/or use
of its Real Estate and operation of its business, which the failure to comply
with would have a material and adverse impact on the Collateral, or any material
part thereof, or on the operation of the business of the Company. The Company
hereby indemnifies CITBC and agrees to defend and hold CITBC harmless from and
against any and all loss, damage, claim, liability, injury or expense witch
CITBC may sustain or incur in connection with: any claim or expense asserted
against CITBC as a result of any environmental pollution, hazardous material or
environmental clean-up of the Company's Real Estate; or any claim or expense
which results from the Company's operations (including, but not limited to, the
Company's off-site disposal practices) and the Company further agrees that this
indemnification shall survive termination of this Financing Agreement as well as
the payment of all Obligations or amounts payable hereunder; and (c) shall not
be deemed to have breached any provision of this paragraph 7 if (i) the failure
to comply with the requirements of this paragraph 7 resulted from good faith
error or innocent omission, (ii) the Company promptly commences and diligently
pursues a cure of such breach and (iii) such failure is cured within fifteen
(15) Business Days following the Company's receipt of notice of such failure.
8. Until termination of the Financing Agreement and payment and satisfaction
of all Obligations due hereunder, the Company agrees that, unless CITBC shall
have otherwise consented in writing, the Company will furnish to CITBC, within
ninety (90) days after the end of each fiscal year of the Company, a Balance
Sheet as at the close of such year, and statements of profit and loss, cash flow
and reconciliation of surplus of the Company for such year, audited by
independent public accountants selected by the Company and reasonably
satisfactory to CITBC; within sixty (60) days after the end of each fiscal
quarter a Balance Sheet as at the end of such period and statements of profit
and loss, cash flow and surplus of the Company, certified by an authorized
financial or accounting officer of the Company; and within thirty (30) days
after the end of each month a Balance Sheet as at the end of such period and
statements of profit and loss, cash flow and surplus of the Company for such
period, certified by an authorized financial or accounting officer of the
Company; and from time to time, such further information regarding the business
affairs and financial condition of the Company as CITBC may reasonably request,
including without limitation annual cash flow projections in form satisfactory
to CITBC in its reasonable business judgment. Each financial statement which the
Company is required to submit hereunder must be accompanied by an officer's
certificate, signed by the President, Vice President, Controller, or Treasurer,
pursuant to which any one such officer must certify that: (i) the financial
statement(s) fairly and accurately represent(s) the Company's financial
condition at the end of the particular accounting period, as well as the
Company's operating results during such accounting period, subject to year-end
audit adjustments; (ii) during the particular accounting period: (x) there has
been no Default or Event of Default under this Financing Agreement, provided,
however, that if any such officer has knowledge that any such Default or Event
of Default, has occurred during such period, the existence of and a detailed
description of same shall be set forth in such officer's certificate; and (y)
the Company has not received any notice of cancellation with respect to its
property insurance policies; and (iii) the exhibits attached to such financial
statement(s) constitute detailed calculations showing compliance with all
financial covenants contained in this Financing Agreement.
9. INTENTIONALLY OMITTED
10. Until termination of the Financing Agreement and payment and satisfaction
of all Obligations due hereunder, the Company agrees that, without the prior
written consent of CITBC, except as otherwise herein provided, the Company will
not:
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A. Mortgage, assign, pledge, transfer or otherwise permit any lien,
charge, security interest, encumbrance or judgment, (whether as a
result of a purchase money or title retention transaction, or other
security interest, or otherwise) to exist on any of its assets or
goods, whether real, personal or mixed, whether now owned or hereafter
acquired, except for the Permitted Encumbrances;
B. Incur or create any Indebtedness other than the Permitted
Indebtedness;
C. Borrow any money on the security of the Company's Inventory or
Collateral from sources other than CITBC (other than Permitted
Indebtedness incurred by the granting of Purchase Money Liens);
D. Sell, lease, assign, transfer or otherwise dispose of i) Collateral,
except as otherwise specifically permitted by this Financing
Agreement, or ii) either all or substantially all of the Company's
assets, which do not constitute Collateral;
E. Merge, consolidate or otherwise alter or modify its corporate name,
principal place of business, structure, status or existence, or enter
into or engage in any operation or activity materially different from
that presently being conducted by the Company;
F. Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business;
G. Declare or pay any dividend of any kind on, or purchase, acquire,
redeem or retire, any of the capital stock or equity interest, of any
class whatsoever, whether now or hereafter outstanding; or
H. Make any advance or loan to, or any investment in, any firm, entity,
person or corporation i) such that the original principal amount of
any one (1) loan exceeds $50,000.00 or ii) the aggregate outstanding
principal amount of all loans made by the Company exceeds $300,000.00
at any one time.
11. INTENTIONALLY OMITTED
12. INTENTIONALLY OMITTED
13. INTENTIONALLY OMITTED
14. The Company agrees to advise CITBC in writing of a) all expenditures
(actual or anticipated) in excess of $150,000.00 for x) environmental clean-up,
y) environmental compliance or z) environmental testing and the impact of said
expenses on the Company's Working Capital; and b) any notices the Company
receives from any local, state or federal authority advising the Company of any
environmental liability (real or potential) stemming from the Company's
operations, its premises, its waste disposal practices, or waste disposal sites
used by the Company and to provide CITBC with copies of all such notices if so
required.
15. Without the prior written consent of CITBC, the Company agrees that it
will not enter into any transaction, including, without limitation, any
purchase, sale, lease, loan or exchange of property with any subsidiary or
affiliate of the Company.
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SECTION 8. INTEREST, FEES AND EXPENSES
1. Interest on the Revolving Loan shall be payable monthly as of the end of
each month and shall be an amount equal to the sum of one percent (1%) and the
Chase Manhattan Bank Rate, on a per annum basis, on the average of the net
balances owing by the Company to CITBC in the Company's account at the close of
each day during such month. In the event of any change in said Chase Manhattan
Bank Rate, the rate hereunder shall change, as of the first of the month
following any change, so as to remain one percent (1%) above the Chase Manhattan
Bank Rate. The rate hereunder shall be calculated based on a 360-day year. CITBC
shall be entitled to charge the Company's account at the rate provided for
herein when due until all Obligations have been paid in full.
2. INTENTIONALLY OMITTED
3. In consideration of the Letter of Credit Guaranty of CITBC, the Company
shall pay CITBC the Letter of Credit Guaranty Fee which shall be an amount equal
to two percent (2%) per annum, payable monthly, on the face amount of each
Letter of Credit less the amount of any and all amounts previously drawn under
the Letter of Credit.
4. Any charges, fees, commissions, costs and expenses charged to CITBC for
the Company's account by any Issuing Bank in connection with or arising out of
Letters of Credit issued pursuant to this Financing Agreement or out of
transactions relating thereto will be charged to the Company's account in full
when charged to or paid by CITBC and when made by any such Issuing Bank shall be
conclusive on CITBC.
5. The Company shall reimburse or pay CITBC, as the case may be, for: i) all
Out-of-Pocket Expenses of CITBC and b) any applicable Documentation Fee.
6. Upon the last Business Day of each month, commencing with August 30, 1996,
the Company shall pay CITBC the Line of Credit Fee.
7. To induce CITBC to enter into this Financing Agreement and to extend to
the Company the Revolving Loan, the Company shall pay to CITBC a Loan Facility
Fee in the amount of $75,000.00 payable upon execution of this Financing
greement.
8. Upon each Anniversary Date, the Company shall pay to CITBC the Collateral
Management Fee.
9. Upon the occurrence of an Event of Default and until such time that such
Event of Default is waived in writing by CITBC, the Company shall pay CITBC's
standard charges for, and the fees and expenses of, the CITBC personnel used by
CITBC for reviewing the books and records of the Company and for verifying,
testing, protecting, safeguarding, preserving or disposing of all or any part of
the Collateral which shall be in addition to the Collateral Management Fee.
10. The Company hereby authorizes CITBC to charge the Company's accounts with
CITBC with the amount of all payments due hereunder as such payments become due.
The Company confirms that any charges which CITBC may so make to the Company's
account as herein provided will be made as an accommodation to the Company and
solely at CITBC's discretion.
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SECTION 9. POWERS
The Company hereby constitutes CITBC or any person or agent CITBC may
designate as its attorney-in-fact, at the Company's cost and expense, to
exercise all of the following powers, which being coupled with an interest,
shall be irrevocable until all of the Company's Obligations to CITBC have been
paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the name of
CITBC or the Company, any and all checks, notes, drafts, and other documents or
instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the Company and to
notify postal authorities to change the address for delivery thereof to such
address as CITBC may designate;
(c) To request from customers indebted on Accounts at any time, in the name
of CITBC or the Company or that of CITBC's designee, information concerning the
amounts owing on the Accounts;
(d) To transmit to customers indebted on Accounts notice of CITBC's interest
therein and to notify customers indebted on Accounts to make payment directly to
CITBC for the Company's account; and
(e) To take or bring, in the name of CITBC or the Company, all steps,
actions, suits or proceedings deemed by CITBC necessary or desirable to enforce
or effect collection of the Accounts.
Notwithstanding anything hereinabove contained to the contrary, the powers
set forth in (b), (d) and (e) above may only be exercised after the occurrence
of an Event of Default and until such time as such Event of Default is waived.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
1. Notwithstanding anything hereinabove to the contrary, CITBC may terminate
this Financing Agreement immediately upon the occurrence of any of the following
(herein "Events of Default"):
a) cessation of the business of the Company or the calling of a meeting
of the creditors of the Company for purposes of compromising the debts
and obligations of the Company;
b) the failure of the Company to generally meet debts as they mature;
c) the commencement by or against the Company of any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law;
d) breach by the Company of any warranty, representation or covenant
contained herein (other than those referred to in sub-paragraph e
below) or in any other written agreement between the Company or CITBC,
provided that such Default by the Company of any of the warranties,
representations or covenants referred in this clause d shall not be
deemed to be an Event of Default unless and until such Default shall
remain unremedied to CITBC's satisfaction for a period of ten (10)
Business Days from the date of such Default;
e) breach by the Company of any warranty, representation or covenant of
Section 3, Paragraphs 3 (other than the third sentence of paragraph 3)
and 4; Section 6, Paragraphs 3 and 4 (other than the first sentence of
paragraph 4); Section 7, Paragraphs 1,5,6, and 10;
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f) failure of the Company to pay any of the Obligations within five (5)
Business Days of the due date thereof, provided that nothing contained
herein shall prohibit CITBC from charging such amounts to the
Company's account on the due date thereof; or
g) the Company shall i) engage in any "prohibited transaction" as defined
in ERISA, ii) have any "accumulated funding deficiency" as defined in
ERISA, iii) have any Reportable Event as defined in ERISA, iv)
terminate any Plan, as defined in ERISA or v) be engaged in any
proceeding in which the Pension Benefit Guaranty Corporation shall
seek appointment, or is appointed, as trustee or administrator of any
Plan, as defined in ERISA, and with respect to this sub-paragraph h
such event or condition x) remains uncured for a period of thirty (30)
Business Days from date of occurrence and y) could, in the reasonable
opinion of CITBC, subject the Company to any tax, penalty or other
liability material to the business, operations or financial condition
of the Company.
2. Upon the occurrence of i) a Default that has not been cured to the
satisfaction of CITBC or waived in writing by CITBC and/or ii) an Event of
Default that has not been waived in writing by CITBC, at the option of CITBC,
all loans and advances provided for in paragraph 1 of Section 3 of this
Financing Agreement shall be thereafter in CITBC's sole discretion and the
obligation of CITBC to make revolving loans and/or open Letters of Credit shall
cease unless such Default is cured to CITBC's reasonable satisfaction within the
applicable grace period or Event of Default is waived by CITBC and at the option
of CITBC upon the occurrence of an Event of Default: i) all Obligations shall
become immediately due and payable; ii) CITBC may charge the Company the Default
Rate of Interest on all then outstanding or thereafter incurred Obligations in
lieu of the interest provided for in paragraph one of Section 8 of this
Financing Agreement provided a) CITBC has given the Company written notice of
the Event of Default, provided, however, that no notice is required if the Event
of Default is the Event of Default listed in paragraph I (c) of this Section 10
and b) the Company has failed to cure the Event of Default within ten (10)
Business Days after x) CITBC deposited such notice in the United States mail or
y) the occurrence of the Event of Default fisted in paragraph I (c) of this
Section 10; and iii) CITBC may immediately terminate this Financing Agreement
upon notice to the Company, provided, however, that no notice of termination is
required if the Event of Default is the Event of Default fisted in paragraph
l(c) of this Section 10. The exercise of any option is not exclusive of any
other option which may be exercised at any time by CITBC.
3. Immediately upon the occurrence of any Event of Default, CITBC may to the
extent permitted by law: (a) remove from any premises where same may be located
any and all documents, instruments, files and records, and any receptacles or
cabinets containing same, relating to the Accounts, or CITBC may use, at the
Company's expense, such of the Company's personnel, supplies or space at the
Company's places of business or otherwise, as may be necessary to properly
administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of the Company or CITBC, and
generally shall have all other rights respecting said Accounts, including
without limitation the right to: accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Company or CITBC; (c) in a
commercially reasonable manner sell, assign and deliver the Collateral and any
returned, reclaimed or repossessed merchandise, with or without advertisement,
at public or private sale, for cash, on credit or otherwise, at CITBC's sole
option and discretion, and CITBC may bid or become a purchaser at any such sale,
free from any right of redemption, which right is hereby expressly waived by the
Company; (d) in a commercially reasonable manner, foreclose the security
interests created herein by any available judicial procedure, or to take
possession of
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any or all of the returned, reclaimed or repossessed Inventory and Equipment
without judicial process, and to enter any premises where any such Inventory and
Equipment may be located for the purpose of taking possession of or removing the
same and (e) exercise any other rights and remedies provided in law, in equity,
by contract or otherwise. CITBC shall have the right, without notice or
advertisement, to sell, lease, or otherwise dispose of all or any part of the
Collateral whether in its then condition or after further preparation or
processing, in the name of the Company or CITBC, or in the name of such other
party as CITBC may designate, either at public or private sale or at any
broker's board, in lots or in bulk, for cash or for credit, with or without
warranties or representations, and upon such other terms and conditions as CITBC
in its sole discretion may deem advisable, and CITBC shall have the right to
purchase at any such sale. If any such Inventory and Equipment shall require
rebuilding, repairing, maintenance or preparation, CITBC shall have the right,
at its option, to do such of the aforesaid as is necessary, for the purpose of
putting such Inventory and Equipment in such saleable form as CITBC shall deem
appropriate in its reasonable business discretion. The Company agrees, at the
request of CITBC, to assemble such Inventory and Equipment and to make it
available to CITBC at premises of the Company or elsewhere and to make available
to CITBC the premises and facilities of the Company for the purpose of CITBC's
taking possession of, removing or putting such Inventory and Equipment in
saleable form. However, if notice of intended disposition of any Collateral is
required by law, it is agreed that ten (10) Business Days notice shall
constitute reasonable notification an compliance with the law. The net cash
proceeds resulting from CITBC's exercise of any of the foregoing rights, (after
deducting all charges, costs and expenses, including reasonable attorneys' fees)
shall be applied by CITB to the payment of the Company's Obligations, whether
due or to become due, in such order as CITBC may elect, and the Company shall
remain liable to CITBC for any deficiencies, and CITBC in turn agrees to remit
to the Company or its successors or assigns, any surplus resulting therefrom.
The enumeration of the foregoing rights is not intended to be exhaustive and the
exercise of any right shall not preclude the exercise of any other rights, all
of which shall be cumulative.
SECTION 11. TERMINATION
Except as otherwise permitted herein, CITBC may terminate this Financing
Agreement and the Line of Credit only as of the second or any subsequent
Anniversary Date and then only by giving the Company at least sixty (60) days
prior written notice of termination. Notwithstanding the foregoing CITBC may
terminate the Financing Agreement immediately upon the occurrence of an Event of
Default that has not been waived in writing by CITBC, provided, however, that if
the Event of Default is an event listed in paragraph 1 (c) of Section 10 of this
Financing Agreement, CITBC may regard the Financing Agreement as terminated and
notice to that effect is not required. This Financing Agreement, unless
terminated as herein provided, shall automatically continue from Anniversary
Date to Anniversary Date. The Company may terminate this Financing Agreement and
the Line of Credit at any time upon at least sixty (60) days' prior written
notice to CITBC, provided, however, that if such termination is prior to the
second Anniversary Date that the Company pays to CITBC immediately on demand, an
Early Termination Fee. All Obligations shall become due and payable as of any
termination hereunder or under Section 10 hereof and, pending a final
accounting, CITBC may withhold any balances in the Company's account (unless
supplied with an indemnity satisfactory to CITBC) to cover all of the Company's
Obligations, whether absolute or contingent. All of CITBC'S rights, liens and
security interests shall continue after any termination until all Obligations
have been paid and satisfied in full.
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SECTION 12. MISCELLANEOUS
1. The Company hereby waives diligence, demand, presentment and protest and
any notices thereof as well as notice of nonpayment. No delay or omission of
CITBC or the Company to exercise any right or remedy hereunder, whether before
or after the happening of any Event of Default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of Default.
No single or partial exercise by CITBC of any right or remedy precludes any
other or further exercise thereof, or precludes any other right or remedy.
2. This Financing Agreement and the documents executed and delivered in
connection therewith constitute the entire agreement between the Company and
CITBC; supersede any prior agreements; can be changed only by a writing signed
by both the Company and CITBC; and shall bind and benefit the Company and CITBC
and their respective successors and assigns,
3. In no event shall the Company, upon demand by CITBC for payment of any
indebtedness relating hereto, by acceleration of the maturity thereof, or
otherwise, be obligated to pay interest and fees in excess of the amount
permitted by law. Regardless of any provision herein or in any agreement made in
connection herewith, CITBC shall never be entitled to receive, charge or apply,
as interest on any indebtedness relating hereto, any amount in excess of the
maximum amount of interest permissible under applicable law. If CITBC ever
receives, collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such; and if principal is paid in full,
any remaining excess shall be refunded to the Company. This paragraph shall
control every other provision hereof and of any other agreement made in
connection herewith.
4. If any provision hereof or of any other agreement made in connection
herewith is held to be illegal or unenforceable, such provision shall be fully
severable, and the remaining provisions of the applicable agreement shall remain
in fall force and effect and shall not be affected by such provision's
severance. Furthermore, in lieu of any such provision, there shall be added
automatically as a part of the applicable agreement a legal and enforceable
provision as similar in terms to the severed provision as may be possible.
5. THE COMPANY AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT. THE COMPANY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF
PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED.
6. Except as otherwise herein provided, any notice or other communication
required hereunder shall be in writing, and shall be deemed to have been validly
served, given or delivered when hand delivered or sent by facsimile (receipt
acknowledged), or three Business Days after deposit in the United States mails,
with proper first class postage prepaid, or one day after delivery by overnight
carrier, and addressed to the party to be notified as follows:
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(A) if to CITBC, at:
The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attn: Regional Manager
(B) if to the Company at:
1200 Harbor Boulevard
Weehawken, New Jersey 07087
Attn: President
or to such other address as any party may designate for itself by like notice.
7. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement
to be executed, agreed to, accepted and delivered in New York, New York by their
proper and duly authorized officers as of the date set forth above.
Very truly yours,
THE CIT GROUP/BUSINESS CREDIT, INC.
By /s/ [Signature Illegible]
---------------------------------------
Vice President
Read and Agreed to:
ICON CMT CORP.
By /s/ [Signature Illegible] (Seal)
----------------------------- -------------
Title: President Secretary
Executed and Accepted at
New York, New York
THE CIT GROUP/BUSINESS CREDIT, INC.
By /s/ [Signature Illegible]
----------------------------------------
Title: Vice President
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(A) if to CITBC, at:
The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attn: Regional Manager
(B) if to the Company at:
1200 Harbor Boulevard
Weehawken, New Jersey 07087
Attn: President
or to such other address as any party may designate for itself by like notice.
7. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement
to be executed, agreed to, accepted and delivered in New York, New York by their
proper and duly authorized officers as of the date set forth above.
Very truly yours,
THE CIT GROUP/BUSINESS CREDIT, INC.
By /s/ [Signature Illegible]
---------------------------------------
Vice President
Read and Agreed to:
ICON CMT CORP.
By /s/ [Signature Illegible] /s/ [Signature Illegible] (Seal)
----------------------------- ------------------------
Title: President Secretary
Executed and Accepted at
New York, New York
THE CIT GROUP/BUSINESS CREDIT, INC.
By /s/ [Signature Illegible]
----------------------------------------
Title: Vice President
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EXHIBIT 10.12
Confidential treatment requested
under the Freedom of Information
Act and other indicated statutes
by ICon CMT Corp.
The portions for which
confidentiality have been sought
have been omitted and filed
separately with the Securities
and Exchange Commission and are
identified by an asterisk(*).
Confidential
MFS Datanet/ICon Net
Master Service Agreement
Addendum #1
This Addendum #1 is made between MFS Datanet, Inc., a Delaware corporation with
a principle place of business at 55 South Market Street, Suite 1250, San Jose,
California 95113 ("MFSDN") and ICon International, Inc., Delaware corporation
with a principle place of business at 420 Lexington Avenue, New York, New York
10170 ("Customer"), hereinafter collectively referred to as the "Parties."
Recitals
WHEREAS, the Parties have entered into an agreement relative to the provision of
data communication services by MFSDN to Customer known as the Master Service
Agreement (the "Agreement"); and,
WHEREAS, MFSDN has agreed to provide Customer with certain services subject to
the special terms and conditions set forth in this Addendum #1 (which, together
with the terms of the Master Service Agreement, shall be hereinafter referred to
as "this Agreement"),
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
Parties hereby agrees as follows:
1. Agreement Term
This Agreement shall commence upon execution by both Parties and continue in
effect for a period of three (3) years. Notwithstanding the foregoing, the terms
of this Agreement shall remain in effect as long as services are provided
hereunder. The initial term of service for any service ordered hereunder will be
as set forth in a Service Order placed pursuant to this Agreement.
2. Service Description
MFSDN agrees to provide Customer with ATM services at speeds of up to 45 Mbps
(megabits per second) in domestic US cities in which MFSDN has an established
network node and operates a fiber optic network ("MFS Cities").
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Confidential
3. Pricing and Billing
Service pricing is on a per connection basis and has two components; a fixed
connection charge of * per month (the "Minimum Monthly Charge") plus a usage
charge based on actual traffic volumes, capped at a fixed monthly fee (the
"Monthly Usage Charge").
Each month, a Monthly Usage Charge will be calculated for each city using both
variable rates based on * and * The Monthly Usage Charge invoiced to Customer
for any month will be capped at a fixed monthly charge (the "Usage Cap") * .
Refer to * Table 1 below for variable usage rates. The Usage Cap for each * is
shown in Table 2, Fixed Monthly Usage Caps.
Variable Charges - To calculate the variable usage charge * and then multiplied
by the appropriate * charge. Charges for the * are then * to determine the total
variable usage charge applicable to that month. A megabyte consists of * and
billing is on a transmit basis.
Usage Cap - To calculate an aggregate sustained usage for any * , the total *
will be divided by * . (If a billing month consists of thirty days, each with
twenty-four hours; the * would be 2,592,000 seconds: 30 days in the month x
86,400 seconds/day.) The result of this * is the * . The range containing this
number will be found in * of Table 2 and a resulting Usage Cap value determined.
The Monthly Usage Charge actually billed to Customer will be the lesser of the
variable usage charge or the applicable Usage Cap.
Table 1
* Chart - * Between *
- --------------------------------------------------------------------------------
Lower Bound Upper Bound Rate
- --------------------------------------------------------------------------------
*
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Confidential
Table 2
Fixed Monthly Usage Caps
*
Service provides for burst capability on the access circuit of * cells. VCI will
be set to a * Mbps Sustained. *
The Parties agree that each will devote the technical resources necessary, and
will work together in good faith, to develop a resolution to any technical
challenge encountered in making the Customer's application work on the MFSDN
network. It is, however, understood that Agreement rates are conditioned on
certain cost assumptions and if the proposed solution to such technical
challenge would require additional investment in equipment or network
infrastructure resource beyond that currently contemplated, the Parties must
mutually agree as to the course of action. Any such technical challenge which
cannot be resolved to Customer's satisfaction shall be considered grounds for
termination by Customer in accordance with paragraph 4 below.
Usage data will be collected for each Customer connection on a continuous basis
and in approximately fifteen minute intervals. MFSDN will provide Customer with
monthly reports which support usage billing under this Agreement.
The on-net installation charge for ATM service is * per port per city. Off-net
installation is subject to quote at the time the order is placed. Unless
otherwise agreed to
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Confidential
by the parties and specified in a Service Order, the installation charge shall
be the only Non-Recurring charge applicable to this service.
4. Termination
Customer may, with written notice to MFSDN, terminate this Agreement if (a)
Customer is unable, with reasonable effort and upon reasonable terms, to enter
into peering agreements with all other Internet access provides; or, (b)
Customer is unable, with reasonable effort and upon reasonable terms, to route
traffic to any Internet user; or (c) MFSDN fails to meet the performance
standards set forth in Paragraph 9 of the Agreement. In the event of termination
for one of the foregoing reasons or the reason set forth in section 3 above, it
is agreed that MFSDN service charges (excluding third party charges) will cease
effective five days after the date of Customer's notification or the date
Customer discontinues use of the service, whichever is later. In addition,
either Party may, in its sole business judgment and with thirty (30) days prior
written notice, terminate this Agreement at the expiration of the first year of
the Term of this Agreement.
In the event Customer requests termination of this Agreement under this
provision or the terms of Paragraph 2 or Paragraph 9 of this Agreement,
Customer's sole liability shall be to pay to MFSDN all Non-Recurring charges
specified in a Service Order placed hereunder and reasonably expended by MFSDN
to establish service to the Customer; plus any third party disconnection, early
cancellation or termination charges reasonably incurred by MFSDN as a result of
Customer's request to terminate. Termination for any other reason shall be
subject to the terms of Paragraph 12 of this Agreement.
5. Amendments to Master Service Agreement Terms and Conditions
Paragraph 2 of the Agreement is hereby deleted in its entirety and replaced with
the following:
"The Term of this Agreement shall be as set forth in the Service Order and shall
extend thereafter until terminated by either Party upon no less than ninety (90)
days' prior written notice. However, MFSDN may terminate this Agreement or
suspend service hereunder at any time upon: (a) any failure of Customer to pay
any undisputed amounts as provided in this Agreement; (b) any breach by Customer
of any material provision of this Agreement continuing for thirty (30) days
after receipt of notice thereof; (c) any insolvency, bankruptcy, assignment for
the benefit of creditors, appointment of a trustee or receiver or similar event
with respect to Customer; or (d) any governmental prohibition or required
alteration of services to be provided hereunder or any violation of an
applicable law, rule or regulation by Customer. Customer may terminate this
Agreement or suspend service hereunder at any time upon: (i) any breach by MFSDN
of any material provision of this Agreement continuing for thirty (30) days
after receipt of notice thereof; (ii) any insolvency, bankruptcy, assignment for
the benefit of creditors, appointment of a trustee or receiver or similar event
with respect to MFSDN; or (iii) any governmental prohibition or required
alteration of services to be provided hereunder or
page 4 of 6
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Confidential
any violation of an applicable law, rule or regulation by MFSDN. Any termination
shall not relieve Customer of its obligation to pay any charges incurred
hereunder prior to such termination or relieve MFSDN of its obligations accrued
up to the time of termination. The Parties' rights and obligations which by
their nature would extend beyond the termination, cancellation or expiration of
this Agreement shall survive such termination, cancellation or expiration.
Paragraph 4 of the Agreement is amended by the addition of the following clause
at the end of the current paragraph: "provided, however, that MFSDN shall
provide Customer with written notice of delinquent payment and allow Customer
ten (10) days from the date of such notice to bring its account current before
the imposition of interest charges or termination of service."
Paragraph 6 of the Agreement is amended by inserting the words ", as soon as
possible" at the end of the first sentence and adding the following additional
sentence to the end of the current clause: "These labor rates apply to a service
call for a problem that is not caused by a failure of MFSDN provided services.
They do not apply to maintenance for the service being provided to Customer
under this Agreement which is included in the monthly rate."
Paragraph 9 of the Agreement is amended by the deletion of subsection (iii) in
the seventh line of the first paragraph.
Paragraph 10 of the Agreement is amended by deleting the current clause in its
entirety and replacing it with the following:
"MFSDN's and Customer's entire liability for any claim, loss, damage or expense
from any cause whatsoever shall in no event exceed sums actually paid to or
payable to MFSDN by Customer for the specific service giving rise to the claim.
Notwithstanding the foregoing and excepting liquidated damages paid by Customer
for early termination as set forth in Section 4 of Addendum Number (1) or
Paragraph 12 of the Master Service Agreement, neither MFSDN nor Customer shall
be liable for any indirect, incidental, consequential, punitive or special
damages. No action or proceeding against either Party shall be commenced more
than one (1) year after service is rendered."
Paragraph 12 of the Agreement is amended by inserting the words "third party"
after the word "any" in subsection 2) of this paragraph.
Paragraph 15 of the Agreement is amended by replacing the word "MFSDN" in the
third line with the words "either Party", the word "MFSDN" in the fourth, fifth,
and sixth lines with the words "that Party." In addition, the following
additional paragraph is added to this clause:
"If, however, any assignment permitted under the proceeding sentence should
cause the non-assigning Party reasonable concern that the assignee possesses
insufficient financial
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Confidential
resources to perform all the obligations hereunder, the assignee shall be
required to deposit with the non-assigning Party an irrevocable unconditional
letter of credit, or other acceptable form of security, in an amount sufficient
to insure the obligations of the assignee."
Paragraph 19 of the Agreement is amended by inserting the words, "provided that
such delay or failure does not extend for more than fifteen (15) days" at the
end of the first sentence and by the insertion of the words ", up to fifteen
(15) days" at the end of the second sentence.
Paragraph 21 of the Agreement is amended by replacing the words "State of
California" with "State of New York."
This Agreement is further amended by adding the following additional provision
as a new Paragraph 23:
"The Usage Cap charges set forth herein represent a significant discount for
MFSDN's standard fixed price charge for high speed ATM services. MFSDN agrees
that if, during the term of this Agreement, it should announce a reduction in
its published rates for these services for a term of service equal to or less
than the remaining Term of this Agreement, it shall offer those rates to
Customer on a going forward basis."
The Agreement is modified, altered, and changed only as set forth in this
Addendum #1. In the event of any conflict, inconsistency, or incongruity between
the provisions of this Addendum Number 1 and any provisions of the Master
Service Agreement or Service Order for the services described herein, the
provisions of this Addendum shall in all respects govern and control.
MFSDN: Customer:
By: /s/ By: /s/ Scott A. Baxter
----------------------------- -------------------------
Title: Vice President Title: President
-------------------------- ----------------------
Date: 6/29/95 Date: June 21, 1995
--------------------------- -----------------------
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GLOBAL SERVICE PROVIDER AGREEMENT
This Agreement by and between Bell Atlantic Internet Solutions, Inc.
("BAIS") and Icon CMT Corp. ("GSP") is entered into effective as of the 17th day
of October, 1997 (hereinafter "Agreement"), and sets forth the terms and
conditions under which GSP shall provide Interlata transmission services to end
users that subscribe to BAIS Internet access services.
1. DESCRIPTION OF SERVICES
During the term of this Agreement, GSP agrees to make available Global Service
Provider services to requesting BAIS end users (including such BAIS end users as
GSP is providing services to as of the date of this Agreement) in accordance
with and as described in EXHIBIT A ("GSP Services"). In consideration therefor,
BAIS shall provide certain services to GSP as described below and in EXHIBIT B.
The BAIS services shall include:
Listing and offering of GSP as a GSP service option to BAIS end users
on BAIS's dial-up account registration server and in applicable BAIS
dedicated access or web hosting service contracts.
Inclusion of GSP's standard service contract as an exhibit to
applicable BAIS dedicated access and web hosting service contracts to
BAIS end users requesting GSP's services, which GSP shall be bound to
honor once a BAIS end user has executed BAIS' contract. BAIS shall make
no changes to such contracts except as previously approved in writing
by GSP. Neither party shall have any liability or obligation relating
to the Other's service contracts, provided that nothing in this
sentence shall alter any liabilities or obligations arising under this
Agreement. GSP shall have the sole duty to enforce its service contract
as a third-party beneficiary to BAIS's end user contract.
At the request of GSP, referral of BAIS end users to GSP's marketing
materials contained on GSP's web site or distribution of marketing
materials provided by GSP to requesting BAIS end users.
2. TERM AND TERMINATION
A. This Agreement shall become effective on the date of execution and continue
for twenty four (24) months, as may be extended by written agreement of the
parties, unless earlier terminated pursuant to the terms of this Agreement.
B. (i) Either party may terminate this Agreement or suspend any of its
obligations hereunder in the event the other party commits breach of this
Agreement, including Exhibit A, and fails to cure such breach within 30 days
from the date the defaulting party is notified of such breach in writing,
provided, however, that except for defaults under clause (ii) below, if the
breach is not reasonably capable of being cured in 30 days but the breaching
party has commenced good faith efforts at a cure, then such cure period shall be
extended for an additional 30 days period.
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(ii) In additional to Exhibit A criteria, the following shall also
constitute grounds for declaring a material breach by GSP (except for any
failures pursuant to Section 11 below):
Average time to repair for GSP circuit failures exceeds 4 hours per failure
for the preceding 10 circuit failures on a rolling basis (but excluding
the highest and lowest repair times of the 10 for the purpose of such
computation; or
GSP circuit failures exceed ten (10) percent of total installed circuits in
any given 30 day period.
The foregoing two service level failures shall be deemed cured within the 30-day
cure period solely if the applicable criteria is met for 30 consecutive days in
the 60 day period following BAIS's declaration of a material breach.
C. Either party may terminate this Agreement at any time by giving written
notice, effective immediately, if the other party make an assignment for the
benefit of creditors, or commences or has commenced against it any proceeding in
bankruptcy, insolvency, or reorganization pursuant to the bankruptcy laws.
D. Upon sixty (60) days written notice to GSP, BAIS may alter any component of
the Global Service Provider Service Requirements documents (hereinafter
"Requirements"), attached hereto as Exhibit A, that in BAIS's discretion is
necessary to maintain BAIS as an industry leader in the Internet access business
by either meeting generally recurring customer requirements or achieving bona
fide operational objectives. Notwithstanding paragraph B above, if GSP does not
comply with any changes to Exhibit A within sixty (60) days of written
notification by BAIS, GSP shall be deemed to be in breach of this Agreement;
provided however that BAIS shall not have the right to terminate this Agreement
unless and until such breach has continued for a period of ninety days after GSP
has received written notice of breach by BAIS; and provided further, that if GSP
has commenced good faith efforts to remedy such breach within such ninety day
period, then such ninety-day period shall be extended by an additional thirty
(30) day period. If such breach is continuing at the end of such thirty (30) day
period, then BAIS shall have the right to terminate or suspend the services
provided hereunder.
E. Upon the expiration or earlier termination of this Agreement except for any
reason except a material breach by BAIS, and the failure of the parties to renew
such agreement in the case of an expiration, GSP agrees to cooperate in making
an orderly and seamless transition of BAIS end users off of the GSP Services to
another GSP service provider; provided that in the event of an expiration, GSP
shall be entitled to, and BAIS shall not compel GSP to cease, continue providing
GSP services to BAIS end users as necessary to complete the terms of any
dedicated access or web hosting contracts extending beyond such expiration.
3. FEES FOR ENHANCED ENTRANCE FACILITIES
A. GSP shall pay to BAIS BAIS's actual costs for enhanced entrance facilities
supplied
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by BAIS to GSP. If GSP places its routers on BAIS's sites, GSP shall pay to BAIS
fees for escorted installation and maintenance for sites where no BAIS employees
are present, in the amount of $95 per hour with a 4-hour minimum provided the
installation and maintenance occurs in its entirety from Monday through Friday
between the hours of 8 a.m. to 5 p.m. ("Normal Working Hours"), and/or $125 per
hour with a 4-hour minimum for any installation or maintenance which occurs
outside of Normal working Hours.
B. If BAIS agrees to supply ports to GSP for the GSP Services, GSP shall pay to
BAIS $218.00/month for a Serial Interface Port and $1,370.00/ month for an HSSI,
for at lest twelve (12) months. Additionally, for circuit speed up to and
including T1, GSP shall pay to BAIS a one-time charge of $500 for the first
circuit installed or rearranged (which includes physical changes to circuit
installation) and an additional charge of $250 for each additional circuit
installed or rearranged at the same time at the same site. If the circuit is at
the DS3 speed, GSP shall pay BAIS ($1,000 for the first circuit installed or
rearranged and $500 for each additional circuit installed or rearranged at the
same time at the same site. If such installation of any port requires more than
eight (8) hours, excluding travel time, in one day to complete, GSP shall pay to
BAIS $95 per hour for each hour over eight (8) hours required.
C. For the fees described in Paragraph 3.0 A and B only, if BAIS charges any
other GSP service provider lower fees for such facilities, BAIS shall make such
lower prices available to GSP under this Agreement.
D. For the fees described in paragraphs 3.0 A and B, BAIS reserves the right to
change the fees described in this Section with thirty (30) days prior written
notice to GSP, which fees shall be changed in direct proportion to the increase
in costs to BAIS. Upon GSP's request, BAIS shall provide reasonable
documentation supporting any such cost increases.
E. All fees under this Agreement owed by GSP to BAIS shall be deducted from any
amounts owed by BAIS to GSP under any bill and collection agreement GSP and BAIS
may have executed, unless no or lesser amounts are owed, in which case GSP shall
pay to BAIS the appropriate fees within thirty (30) days from the receipt of
invoice.
4. REGULATORY CONSIDERATIONS
A. In the event of any conflict between provisions contained in this Agreement
and the provisions of an effective tariff or any regulatory requirements, the
provisions of the tariff or regulatory requirements shall control. However, it
is the intention of the parties that this Agreement, to the extent it is not in
conflict with the provisions of an effective tariff or any regulatory
requirements, supplements the tariff or regulatory requirements, supplies
necessary operational practices, and is to be construed to the extent possible
in harmony with the tariff or regulatory requirements.
B. If requested by BAIS, and at BAIS' expense, GSP shall, to the best of its
ability, provide information and assistance to BAIS in connection with
regulatory matters and proceedings related to the Parties' performance under
this Agreement. In addition, the
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Parties acknowledge that the provisions of the Telecommunications Act of 1996
and related legislation and court decisions may impact this Agreement. In the
event that BAIS determines that this Agreement or a provision of this Agreement
is likely to violate such regulations, BAIS shall notify GSP as soon as
practicable and the parties shall mutually negotiate is good faith regarding an
appropriate amendment to such provisions to prevent a violation of such
regulations. In the event the parties cannot mutually agree to an amendment
which will avoid the violation of such regulation, BAIS shall have the right to
terminate this Agreement with thirty (30) days prior written notice.
5. INDEMNIFICATION
Each party shall indemnify, defend, and hold harmless the other from and against
any losses, liabilities or damages (including reasonable attorneys' fees)
resulting from any end user or other third-party claims resulting or arising
from the indemnifying party's provision of services to BAIS end users, except to
the extent caused by the negligence or other fault of the indemnified party,
including a breach by the indemnified party of this Agreement.
6. NON-EXCLUSIVITY
Nothing in this Agreement shall be construed as limiting the ability of any
other person or organization to provide GSP Services to BAIS end users,
including BAIS or Bell Atlantic Corporation affiliates, or to limit BAIS from
offering services similar to those provided hereunder to such other persons or
organizations, provided no confidential information of GSP is used or disclosed
and BAIS does not interfere with any GSP service contracts contemplated by this
Agreement.
7. WAIVERS
With the exception of the provisions of Sections 2.0(d) and 4.0 above, no
amendment or waiver of any provision of this Agreement and no consent to any
default under this Agreement shall be effective unless the same shall be in
writing and signed by or on behalf of the party against whom such amendment,
waiver or consent is claimed. In addition, no course of dealing or failure of
any party to strictly enforce any term, right or condition of the Agreement
shall be construed as a waiver of such term, right or condition.
8. ASSIGNMENT
Neither party may,without the prior written consent of the other party, which
consent shall not be unreasonably withheld, assign or transfer this Agreement or
any obligation incurred hereunder, except that either party upon written notice
to the other may assign this Agreement to any affiliated entity (provided such
GSP affiliated or successor entity has succeeded to the provision of GSP
Services hereunder), or to a successor entity upon the merger, reorganization,
consolidation, or sale of all or substantially all of such party's assets. Any
attempt to assign this Agreement in contravention of this Section shall be void
and of no force and effect.
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9. NOTICES
Any notices or demands or other communications which under the terms of this
Agreement or under any statute must or may be given or made by either party
shall be in writing and to the respective parties as follows:
TO BAIS:
Bell Atlantic Internet Solutions, Inc.
Legal Department
1880 Campus Commons Drive
Reston, VA 20191
cc: Karen Muscato
Contracts Manager
TO CUSTOMER
ICON CMT Corp.
Attn: General Counsel
1200 Harbor Blvd.
Weehawken, NJ 07087
cc. SVP, CFO
Either party may change the notice address or addressee by giving notice thereof
to the other party. Notices may be given by first class U.S. mail (postage
pre-paid, registered and with return receipt requested), national recognized
express courier, facsimile with receipt confirmed by telephone, personally, or
by hand. Notices shall be deemed to have been given on the date of deliver when
delivered personally or by facsimile, on receipt of delivered by express courier
or by hand, and three (3) days after delivery to the United States Postal
Services if mailed.
10. CONFIDENTIALITY
A. DEFINITION OF CONFIDENTIAL INFORMATION. For purpose of this Agreement,
"Confidential Information" shall mean all information in whatever form, faxed,
recorded, or transmitted relating to the past, present, or future business
affairs, including, without limitation research, development, business plans,
operations or systems, of the disclosing party or other party whose information
the disclosing party has in its possession under obligations of confidentiality,
which is disclosed by the disclosing party to the receiving party being an
appropriate legend indicating its propriety or confidential nature or, if
disclosed orally or in other non-written form, identified as confidential at the
time of disclosure, and within thirty (30) days thereafter, summarized and
identified in writing as confidential. All Confidential Information disclosed
under this Agreement shall be and
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remain the exclusive property of the disclosing party. Notwithstanding the
foregoing, any and all information regarding BAIS end users which GSP acquires
or learns from the provision of GSP Services hereunder shall be deemed
Confidential Information of BAIS regardless of designation or lack thereof,
except for that information that is unique to GSP's provision of services
hereunder.
B. USE OF CONFIDENTIAL INFORMATION. For a period of two (2) years from the
expiration or earlier termination of this Agreement, all Confidential
Information of either party:
i. shall not be copied, used, distributed, disclosed, disseminated or
communicated in any way or form by the receiving party whether or not for its
own benefit, except to or by its employee, agents and consultants who have a
need to know and have agreed to keep the Confidential Information confidential;
provided, however, that notwithstanding anything herein to the contrary, no term
or provision of this Agreement shall preclude either party from disclosing
billing/account information to that party's end user if such disclosure is
necessary for the disclosing party to perform its obligations under this
Agreement, or from disclosing any Confidential Information to the extent that
disclosure may be required by law or by any governmental authority;
ii. shall not be used by receiving party for any purposes except solely for the
performance of this Agreement without the express prior written consent of the
disclosing party;
iii. shall be treated with at least the same degree of care to avoid disclosure
as the receiving party would treat its own confidential information of like
importance and, at a minimum, shall be treated with a reasonable degree of care
to avoid any such disclosure; and
iv. shall be returned to the disclosing party (including without limitation, all
copies thereof) within thirty (30) days after receipt by the receiving party of
a written request from the disclosing party setting forth the Confidential
Information to be returned.
C. INFORMATION NOT DEEMED CONFIDENTIAL. Information shall not be deemed
confidential for purposes of this Agreement to the extent that such information:
i. which is made public by the disclosing party or which generally becomes
available to the public other than through a disclosure by the receiving party
or its officers, employees, consultants or representatives;
ii. which is already in the possession of the receiving party and not subject to
an existing agreement of confidence between the parties;
iii. which is received from a third party without restriction and without breach
of this Agreement;
6
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iv. which is independently developed by the receiving party as evidenced by its
records; or
v. which is disclosed pursuant to a valid order of a court or other governmental
body or any political subdivision thereof; provided, however, that the recipient
of the Information shall first have given notice to the disclosing party and
made a reasonable effort to obtain protective order requiring that the
Information and/or documents so disclosed be used only for the purposes for
which the order was issued.
D. NON-SOLICITATION. GSP's obligation as described above to not use BAIS end
user information for any purpose other than solely to provide GSP Services,
shall expressly include the duty not to use such information for the purpose of
soliciting BAIS end users to purchase any non-GSP Services from GSP or any other
third parties, except pursuant to BAIS's prior written consent.
11. FORCE MAJEURE
Neither party shall be held liable for any delay or failure in performance of
this Agreement from any cause beyond its reasonable control, such as acts of
God, acts of civil or military authority, government regulations, embargoes,
epidemics, war, terrorist acts, riots, insurrections, fires, explosions,
earthquakes, nuclear accidents, floods, strikes, power blackouts, volcanic
action, other major environmental disturbances, unusually severe weather
conditions, inability to secure products or services of other persons or
transportation facilities, or acts of omission or commission by third parties.
12. GOVERNING LAW
This Agreement shall be governed by the laws of the Commonwealth of Virginia,
excluding its conflict of laws principles.
13. SEVERABILITY
In the event that any or one or more of the provisions contained herein shall
for any reason be held to be unenforceable in any respect under the law of any
state or of the United States of America, such unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall then be
construed as if such unenforceable provision or provisions had never been
contained herein.
14. COUNTERPARTS AS ORIGINALS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but such counterparts shall together constitute but
one and the same instrument.
15. SURVIVAL
7
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Provisions contained in this Agreement that by their meaning and context are
intended to survive the performance, termination and/or expiration of this
Agreement shall so survive.
16. HEADINGS
The headings in this Agreement are for convenience and shall not be construed to
define or limit any of the terms herein or affect the meanings or interpretation
of this Agreement.
17. COMPLIANCE WITH LAWS
Both parties shall comply with all applicable federal, state, county and local
laws, ordinances, regulations and codes in their performance of this Agreement.
18. DISCLAIMER OF WARRANTIES
THE SERVICES ARE PROVIDED BY BAIS "AS IS" AND WITHOUT WARRANTY OF ANY KIND,
WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
EXCEPT FOR ANY LIABILITY UNDER SECTION 5 OR A BREACH OF SECTION 10, IN NO EVENT
WILL EITHER PARTY BE LIABLE FOR ANY PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT, OR
CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS AGREEMENT, REGARDLESS OR WHETHER A
CLAIM IS IN CONTRACT OR TORT, AND REGARDLESS OF WHETHER OR NOT BAIS OR ICON HAD
BEEN ADVISED OF, KNEW, OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES.
19. PUBLICITY
Except as may be required by applicable securities laws, the parties shall not
advertise, market or otherwise disclose to others any information relating to
the making of this Agreement, nor commercially use the other's name, without the
express written consent of the other party. Further the parties agree that
neither shall make a press announcement regarding service outages, which
implicates the other party, without first using good faith efforts to contact
the other party.
20. INDEPENDENT CONTRACTORS
Nothing contained in this Agreement shall be deemed or construed as creating a
joint venture or partnership between GSP and BAIS. Neither party is by virtue of
this agreement authorized as an agent, employer or legal representative of the
other, except as expressly stated herein. Except as specifically set forth
herein, neither party shall have power to control the activities and operations
of the other and their status is, and at all times will continue to be, that of
independent contractors. Neither party shall have any
8
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power or authority to bind or commit the other except as provided herein. BAIS
shall have no responsibility or liability with respect to the GSP Services.
21. ENTIRE AGREEMENT
This Agreement and any Exhibits attached hereto, and any Attachments or
Schedules attached thereto, constitute the entire understanding between the
parties and supersedes all prior understandings, oral or written representation,
statements, negotiations, proposal and undertaking with respect to the subject
matter hereof. This Agreement may not be changed or waived except as permitted
by this Agreement or by a written documents that is signed by both parties.
[SIGNATURE PAGE TO FOLLOW]
9
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IN WITNESS WHEREOF the parties have entered into this Agreement as of the date
first written above.
ICON CMT CORP.
By: /s/ [Signature Illegible]
------------------------------------
Name: [Illegible]
----------------------------------
Title: V.P. Business Affairs
---------------------------------
BELL ATLANTIC INTERNET SOLUTIONS, INC.
By: /s/ Robert E/ Beran
------------------------------------
Name: Robert E. Beran
----------------------------------
Title: President
---------------------------------
10
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
TABLE #1
- ------------------------------------------------------------------------------------------------------------------------
DEDICATED
DEDICATED ACCESS VIA DEDICATED DIAL-UP
ACCESS VIA POINT TO ACCESS VIA ACCESS
FRAME POINT FRAME VIA
DEDICATED RELAY AT 56 DIGITAL RELAY AT ANALOG
LATA LATA ACCESS VIA KBPS & PRIVATE 256,512, & & ISDN
NO. NAME SMDS 1.544 MBPS LINE 768 KBPS 1B OR 2B
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
120 Maine N/A TBD TBD TBD
- ------------------------------------------------------------------------------------------------------------------------
122 New N/A TBD TBD TBD
Hampshire
- ------------------------------------------------------------------------------------------------------------------------
124 Vermont N/A TBD TBD TBD
- ------------------------------------------------------------------------------------------------------------------------
126 Western N/A TBD TBD TBD
Mass.
- ------------------------------------------------------------------------------------------------------------------------
128 Eastern N/A To be To be To be
Mass. Deployed 1st Deployed 1st Deployed 1st
Q. 1998 Q. 1998 Q. 1998
- ------------------------------------------------------------------------------------------------------------------------
130 Rhode i..1.1. N/A TBD TBD TBD
Island
- ------------------------------------------------------------------------------------------------------------------------
132 New York N/A To be To be To be
City Deployed 1st Deployed 1st Deployed 1st
Q. 1998 Q. 1998 Q. 1998
- ------------------------------------------------------------------------------------------------------------------------
133 New York N/A TBD TBD TBD
- ------------------------------------------------------------------------------------------------------------------------
134 New York N/A TBD TBD TBD
Albany
- ------------------------------------------------------------------------------------------------------------------------
136 New York N/A TBD TBD TBD
Syracuse
- ------------------------------------------------------------------------------------------------------------------------
138 New York N/A TBD TBD TBD
- ------------------------------------------------------------------------------------------------------------------------
140 New York N/A TBD TBD TBD
Buffalo
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
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<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
DEDICATED
DEDICATED DEDICATED ACCESS VIA
ACCESS VIA ACCESS VIA FRAME DIAL-UP
FRAME POINT TO RELAY AT ACCESS VIA
DEDICATED RELAY AT 56 POINT 256,512, ANALOG &
LATA LATA ACCESS VIA KBPS & DIGITAL & 768 ISDN 1B
NO. NAME SMDS 1.544 MBPS PRIVATE LINE KBPS OR 2B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
220 Atlantic Deployed Deployed Deployed TBD Deployed
Coastal, N.J.
- -----------------------------------------------------------------------------------------------------------------------------
222 Delaware Deployed Deployed Deployed TBD Deployed
Valley, N.J.
- -----------------------------------------------------------------------------------------------------------------------------
224 North Jersey, Deployed Deployed Deployed Deployed Deployed
N.J.
- -----------------------------------------------------------------------------------------------------------------------------
226 Capital, Pa. Deployed Deployed Deployed Deployed Deployed
- -----------------------------------------------------------------------------------------------------------------------------
228 Philadephia, Pa. Deployed Deployed Deployed Deployed Deployed
- -----------------------------------------------------------------------------------------------------------------------------
230 Altoona, Pa. 3rd Quarter 3rd Quarter 3rd Quarter 3rd Quarter TBD
1997 1997 1997 1997
- -----------------------------------------------------------------------------------------------------------------------------
232 Northeast, Pa. Deployed TBD TBD TBD TBD
- -----------------------------------------------------------------------------------------------------------------------------
234 Pittsburgh, Pa. Deployed Deployed Deployed Deployed Deployed
- -----------------------------------------------------------------------------------------------------------------------------
236 Washington, Deployed Deployed Deployed Deployed Deployed
D.C.
- -----------------------------------------------------------------------------------------------------------------------------
238 Baltimore, Deployed Deployed Deployed Deployed Deployed
Maryland
- -----------------------------------------------------------------------------------------------------------------------------
240 Hagerstown, Deployed TBD TBD TBD TBD
Maryland
- -----------------------------------------------------------------------------------------------------------------------------
242 Salisbury, Deployed TBD TBD TBD TBD
Maryland
- -----------------------------------------------------------------------------------------------------------------------------
244 Roanoke, Deployed Deployed Deployed Deployed Deployed
Virginia
- -----------------------------------------------------------------------------------------------------------------------------
246 Culpeper, Deployed TBD TBD TBD TBD
Virginia
- -----------------------------------------------------------------------------------------------------------------------------
248 Richmond, Deployed Deployed Deployed TBD Deployed
Virginia
- -----------------------------------------------------------------------------------------------------------------------------
250 Lynchberg, Deployed TBD TBD TBD TBD
Virginia
- -----------------------------------------------------------------------------------------------------------------------------
252 Norfolk, Deployed Deployed Deployed Deployed Deployed
Virginia
- -----------------------------------------------------------------------------------------------------------------------------
254 Charleston, W. 3rd Quarter 3rd Quarter 3rd Quarter TBD 3rd Quarter
Virginia 1997 1997 1997 1997
- -----------------------------------------------------------------------------------------------------------------------------
256 Clarksburg, W. 3rd Quarter 3rd Quarter 3rd Quarter TBD 3rd Quarter
Virginia 1997 1997 1997 1997
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
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<PAGE>
The GSP shall meet the requirements set forth in this document and must
establish service in all LATAs in which BAIS currently offers service. The GSP
shall establish this service within 90 days of being notified by BAIS that it
meets initial GSP service requirements. Also, the GSP must connect to any new
LATAs in which BAIS announces its intent to offer service within 60 days of
being notified in writing by BAIS of the requirements to deploy.
C. ANTI-SPAMMING POLICY
Due to the potential of network degradation caused by spamming and spamming
reprisals, the GSP must have in place policies prohibiting bulk unsolicited
commercial e-mail transmissions and newsgroup spamming on their networks.
2. NETWORK ARCHITECTURE
A. SCOPE OF NETWORK
The GSP must possess a national TCP/IP backbone. The GSP must have in place
peering arrangements with all major Internet Networks in the United States and
have access to international gateways. See figure 2.7.5.
B. ARCHITECTURE
The GSP backbone network architecture shall consist of state-of-the-art
technology deployed in a highly available and scaleable fashion. This network
shall be a full mesh configuration with multiple paths and redundancy. In the
event of a facility or switch failure, automatic alternative routing must be
available to ensure network survivability. The GSP shall have two independent
routers with diverse paths "connecting" to the BAIS LATA networks listed in
Table #2 below. For the LATAs specified in Table #2, this redundant facility
must be at a speed equivalent to a minimum of 50% of the primary facility. For
all remaining LATAs the redundant facility must be at a speed equivalent to 10%
of the primary facility. The purpose is to ensure failover capabilities and to
eliminate single points of failure for LATA connectivity. Therefore, the GSP
must implement routing protocols that would allow automatic failover.
14
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<PAGE>
i. NETWORK CONFIGURATION
Topology. The GSP must establish physical connections in each of the LATAs that
BAIS has designated as deployed in Table #1. From each LATA, each GSP shall
provide connection to the Internet at the specified backbone Network Access
Points (NAP). Please refer to Section 2.7.5 for a list of specific NAPs and
Figures 1,2 and 3 for network diagrams.
Physical Interfaces -
For Dedicated Access: The GSP shall provide connectivity utilizing a physical
interface operating at DS-3 or higher in the 128 (Eastern Mass.-Boston), 130
(Rhode Island), 132 (New York City), 222 (Delaware Valley), 224 (North Jersey),
228 (Phila.), 234 (Pitts.), 236 (Wash.), 238 (Balt.), and 248 (Richmond) LATAs.
In the other remaining LATAs the GSP shall provide a minimum bandwidth of 4
megabits per second whether it is provided over multiple T1, multiple T1 Frame
Relay facilities, or by DS3.
- ---------------------------------------------------------------------
TABLE #2
- ---------------------------------------------------------------------
REDUNDANT
LATA NO. LATA NAME PATHS REQUIRED
- ---------------------------------------------------------------------
128 Eastern Mass. Mandatory
- ---------------------------------------------------------------------
130 Rhode Island Mandatory
- ---------------------------------------------------------------------
132 New York City Mandatory
- ---------------------------------------------------------------------
224 North Jersey, N.J. Mandatory
- ---------------------------------------------------------------------
228 Philadephia, Pa. Mandatory
- ---------------------------------------------------------------------
236 Washington, D.C. Mandatory
- ---------------------------------------------------------------------
15
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<PAGE>
GRAPHIC
16
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<PAGE>
GRAPHIC
17
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<PAGE>
GRAPHIC
18
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Data Link Layer Connectivity- The GSP must connect to each of the BAIS LATA
networks in one of three fashions. Table #3 defines which options are available
in each LATA. Option #1 requires the GSP to connect to the SMDS network in that
LATA with DS3 facility at 4 to 34 Mbps. The GSP connection must conform to
Bellcore Technical Reference TR-TSV-00772, Generic Requirements in Support of
Switched Multi-megabit Data Services and appropriate Bell Atlantic Network
Engineering notices.
If the GSP uses connection Option #2, the GSP shall place router(s) and
appropriate Channel Service Unit/Data Service Unit (CSU/DSU) equipment in the
BAIS Point of Presence (POP). BAIS will supply space in a standard data cabinet
(19-inch rack) for the mounting of GSP equipment. The cabinet will be equipped
with a lock. BAIS will supply necessary power and power backup. The equipment
located by the GSP will be limited to a total electrical consumption of 2,000
watts. The interface from the GSP router to the BAIS network will be 100Base-T
connections, and the GSP must supply at a minimum two 100BaseT port connections,
each on its own separate router card. These connections shall meet all
appropriate ANSI standards. BAIS will supply the cabling to these ports. This
router shall only be used to terminate connections from BAIS's network to the
GSP backbone. No GSP end user end user circuits shall terminate on this router.
The GSP chooses the facility type that is used to connect this router to their
backbone network. However, the GSP shall pay to BAIS any additional costs for
entrance facilities.
If the GSP uses connection Option #3, BAIS will supply router ports under a
separate written agreement with the GSP at BAIS's the prevailing GSP rates. The
router port options will be Fast Serial Interface Processor Port or High Speed
Serial Interface (HSSI) Port. BAIS will also provide an appropriate CSU/DSU. In
the case of T1 or T1 level Frame Relay, the CSU/DSU supplied will be a Kentrox
DataSmart Model 78610. In the case of DS3/T3 termination, a Kentrox DataSmart
Model 15951 will be supplied.
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<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
TABLE #3
- --------------------------------------------------------------------------------------------------------------------
LATA NO. LATA NAME INTERFACE OP LATA NO. LATA NAME INTERFACE OP
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
120 Maine 2 & 3 228 Philadelphia, 1, 2, & 3
Pa.
- --------------------------------------------------------------------------------------------------------------------
122 New 2 & 3 230 Altoona, Pa. 1 & 3
Hampshire
- --------------------------------------------------------------------------------------------------------------------
124 Vermont 2 & 3 232 Northeast, Pa. 1 & 3
- --------------------------------------------------------------------------------------------------------------------
126 Western Mass. 2 & 3 234 Pittsburgh, Pa. 1, 2, & 3
- --------------------------------------------------------------------------------------------------------------------
128 Eastern Mass. 2 & 3 236 Washington, 1, 2, & 3
D.C.
- --------------------------------------------------------------------------------------------------------------------
130 Rhode Island 2 & 3 238 Baltimore, Md. 1, 2, & 3
- --------------------------------------------------------------------------------------------------------------------
132 New York 2 & 3 240 Hagerstown, 1 & 3
City Maryland
- --------------------------------------------------------------------------------------------------------------------
133 New York 2 & 3 242 Salisbury, 1 & 3
Maryland
- --------------------------------------------------------------------------------------------------------------------
134 New York 2 & 3 244 Roanoke, 1, 2, & 3
Albany Virginia
- --------------------------------------------------------------------------------------------------------------------
136 New York 2 & 3 246 Culpeper, 1 & 3
Syracuse Virginia
- --------------------------------------------------------------------------------------------------------------------
138 New York 2 & 3 248 Richmond, 1 & 3
Virginia
- --------------------------------------------------------------------------------------------------------------------
140 New York 2 & 3 250 Lynchberg, 1 & 3
Buffalo Virginia
- --------------------------------------------------------------------------------------------------------------------
220 Atlantic 1 & 3 252 Norfolk, 1, 2, & 3
Costal, N.J. Virginia
- --------------------------------------------------------------------------------------------------------------------
222 Delaware 1 & 3 254 Charleston, W. 1 & 3
Valley, N.J. Virginia
- --------------------------------------------------------------------------------------------------------------------
224 North Jersey, 1, 2, & 3 256 Clarksburg, W. 1 & 3
N.J. Virginia
- --------------------------------------------------------------------------------------------------------------------
226 Capital, Pa. 1 & 3
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
IP Address Space. The GSP shall advertise CIDR blocks of end users to all peers
on the Internet and to make those agreements with members of the Internet on the
end users' behalf. The GSP must also advertise all non-CIDR addresses owned by
end users and make appropriate arrangements with members of the Internet on the
end users' behalf. The GSP will be required to supply BAIS with sufficient
address space for BAIs to meet the requirements of our switched and dedicated
access end users. An initial allocation of 32 Class C addresses is required.
This requirement of the GSP will be reviewed by BAIS on a quarterly basis.
Applications - The GSP must provide Usenet newsfeeds as required to BAIS, and
MBONE feeds to end users as required. The GSP must provide inverse DNS mapping
for allocated addresses as needed. Upon written notification from BAIS, the GSP
may be required to provide a SMTP relay host for their BAIS end users.
Routing - The GSP shall route CIDR blocks of end users to all peers on the
Internet and to make those agreements with peer members on the end user's
behalf. The GSP must also route all non-
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CIDR addresses owned by end users and make appropriate arrangements with peering
members on the end user's behalf. The GSP shall route all BAIS administrative
traffic and all traffic from the Internet destined for BAIS owned hosts and
devices.
GSP must adhere to the following routing requirements:
Route IPv4 traffic to and from the Internet backbone and end users in each
LATA also plan to implement 1Pv6 when available;
Enable all standard ICMP error messages reporting to end users from a LATA
- attached router;
Send end users full core routing tables as required;
Support BGP-4 peering with at least two routes per end user;
Support OSPF peering with end users if required;
Support default route announcement to end users; and
Not impose a maximum number of routes or network addresses per end user,
however, GSP may impose charges based on the number of routes, addresses or
both.
C. NETWORK PERFORMANCE MANAGEMENT
Required general GSP network characteristics to assure a high quality of service
to end users are listed below:
A set of metrics that define network availability in addition to those set
forth in the Agreement, such as link up time and bandwidth availability and
to define network trouble conditions that entitle end users to refunds or
credits. Such metrics shall be established within 30 days of Agreement
execution;
GSP backbone router availability will be greater than or equal to 99.0%.
This measurement will be based on the monthly average across the GSP
network;
GSP network latency, round trip network added delay, will be less than or
equal to 500 ms. This is a monthly average measured between network
backbone routers;
Use a redundant network topology and built-in-failure recovery mechanism;
Use diversely routed circuits wherever possible;
Provide delays consistent or better than those of domestic Internet
backbones;
Design network capacity for peak versus average daily utilization;
Use physically redundant servers for DNS and NEWS;
Participate in IEFT and other standards organizations for the definition of
Quality of Service standards;
Work with end users and take reasonable steps to assure satisfaction; and
The GSP shall give to BAIS real-time read only access to each router that
attaches to the BAIS network. The purpose is to monitor and validate
interface utilization of these routers. This can be accomplished via SNMP
web access.
21
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D. NETWORK ACCOUNTING MANAGEMENT
The GSP may request from BAIS and BAIS shall provide any accounting information
reasonably deemed necessary to properly engineer their backbone network.
E. NETWORK SECURITY MANAGEMENT
Physical Security - The GSP must provide a copy of its policy restricting
physical access to all in-house facilities and equipment.
General - The GSP shall work with organizations like CERT and FIRST to ensure
the security of the GSP network. The GSP will immediately report all security
related incidents to the BAIS Security Officer. The GSP will work promptly to
resolve all security reports to the satisfaction of the BAIS Security Officer.
If in the event a network security breach occurs, the GSP will provide
notification to the BAIS Network Operations Center of the event. Additionally,
the GSP will work with BAIS to identify offending parties and take the
appropriate action.
F. PERFORMANCE REQUIREMENTS
i. Bandwidth & Capacity
The GSP shall connect to the BAIS POP at a minimum speed of 4 Mbps. The GSP
shall increase this bandwidth capacity to a minimum equal to the bandwidth of
the highest speed dedicated access end user plus 10% within thirty (30) days
from the initial connection.
The GSP shall augment the bandwidth for any LATA when the aggregate steady state
capacity in the busy hour exceeds 50% of available bandwidth. The GSP must
upgrade bandwidth within 30 working days. The GSP must also make corresponding
upgrades to the backbone connections and corresponding long haul circuits as
necessary to accommodate the increased traffic load.
The GSP shall provide to BAIS capacity and utilization reports available either
online or delivered on a weekly basis detailing circuit activity usage levels on
all BAIS facilities which provide connectivity between BAIS LATA networks and
the GSP.
ii. NETWORK AVAILABILITY
The goal of BAIS is to deliver 100% availability. To ensure a high level of
availability, except as specified in Section 2.2, the GSP shall provide a second
connection to each BAIS LATA Network at a capacity of a least 10% of the primary
capacity. This additional facility will be terminated in a second router at the
GSP POP for any LATA where the GSP has twenty (20) or more dedicated access end
users OR more than 7500 switched-access subscribers. This requirement will stay
in force until bandwidth requirements are sufficient to require two facilities.
At the time, those facilities must automatically load balance. The GSP shall
provide sufficient spare equipment on hand to facilitate replacement of any
failed hardware component within 4 hours. The GSP will provide to BAIS
demonstrative documentation of compliance to this requirement through
maintenance contracts, inventory lists, etc. upon BAIS request.
22
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iii. SERVICE LEVEL GUARANTEES
GSP shall offer BAIS end users a Service Level Agreement (SLA) identical to that
offered by BAIS -- currently, a guarantee of 99.9% availability for dedicated
Internet access service. Currently, this means that any BAIS end user who
experiences a GSP circuit outage of 30 minutes or greater, on a per incident
basis, shall be entitled to a GSP Services credit equal to 1/30 of their monthly
GSP Service charges. A GSP Service outage means a BAIS end user cannot connect
to the Internet over the GSP-provided circuit. GSP hereby authorizes BAIS to
administer credits to BAIS end users in accordance with such GSP SLA program
under any billing agreement BAIS may have with GSP, provided that BAIS provides
to GSP a record of such credits in accordance with the monthly reporting
requirements of such billing agreement. BAIS and GSP agree to negotiate in good
faith the resolution of any disputes arising from the administration of such
credits.
iv. USENET NEWSFEED PERFORMANCE
It is BAIS's goal to offer Usenet Newsgroup and Newsfeeds to its end users and
for this service to be of the highest quality. Quality is measured by the time
it takes for a submitted article to propagate the Internet as well the time it
takes for a submitted article to appear on the news server. Additional, a
measure of quality is the completeness or volume of Newsgroups and News articles
on the service. The GSP shall supply a Usenet Newsfeed to BAIS. The Usenet
service must perform as follows:
Any article submitted to the GSP server from BAIS must be forwarded and appear
on the News servers of MCI and Howland in an average time not to exceed 1 hour.
Furthermore, the average time for an article submitted directly to MCI or
Howland to reach the BAIS news sever will not exceed on average 15 minutes or a
maximum of 1 hour as measured over a 2 week period. These two metrics will be
measured through the use of the misc. test function.
In order to assure receipt of the volume of Usenet articles and Newsgroups, the
GSP shall forward directly to the appropriate BAIS maintained systems ALL
articles received by the GSP's news infrastructure that have not exceeded a
reasonable expiration threshold of thee (3) weeks. Additionally, the GSP news
service must receive 99.9% of all articles that pass through MCI and Howland
that also have not exceeded an expiration threshold of three (3) weeks.
iv. SENDMAIL SYSTEM PERFORMANCE
In the event that BAIS end users must point their outgoing electronic mail to
the sendmail system provided by the GSP, the GSP must meet the following
requirement: Given an established IP connection to the GSP's sendmail host
system, the sendmail application must respond with a 220 ready response with an
average response time of 1 second.
GSP must provide 99.7% availability of sendmail system. GSP shall provide BAIS
48 hours notification of any scheduled service outages of sendmail system.
Notification must be sent to the BAIS Network Operation Center by both voice
communications and electronic mail.
v. INTERFACES TO OTHER NETWORKS
23
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The GSP must have physical connections at the following peering points:
MAE East
MAE West
Sprint NAP
Chicago NAP
CIX
GSP shall use its best efforts to communicate to BAIS any changes in network
peering and topology in writing at least two (2) weeks before changes are made.
The GSP must also offer to engage in a bi-lateral peering arrangement with all
other connected service providers at those points. The GSP must be connected at
these points at a minimum of a DS3 level. Furthermore the GSP must be attached
to MAE East on the Gigaswitch in a non-shared FDDI connection. The GSP must at a
minimum offer to engage in bilateral peering agreements with all of the networks
listed below.
ANS
AGIS
Alter.net
Advantis
BBN Planet
Compuserve
Digital Express
Genuity
Gridnet
ICON CMT
Internex.net
Isi.net(Merit)
MCI
Netcom
PSI.net
Sprintlink
UUnet
G. NETWORK FAULT MANAGEMENT
i. Network Operation Center Requirements
The GSP shall operate a 24 X 7 Network Operations Center (NOC) which monitors
all backbone routers within its network control for total or partial failure.
The GSP NOC will utilize a trouble ticketing system and share ticket information
with BAIS and end users if required via phone and when possible, E Mail. The NOC
will be accessible to BAIS personnel as well as end users for updates and status
inquires. GSP will provide BAIS with details of the diagnostic systems the
carriers use so as to interact with them more efficiently when referring
troubles. The GSP will also designate 1 primary and 1 secondary person per shift
7 days a week with whom to coordinate trouble tickets.
24
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<PAGE>
SA#ICC972901
WORLD COM [LOGO]
WORLDCOM PRIVATE LINE SERVICE
(REVENUE PLAN)
This Application for Data Services (the "Agreement") is made by ICON CMT CORP.,
("Customer"), a Delaware corporation with its principal office at 1200 Harbor
Boulevard, Weehawken, New Jersey, 07087, ("Customer"), and WORLDCOM, INC., a
Georgia corporation ("WorldCom"), for service described below.
1. SERVICE: Interexchange telecommunications service (the "Private Line
Service") will be provided by WorldCom pursuant to the applicable of WorldCom
Network Services, Inc. d/b/a WilTel Network Services, Inc., a wholly owned
subsidiary of WorldCom, (the "tariffs"). The Tariffs provide terms and
conditions of the Service which include, but are not limited to, taxes, credit
approval procedures, Customer credits, termination liability, and limitations
with respect to the assignment of the Service. The tariffs may be modified from
time to time by WorldCom in accordance with law and thereby affect the Private
Line Service furnished to Customer.
2. TERMS AND CONDITIONS: The parties agree that the terms and conditions of
this Agreement shall supplement, or to the extent they are inconsistent with the
Tariffs, supersede the terms and conditions of the Tariffs.
3. REVENUE PLAN COMMITMENT SERVICE TERM/COMMENCEMENT:
Minimum Monthly Commitment: $50,000.00
(Based on Customer's monthly Qualifying Charges before the application of
discounts.)
Customer Commitment Period: Thirty-Six (36) Month(s)
Commencement Date: For the purpose of this Agreement, the "Commencement
Date" will be the next billing cycle following the date this Agreement has been
fully executed by both parties and Customer has received a satisfactory credit
review and approval from WorldCom's Credit Department, and all security
documentation, if any, required by WorldCom has been properly executed and
delivered to WorldCom (collectively, the "Credit Review").
Commitment Commencement Date: is to be three (3) months following the
Commencement Date above
Commitment Ending Date: is to be thirty-six (36) months following the
Commitment Commencement Date above
4. LETTER OF AGENCY ("LOA"): The Undersigned [duly authorized representative
of Customer] hereby authorizes WorldCom, if requested by Customer, to provision
Customer's Local Access. This LOA supersedes all previous LOAs and shall remain
in effect until canceled by Customer in writing.
5. PROPRIETARY INFORMATION:
(a) Confidential Information: The parties understand and agree that the
terms and conditions of this Agreement, all documents referenced and invoices to
Customer for Service provided hereunder, communications between the parties
regarding this Agreement or the Service to be provided hereunder (including
price quotes to Customer for any Service proposed to be provided or actually
provided hereunder), as well as such information relevant to any other agreement
between the parties (collectively "Confidential Information"), are confidential
as between Customer and WorldCom.
(b) Limited Disclosure: A party shall not disclose Confidential Information
unless subject to discovery or disclosure pursuant to legal process, or to any
party other than the directors, officers, and employees of a party or a party's
agents including their respective brokers, lenders, insurance carriers or bona
fide prospective purchasers who
Terms and conditions contained herein will be offered
for fifteen (15) days from January 29, 1997
Mail to: Sales Contract Admin., WorldCom, Inc.,
515 East Amite, Suite 400, Jackson, MS 39201
<PAGE>
<PAGE>
have specifically agreed in writing to nondisclosure of the terms and conditions
hereof. Any disclosure hereof required by legal process shall only be made after
providing the non-disclosing party with notice thereof in order to permit the
non-disclosing party to seek an appropriate protective order or exemption.
Violation by a party or its agents of the foregoing provisions shall entitle the
non-disclosing party, at its option, to obtain injunctive relief without a
showing of irreparable harm or injury and without bond.
(c) Press Releases: The parties further agree that any press release,
advertisement or publication generated by a party regarding this Agreement, the
Service provided hereunder or in which a party desires to mention the name of
the other party or the other party's parent or affiliated company(ies), will be
submitted to the non-publishing party for its written approval prior to
publication.
(d) Survival of Confidentiality: The provisions of this Section 5 will be
effective as of the date of this Agreement and remain in full force and effect
for a period which will be the longer of (i) one (1) year following the date of
this Agreement, or (ii) one (1) year from the termination of all Service
hereunder.
6. PRICING: (a) Rates for domestic Private Line Service during the Service
Commitment Period are as described in the applicable Tariffs. Discounts for
domestic Private Line Service shall be as described below.
(b) Rates and discounts for International Private Line Service shall be as
set forth in WorldCom's Service Orders.
A. WORLDCOM PRIVATE LINE - DS-0 PRICE SCHEDULE
(based on THREE (3) years/$50,000 Total Minimum Monthly Commitment)
Monthly Volume DS-0 Discount Schedule
- -------------- ----------------------
$45,000 - $54,999 17%
$55,000 - $69,999 18%
$70,000 - $84,999 19%
$85,000 - $99,999 20%
$100,000 & OVER 21%
B. WORLDCOM PRIVATE LINE - FT-1 PRICE SCHEDULE
(based on THREE (3) years/$50,000 Total Minimum Monthly Commitment)
Monthly Volume FT-1 Discount Schedule
- -------------- ----------------------
$50,000 - $59,999 25%
$60,000 - $69,999 26%
$70,000 - $79,999 27%
$80,000 - $89,999 28%
$90,000 - $99,999 29%
$100,000 & OVER 30%
Multi-Channel Discounts
# Channels Discounts
- ----------------------- ---------
2-3 7.5%
4-7 15.0%
8-11 20.0%
12 & OVER 35.0%
Terms and conditions contained herein will be offered
for fifteen (15) days from January 29, 1997
Mail to: Sales Contract Admin., WorldCom, Inc.,
515 East Amite, Suite 400, Jackson, MS 39201
<PAGE>
<PAGE>
C. WORLDCOM PRIVATE LINE - DS-1 PRICE SCHEDULE
(based on THREE (3) years/$50,000 Total Minimum Monthly Commitment)
Monthly Volume DS-1 Discount Schedule
- -------------- ----------------------
$50,000 46%
D. WORLDCOM PRIVATE LINE - DS-3 DISCOUNT SCHEDULE
(based on THREE (3) years/$50,000 Total Minimum Monthly Commitment)
Monthly Volume DS-3 Discount Schedule
- -------------- ----------------------
$50,000 35%
IN WITNESS WHEREOF, the parties have signed this Agreement and the individuals
signing below warrant and represent that they have the full legal and regulatory
authority to enter into this Agreement for and on behalf of the respective
parties.
WORLDCOM, INC. ICON CMT CORP.
/s/ Frank M. Grillo /s/ Ari Horowitz
- ------------------------------ ------------------------------
(Authorized Signature) (Authorized Signature)
FRANK M. GRILLO Ari Horowitz, Vice President
- ------------------------------ ------------------------------
(Print Name) (Print Name)
2/11/97 2/5/97
- ------------------------------ ------------------------------
(Date Received) (Date Signed)
Terms and conditions contained herein will be offered
for fifteen (15) days from January 29, 1997
Mail to: Sales Contract Admin., WorldCom, Inc.,
515 East Amite, Suite 400, Jackson, MS 39201
<PAGE>
<PAGE>
EXHIBIT 11.1
ICON CMT CORP.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
WEIGHTED
DAYS AVERAGE
SHARES OUTSTANDING SHARES
--------- ----------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Shares outstanding at January 1, 1996................................... 6,545,455 365 6,545,455
Cheap stock consideration for stock, stock options and warrants issued
during 1997........................................................... 3,563,824 365 3,563,824
-----------
Pro forma weighted average common shares outstanding............... 10,109,279
-----------
Net loss for the year ended December 31, 1996...................... $(8,038,000)
-----------
Pro forma net loss per common share................................ $ (0.80)
-----------
-----------
NINE MONTHS ENDED SEPTEMBER 30, 1997
Shares outstanding at January 1, 1997................................... 6,545,455 273 6,545,455
Issuance of common stock upon conversion of preferred stock............. 4,981 9 164
830,220 13 39,534
83,022 29 8,819
4,151 32 487
33,209 64 7,785
41,345 72 10,904
166,044 82 49,874
3,466,902 92 1,168,334
Cheap stock consideration for stock, stock options and warrants issued
during 1997........................................................... 1,860,792 150 1,022,413
553,691 181 367,099
89,121 191 62,352
22,191 201 16,338
2,228 241 1,967
44,561 244 39,827
445,605 260 424,386
2,674 264 2,586
542,961 273 542,961
-----------
Pro forma weighted average common shares outstanding............... 10,311,285
-----------
Net loss for the nine months ended September 30, 1997.............. $(9,088,000)
-----------
Pro forma net loss per common share................................ $ (0.88)
-----------
-----------
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated November 17, 1997, except
as to the reverse stock split described in Note 12 which is as of December 15,
1997, relating to the financial statements of Icon CMT Corp. which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years in the period ended December
31, 1996 and the nine months ended September 30, 1997 listed under Item 16(b) of
this Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the reference to us under
the heading 'Experts' in such Prospectus.
PRICE WATERHOUSE LLP
Stamford, Connecticut
February 5, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 515 4,556
<SECURITIES> 0 0
<RECEIVABLES> 7,785 7,043
<ALLOWANCES> 437 516
<INVENTORY> 92 78
<CURRENT-ASSETS> 9,488 13,164
<PP&E> 5,120 7,799
<DEPRECIATION> 1,339 2,784
<TOTAL-ASSETS> 13,292 18,262
<CURRENT-LIABILITIES> 11,388 8,074
<BONDS> 0 0
<COMMON> 7 7
9,881 26,626
0 0
<OTHER-SE> (8,139) (16,445)
<TOTAL-LIABILITY-AND-EQUITY> 13,292 18,262
<SALES> 38,108 30,302
<TOTAL-REVENUES> 38,108 30,302
<CGS> 31,449 23,197
<TOTAL-COSTS> 31,449 23,197
<OTHER-EXPENSES> 14,939 15,644
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 75 351
<INCOME-PRETAX> (8,248) (8,832)
<INCOME-TAX> (210) 256
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,038) (9,088)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (0.80) (0.88)
<PAGE>
