<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
COMMAND SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7371 06-1135009
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
76 BATTERSON PARK ROAD
FARMINGTON, CT 06032
(860) 409-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
EDWARD G. CAPUTO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COMMAND SYSTEMS, INC.
76 BATTERSON PARK ROAD
FARMINGTON, CT 06032
(860) 409-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
LEWIS J. GEFFEN, ESQ. DAVID J. SORIN, ESQ.
MINTZ, LEVIN, COHN, FERRIS, PERRY A. PAPPAS, ESQ.
GLOVSKY AND POPEO, P.C. BUCHANAN INGERSOLL
ONE FINANCIAL CENTER 500 COLLEGE ROAD EAST
BOSTON, MA 02111 PRINCETON, NJ 08540
(617) 542-6000 (609) 987-6800
--------------
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, 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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT TO MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) FEE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 2,760,000 shares $12.00 $33,120,000 $9,770.40
</TABLE>
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(1) Includes 360,000 shares of Common Stock that may be sold pursuant to the
Underwriters' over-allotment option. See "Underwriting."
(2) Estimated solely for purposes of calculating the amount of the
registration fee paid pursuant to Rule 457(a) under the Securities Act of
1933, as amended.
--------------
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 SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Dated January 8, 1998
2,400,000 SHARES
[LOGO]
COMMAND SYSTEMS, INC.
COMMON STOCK
------------
Of the 2,400,000 shares of Common Stock offered hereby, 2,100,000 shares are
being issued and sold by Command Systems, Inc. ("Command" or the "Company") and
300,000 shares are being sold by the selling stockholders (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders.
Prior to this offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $10.00 and $12.00 per share. See "Underwriting" for information
relating to the determination of the initial public offering price. Upon
completion of this offering, certain of the Company's current officers,
directors and affiliated entities will together beneficially own approximately
68% of the Company's outstanding Common Stock. See "Risk Factors" and
"Principal and Selling Stockholders."
Application has been made to have the Company's Common Stock approved for
quotation on the Nasdaq National Market under the symbol "CMND."
------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total (3)....................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated to be
$ .
(3) The Selling Stockholders have granted the Underwriters an option,
exercisable within 30 days from the date hereof, to purchase an aggregate
of up to 360,000 additional shares of Common Stock at the Price to Public,
less Underwriting Discounts and Commissions, to cover over-allotments, if
any. If all such additional shares are purchased, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Selling
Stockholders will be $ , $ and $ , respectively. See "Underwriting."
------------
The Common Stock is offered by the several Underwriters named herein when, as
and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected
that delivery of certificates for such shares will be made at the offices of
Cowen & Company, New York, New York, on or about , 1998.
------------
COWEN & COMPANY VOLPE BROWN WHELAN & COMPANY
, 1998
<PAGE>
[Inside front cover contains graphics of the Command logo and photographs of
people in meetings and conferences, computer monitors, computer keyboards,
network servers, a clock and other computer related images grouped under the
following four categories of services offered by the Company: (a) Technology
Services (CommandNET, CommandOO, CommandPRO, CommandSOURCE, CommandSTAFF,
CommandWEB and Command2000); (b) Management Consulting (CommandMCS); (c)
Education & Training (CommandU) and (d) Software & Hardware (CommandWARE).
In addition the following text appears below the images: Command Systems
offers strategic technology solutions to the IT challenges faced by businesses
today.]
The Company intends to furnish its stockholders with annual reports
containing financial statements certified by its independent public
accountants and quarterly reports containing unaudited financial information
for the first three quarters of each year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Command Systems(TM), CommandMCS(TM), CommandNET(TM), CommandOO(TM),
CommandPRO(TM), CommandSOURCE(TM), CommandSTAFF(TM), CommandU(TM),
CommandWARE(TM), CommandWEB(TM), Command2000(TM), C-BOLT(TM), Command
International Software(TM) and the Company's logo are trademarks of the
Company. All other trade names, trademarks or service marks appearing in this
Prospectus are the property of their respective owners and are not the
property of the Company.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus. Except as otherwise noted herein, all information in this
Prospectus (i) assumes no exercise of the Underwriters' over-allotment option;
(ii) reflects the conversion of all outstanding shares of the Company's Series
A and Series B Convertible Preferred Stock into an aggregate of 1,181,750
shares of Common Stock upon the consummation of this offering (the "Preferred
Stock Conversion") and (iii) reflects a 1-for-2 reverse stock split of the
Common Stock of the Company to be effected immediately prior to the
effectiveness of the offering. See "Capitalization," "Description of Capital
Stock," "Principal and Selling Stockholders" and "Underwriting."
THE COMPANY
Command Systems, Inc. ("Command" or the "Company") provides a wide range of
information technology ("IT") solutions and services to financial services
organizations to support their evolving business processes. The Company
utilizes leading technologies to offer its customers a comprehensive range of
IT services, including technology services, management consulting, and product
procurement and education services. In anticipation of the growing demand for
IT services, including Year 2000 solutions services, and the shortage of
skilled IT professionals in the United States, in 1996 the Company established
a software development facility in Bangalore, India (the "Offshore Technology
Resource Center") which today provides its customers with increased access to
skilled IT professionals on a cost-effective basis. As of December 31, 1997,
the Company employed 293 full-time consultants in its four U.S. offices and the
Offshore Technology Resource Center. The Company develops and maintains long-
term relationships with its customers. In 1997, the Company provided services
to over 100 customers and for each of 1996 and 1997 over 60% of the Company's
revenue was derived from existing customers from the previous year. The
Company's customers are typically large financial services organizations,
especially leading insurance companies, such as The Hartford, Mass Mutual,
Phoenix and Aetna, and G.E. Capital.
According to industry sources, the U.S. market for outsourced IT services is
expected to grow from over $13 billion in 1996 to approximately $24 billion in
2001, representing an average annual growth rate of 12.8%. The Company believes
that a number of factors will cause the demand for IT services to continue to
grow, particularly for organizations in such data and technology intensive
industries as the insurance, banking, brokerage and other financial services
industries (collectively, the "financial services organizations"). These
factors include intense competition, globalization, rapid technological
innovation and change, deregulation and the strategic business decision of many
financial services organizations to focus on core competencies. It has become
increasingly difficult and expensive for businesses to maintain in-house the
management capabilities and technical expertise necessary to successfully
integrate and deploy advanced IT systems and applications in a timely and cost-
effective manner. Financial services organizations are also particularly
sensitive to, and need to address, the Year 2000 problem (which prevents
existing applications from properly interpreting dates after 1999). As a
result, financial services organizations are increasingly turning to third-
party IT service providers to help them evaluate, develop, implement and
support new IT systems and applications, and to help them maintain existing
legacy systems and applications.
The Company solves business problems for its customers by designing, building
and implementing IT solutions that combine the Company's technical expertise
with the industry specific expertise it has gained through focusing on the
financial services industry for over twelve years. The technology services
offered by the Company include project-based applications development and
implementation, network design and deployment,
3
<PAGE>
Internet/intranet development, Year 2000 solutions, IT staff augmentation and
systems maintenance. The Company also provides education and training services
to its customers' IT staffs, management consulting services for the development
of customers' long-term technology strategy and, to its middle market
customers, software and hardware procurement services to deliver a complete IT
solution. These services may be provided individually or as a combination of
offerings to provide comprehensive IT solutions. The Company believes that the
key attributes of its IT solutions are (i) the provision of a broad range of IT
services, (ii) its strategic focus on the financial services industry, (iii)
its Offshore Technology Resource Center, (iv) its complete range of Year 2000
solutions and (v) its expertise in key and emerging technologies.
The Company's objective is to become the preferred provider of IT services to
an expanding base of customers. The Company's strategies to achieve this
objective include (i) cross-selling its services to existing customers, (ii)
leveraging its expertise within the insurance market into a larger, more
diverse customer base within the broader financial services industries, (iii)
deriving a greater percentage of its revenue from higher margin services, (iv)
expanding its Offshore Technology Resource Center, (v) strengthening preferred
provider relationships with existing customers and (vi) attracting, training
and retaining highly skilled IT professionals.
The Company was incorporated in Delaware on July 1, 1997. Prior to that time,
the Company conducted its business as Command Systems Incorporated, a
corporation organized under the laws of the State of Connecticut on April 2,
1985 which was merged into the Company in December 1997. The Company's
executive offices are located at 76 Batterson Park Road, Farmington,
Connecticut, 06032, its telephone number is (860) 409-2000 and its World Wide
Web address is www.commandsys.com. The Company's website is not part of this
Prospectus.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ 2,100,000 shares
Common Stock offered by the Selling Stockholders... 300,000 shares
Common Stock to be outstanding after the offering.. 7,556,750 shares (1)
Use of proceeds.................................... For the repayment of debt,
the payment of accumulated
and unpaid preferred stock
dividends, expansion of
sales and marketing
capabilities and other
general corporate
purposes, including
working capital.
Proposed Nasdaq National Market Symbol............. CMND
</TABLE>
- --------
(1) Excludes 204,600 shares of Common Stock issuable upon the exercise of stock
options outstanding under the Company's 1997 Employee, Director and
Consultant Stock Plan (the "1997 Plan") as of the date of this Prospectus,
at a weighted average exercise price of $7.37 per share, 50,550 of which
are currently exercisable. See "Management--Employee Benefit Plans."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $ 3,801 $ 6,127 $ 9,272 $ 12,436 $ 17,069 $ 12,563 $ 17,742
Gross profit........... 1,049 406 2,382 3,328 4,575 3,721 5,753
Income (loss) from
operations............ 246 (202) 280 315 (597) 260 469
Net income (loss)(1)... 223 (256) 193 221 (423) 226 (662)
Net income (loss) per
share of common
stock................. $ 0.05 $ (0.06) $ 0.04 $ 0.05 $ (0.09) $ 0.05 $ (0.15)
Shares used in per
share calculation..... 4,646 4,646 4,646 4,646 4,646 4,646 4,646
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------
PRO PRO FORMA AS
ACTUAL FORMA(2) ADJUSTED(3)
------ -------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 673 $ 653 $20,128
Working capital ................................. 95 75 19,548
Total assets..................................... 8,121 15,134 27,596
Short-term debt.................................. 2,168 2,168 890
Minority interest................................ 987 -- --
Series A convertible preferred stock............. 2,163 -- --
Series B convertible preferred stock............. -- -- --
Stockholders' equity (deficit)................... (726) 9,417 30,150
</TABLE>
- --------
(1) Net loss for the nine months ended September 30, 1997 includes a net charge
to earnings of $693,000 as a provision for current and deferred income
taxes resulting from the termination of the Company's S corporation status.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Income Tax Matters."
(2) Gives effect to the issuance by the Company of 100 shares of Series B
Convertible Preferred Stock, $.01 par value per share (the "Series B
Issuance"), the purchase by the Company of the 49% minority interest in
Command International Software Pvt. (the "Minority Interest Purchase") and
the Preferred Stock Conversion.
(3) As adjusted to reflect the sale of 2,100,000 shares of Common Stock offered
by the Company hereby, assuming an initial public offering price of $11.00
per share and the anticipated application of the estimated net proceeds
therefrom, including payment of amounts outstanding under the Company's
credit facility. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby. Included in this Prospectus are various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
including, among others, the expected growth related to the Year 2000 problem,
the Company's goals and strategies, the pace of change in the IT marketplace,
the demand for IT services, the ability of the Company to capitalize on
offshore investments and infrastructure, the Company's goal to expand service
offerings and to pursue acquisitions, and the ability to leverage existing
relationships and Year 2000 engagements into additional contracts. These
statements are forward-looking and reflect the Company's current expectations.
Such statements are subject to a number of risks and uncertainties including,
but not limited to, the risk factors discussed below, changes in economic and
political environments, changes in technology and changes in the IT
marketplace. In light of the many risks and uncertainties surrounding the
Company and the IT marketplace, a prospective purchaser should keep in mind
that there can be no assurance that the results or outcomes indicated or
suggested by the forward-looking statements described in this Prospectus will
actually occur or be achieved.
MANAGEMENT OF GROWTH
The Company's business has grown significantly in size and complexity over
the past several years. Revenue increased by approximately 180% to $17.1
million in 1996 from $6.1 million in 1993, and increased by approximately 40%
to $17.7 million for the nine months ended September 30, 1997 from $12.6
million for the nine months ended September 30, 1996. In December 1996, the
Company commenced its Bangalore, India operations. This growth has placed and
will continue to place significant demands on the Company's management and
administrative, technical and other operational resources. In addition, to
achieve continued growth, the Company will be required to substantially
increase the number of its personnel, particularly skilled technical,
marketing and management personnel, and continue to develop and improve its
operational, financial, communications and other internal systems, in both the
United States and at its Bangalore, India facility. The Company's future
success will also depend on the Company's ability to continue to manage its
projects and personnel in a manner that maintains high rates of employee
utilization at profitable billing rates as well as quality performance,
particularly if the size and scope of the Company's projects increase. Certain
members of the Company's senior management team have been with the Company for
less than a year and the Company's senior management has no experience in
managing publicly traded companies. The Company's inability to manage its
growth effectively could have a material adverse effect on the quality of the
Company's services and projects, its ability to attract and retain key
personnel, its business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL
The Company's success depends to a significant extent on its ability to
attract, train, motivate and retain highly skilled IT professionals,
particularly project managers, software engineers and other senior technical
personnel. There is currently a shortage of, and significant competition for,
software development professionals with the advanced technological skills
necessary to perform the services offered by the Company. This has caused
wages for such professionals to increase, which increases costs to IT service
providers such as the Company. The Company has at times in the past, and may
in the future, experience a turnover rate for its IT professionals that is
higher than the industry average. In addition, many of the IT consulting
contracts that the Company enters into contain provisions whereby, for a fee
payable to the Company, the customer has a right to hire the Company's IT
professionals who are providing consulting services to the customer. The
Company's ability to maintain existing engagements and obtain new business
therefore depends, in large part, on its ability to hire and retain additional
technical personnel with the IT skills to keep pace with continuing changes in
information processing technology, evolving industry standards and changing
customer preferences. An inability to hire such additional qualified personnel
will impair the Company's ability to manage and complete its existing projects
and to bid for or obtain new projects. There can be no assurance that the
Company will be successful in
6
<PAGE>
attracting and retaining future employees or retaining current employees. An
inability to hire a sufficient number of qualified people or an inability to
retain employees could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Human
Resources."
RELIANCE ON SIGNIFICANT CUSTOMERS; ABSENCE OF LONG-TERM CONTRACTS
The Company has derived and believes that it will continue to derive a
significant portion of its revenue from a limited number of large corporate
customers. During the nine months ended September 30, 1997 and 1996, the
Company's four largest customers accounted for, in the aggregate,
approximately 44% and 45% of its revenue, respectively. The volume of work
performed for specific customers is likely to vary from year to year, and a
major customer in one year may not provide the same level of revenue in any
subsequent year. The Company's typical customer contract term is six months
and there can be no assurance that a customer will renew its contract when it
terminates. In addition, the Company's contracts may generally be canceled by
the customer at any time and customers may unilaterally reduce their use of
the Company's services under such contracts without penalty. The termination
or significant reduction of its business relationship with any of its
significant customers would have a material adverse effect on the Company's
business, financial condition and results of operations. Because many of its
contracted engagements involve projects that are critical to the operations of
its customers' businesses, the Company's failure to meet a customer's
expectations could result in cancellation or nonrenewal of a contract and
could damage the Company's reputation and adversely affect its ability to
attract new business. Furthermore, the Company generally is not the exclusive
outside source for IT services to its customers. Accordingly, a customer's
dissatisfaction with the Company's performance could lead the customer to
purchase these services from a competitor. A significant aspect of the
Company's growth strategy is to leverage its expertise within the insurance
industry into a larger, more diverse customer base within the broader
financial services market. However, there can be no assurance that the Company
will be successful in expanding its customer base or that the management
skills and systems currently in place will be adequate to service such
additional customers. See "Business--Business Strategy," "--Customers," and
"--Representative Engagements."
VARIABILITY OF QUARTERLY OPERATIONS AND FINANCIAL RESULTS
The Company's operations and related revenue and operating results
historically have varied substantially from quarter to quarter, and the
Company expects these variations to continue. Among the factors causing these
variations have been the number, timing and scope of IT projects in which the
Company is engaged, the contractual terms of such projects, delays incurred in
the performance of such projects, the accuracy of estimates of resources and
time frames required to complete ongoing projects, patterns of capital
spending by customers, IT outsourcing trends, pricing changes in response to
various competitive factors, new service introductions by the Company or its
competitors, levels of market acceptance of the Company's service and product
offerings and the Company's ability to staff its assignments with qualified
personnel and general economic conditions. A high percentage of the Company's
selling, general and administrative expenses, particularly salary, are
relatively fixed in advance of any particular quarter. As a result,
unanticipated variations in the number and timing of the Company's projects
during a particular quarter may cause significant variations in operating
results in that quarter. An unanticipated termination of a major project, a
customer's decision not to pursue a new project or proceed to succeeding
stages of a current project, or the completion during a quarter of several
major customer projects could require the Company to continue to pay for
underutilized personnel and, therefore, have a material adverse effect on the
Company's business, financial condition and results of operations. Any
unexpected shortfall in revenue without a corresponding and timely reduction
in staffing and other expenses, or a staffing increase that is unaccompanied
by a corresponding increase in revenue, could also have a material adverse
effect on the Company's business, financial condition and results of
operations. As a result of the foregoing factors, the Company's operating
results for a future quarter may be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
likely will be adversely affected. The Company believes, therefore, that past
operating results and period-to-period comparisons should not be relied upon
as an indication of future operating performance. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
7
<PAGE>
COMPETITION
The IT services market is highly competitive and fragmented and served by
numerous international, national, regional and local firms. Primary
competitors include other IT service providers, along with participants from a
variety of market segments, including "Big Six" accounting firms,
implementation firms, applications software firms, service groups of computer
equipment companies, general management consulting firms, programming
companies and temporary staffing firms, as well as in-house IT departments. In
addition, a significant and increasing number of companies have recently
announced that they offer Year 2000 solutions services or automated Year 2000
solutions software products. Many of the Company's competitors have
significantly greater financial, technical and marketing resources and
generate greater revenue than the Company, and there can be no assurance that
the Company will not lose existing customers to such competitors. The Company
believes that its ability to compete also depends in part on a number of
factors outside its control, including the ability of its competitors to hire
and retain professional and technical employees, the price at which others
offer comparable services and the extent of its competitors' responsiveness to
customer needs. See "Business--Competition."
RISKS ASSOCIATED WITH YEAR 2000 SERVICE OFFERING
During 1996, in response to the needs and demands of its customers, the
Company began to offer Year 2000 solutions services. The Company has generated
new contracts for and has commenced work on a number of Year 2000 conversion
projects; however, as of December 31, 1997, the Company had completed only one
Year 2000 project and such services remain in an early stage of marketing and
customer acceptance. The Company has limited experience in developing,
marketing or providing Year 2000 solutions services and, as a result, no
assurance can be given that it will be able to continue to develop such
capabilities, or that such capabilities may be developed in a timely and
profitable manner. Furthermore, no assurance can be made that the Company's
services will achieve market acceptance or that the Company will integrate and
manage additional technical personnel or meet client expectations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Business--Services."
FINITE NATURE OF DEMAND FOR YEAR 2000 SOLUTIONS SERVICES; OTHER RISKS OF
DECREASED DEMAND
The Company realized none of its revenue from Year 2000 solutions services
in 1996 and 17% of its revenue from Year 2000 solutions services during the
nine months ended September 30, 1997. The Company expects that it will
continue to receive increased revenue from additional Year 2000 engagements in
the near term. However, the Company expects that Year 2000 engagements and
revenue derived from such engagements will peak prior to calendar year 2000
and diminish rapidly thereafter as companies complete the projects to address
their needs. When the demand for such services decreases, there will likely be
a resulting decrease in the Company's revenue. The extent of such decrease
will depend on the amount of revenue attributable to Year 2000 solutions
services at the time of such decreased demand and the Company's ability to
offset such decrease by increasing revenue from other services. Such decrease
in revenue could have a material adverse impact on the Company's business,
financial condition and results of operations. A core element of the Company's
growth strategy is to use the business relationships and the knowledge of its
customers' computer systems obtained in providing its Year 2000 solutions
services to generate additional IT projects for these customers. There can be
no assurance, however, that the Company will be successful in generating
additional business from its Year 2000 customers for other services. In
addition, by utilizing significant resources during the next several years to
solve its customers' Year 2000 problems, the Company's ability to continue to
deliver other IT services could be adversely affected.
The Company currently is engaged in extensive efforts to increase its
infrastructure of personnel, facilities, equipment and other resources to meet
anticipated growth in the demand for Year 2000 conversion and other IT
services. A rapid near-term decline in the demand for Year 2000 solutions
services would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company faces various risks
that may cause the demand for its Year 2000 solutions services to decline,
such as the risk that a competitor may
8
<PAGE>
introduce automated software processes or tools that would enable companies to
perform their own Year 2000 solutions services more effectively, and the risk
that the Company might fail to perform Year 2000 solutions services correctly
for a specific customer under circumstances which might result in negative
publicity, possible litigation and possible liability. See "Business--
Services."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW SOLUTIONS
The market for the services offered by the Company is characterized by
rapidly changing technology and frequent new service and product
introductions. The development of new technology, services and products can
render existing technology, services and products obsolete. The Company's
continued success will depend on its ability to attract and retain highly
capable technical personnel, to enhance its existing service and product
offerings, to develop new service and product offerings on a timely and cost-
effective basis and to keep pace with technological developments and changing
customer requirements. There can be no assurance that the Company will be
successful in developing and marketing such enhanced or new service or product
offerings or in acquiring resale rights to support product offerings from
vendors.
DEPENDENCE ON OFFSHORE SOFTWARE DEVELOPMENT FACILITY
In 1996, the Company established an Offshore Technology Resource Center in
Bangalore, India that is intended to provide the Company with improved access
to IT professionals, cost advantages and the ability to provide flexible
coverage for its outsourcing services customers. To provide its service
delivery model, the Company must maintain communications between its offices,
the offices of its customers in the United States and the Offshore Technology
Resource Center. Any loss of the Company's ability to transmit voice and data
through satellite communications to India could have a material adverse effect
on the Company's business, financial condition and results of operations. In
the past, India has experienced significant inflation, low growth in gross
domestic product and shortages of foreign exchange. India also has experienced
civil unrest and terrorism and, in the past, has been involved in conflict
with neighboring countries. No assurance can be given that the Company will
not be adversely affected by changes in inflation, interest rates, taxation,
social stability or other political, economic or diplomatic developments in or
affecting India in the future. In addition, the Indian government has
exercised and continues to exercise significant influence over many aspects of
the Indian economy, and Indian government actions concerning the economy could
have a material adverse effect on private sector entities, including the
Company. During recent years, India's government has provided significant tax
incentives and relaxed certain regulatory restrictions in order to encourage
foreign investment in specified sectors of the economy, including the software
development industry. Certain of those benefits that directly affect the
Company include, among others, tax holidays, liberalized import and export
duties and preferential rules on foreign investment and repatriation.
Notwithstanding these benefits, however, India's central and state governments
remain significantly involved in the Indian economy. The elimination of any of
the benefits realized by the Company from its Indian operations could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON CONTINUED AUTHORIZATION TO RESELL
The Company's future success in both product sales and service and support
offerings depends largely on its continued status as an approved reseller of
products and its continued authorization as a service provider. The Company
maintains sales and service authorizations with many industry-leading
manufacturers, including Digital Equipment Corporation, Compaq Corporation and
Microsoft Corporation. Without such sales and service authorizations, the
Company would be unable to provide the range of products and services it
currently offers, including warranty services. Consequently, the Company's
future success depends largely on its continued status as an authorized
remarketer of computer products, particularly those manufactured by Digital
and Compaq. In general, the agreements between the Company and such
manufacturers include termination provisions ranging from immediate
termination to termination upon 30 days' prior written notice. In addition,
many of such agreements are based upon the Company's continued relationships
with authorized aggregators. There can be no assurance that such manufacturers
will continue to authorize the Company as an approved reseller or service
9
<PAGE>
provider and the loss of one or more of such authorizations could have a
material adverse effect on the Company's business, financial condition and
results of operations.
IMMIGRATION ISSUES
The Company believes that its success, in part, will result from its ability
to attract and retain persons with technical and project management skills
from other countries. There is a limit on the number of new petitions for
visas that the Immigration and Naturalization Service may approve in any
government fiscal year, and in years in which this limit is reached, the
Company may be unable to obtain visas necessary to bring critical foreign
employees to the United States. Compliance with existing United States
immigration laws, or changes in such laws making it more difficult to hire
foreign nationals or limiting the ability of the Company to attract and retain
employees in the United States, could require the Company to incur additional
unexpected labor costs and expenses. Any such restrictions or limitations on
the Company's hiring practices could have a material adverse effect on the
Company's business, financial condition and results of operations.
INTERNAL CONTROLS
The Company only recently implemented an accounting system capable of
generating information and reports necessary to appropriately manage a public
company, and currently is developing and implementing a system of internal
controls and otherwise developing an appropriate administrative
infrastructure. The failure to develop and maintain an effective internal
control structure could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISKS OF DOING BUSINESS IN INTERNATIONAL MARKETS
For the nine months ended September 30, 1997 revenue derived from the
Company's international operations accounted for approximately 11% of the
Company's revenue. The Company expects that such revenue will account for an
increasingly significant percentage of the Company's revenue. As a result, the
Company is subject to a number of risks, including, among other things,
difficulties relating to administering its business globally, managing foreign
operations, currency fluctuations, restrictions against the repatriation of
earnings, export requirements and restrictions, and multiple and possibly
overlapping tax structures. These risks could have a material adverse effect
on the Company's business, financial condition and results of operations. Any
earnings generated in countries other than the United States may be
permanently invested or may be subject to considerable taxation if repatriated
to the United States. The Company presently incurs a significant amount of its
costs in local currency in India. In contrast, the Company presently generates
most of its revenue in U.S. dollars. Accordingly, the Company is subject to
risks that, as a result of currency fluctuations, the translation of foreign
currencies into U.S. dollars could adversely affect its business, financial
condition and results of operations. Historically, the Company has not hedged
any meaningful portion of its foreign exchange transactions.
POTENTIAL LIABILITY TO CUSTOMERS
Many of the Company's engagements involve projects that are critical to the
operations of its customers' businesses and provide benefits that may be
difficult to quantify. Any failure in a customer's system could result in a
claim for substantial damages against the Company, regardless of the Company's
responsibility for such failure. Although the Company attempts to limit
contractually its liability for damages arising from errors, mistakes or
omissions in rendering its IT services, there can be no assurance that the
limitations of liability set forth in its services contracts will be
enforceable in all instances or would otherwise protect the Company from
liability for damages. Although the Company maintains general liability
insurance coverage, including coverage for errors or omissions in the amount
of $5.0 million, there can be no assurance that such coverage will continue to
be available on reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim. The successful assertion of one or more large claims
against the Company that exceed available insurance coverage, or changes in
the Company's
10
<PAGE>
insurance policies, including premium increases or the imposition of large
deductible or co-insurance requirements, could adversely affect the Company's
business, financial condition and results of operations.
RISKS RELATED TO POSSIBLE ACQUISITIONS AND INTERNAL EXPANSION
The Company may expand its operations through the acquisition of additional
businesses. To date, the Company has made no material acquisition of an
unaffiliated company. There can be no assurance that the Company will be able
to identify, acquire or profitably manage additional businesses or
successfully integrate any acquired businesses into the Company without
substantial expenses, delays or other operational or financial problems.
Further, acquisitions may involve a number of special risks, including
diversion of management's attention, failure to retain key acquired personnel,
unanticipated events or circumstances, legal liabilities and amortization of
acquired intangible assets, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of
operations. Customer satisfaction or performance problems within an acquired
firm could have a material adverse impact on the reputation of the Company as
a whole. In addition, there can be no assurance that acquired businesses, if
any, will achieve anticipated revenue and earnings. The failure of the Company
to manage its acquisition strategy successfully could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, the Company may issue additional shares of its Common
Stock to acquire such additional businesses, which may reduce the percentage
ownership of existing stockholders. See "Business--Business Strategy."
The Company may open new offices in attractive markets with its own
personnel. All of the Company's branch offices were originally start-up
operations. Not all branch offices have been successful. For example, the
Company closed its branch office in Minneapolis, Minnesota primarily as a
result of a shortage of qualified local IT professionals. There can be no
assurance that the Company will be able to establish, identify, acquire, or
integrate what will ultimately be successful branch operations. See
"Business--Business Strategy."
DEPENDENCE ON KEY EXECUTIVES
The Company's success will depend in large part upon the continued
availability of its key executive officers. In particular, the Company is
dependent upon the continued services of Edward G. Caputo, the Company's
President and Chief Executive Officer. The loss of the services of Mr. Caputo
or other key executives would have a material adverse effect on the Company.
The Company presently maintains key person life insurance on Mr. Caputo in the
amount of $5.0 million. This amount of insurance, however, may not be
sufficient to offset the Company's loss if Mr. Caputo's services were
unavailable. See "Management--Key Person Life Insurance."
CONTROL BY PRINCIPAL STOCKHOLDER
Upon completion of the offering, Mr. Caputo will beneficially own
approximately 56.6% of the outstanding shares of Common Stock (approximately
54.2% if the Underwriters' over-allotment option is exercised in full).
Accordingly, Mr. Caputo will retain the voting power to exercise control over
the election of members of the Board of Directors as well as any decision
whether to merge or sell the assets of the Company, adopt, amend or repeal the
Company's Amended and Restated Articles of Incorporation and Restated Bylaws,
or take other actions requiring the vote or consent of the Company's
stockholders. In addition, such a concentration of ownership may have the
effect of delaying or preventing a change in control of the Company, and may
also impede or preclude transactions in which stockholders might otherwise
receive a premium for their shares over current market prices. See
"Management--Directors and Executive Officers" and "Principal and Selling
Stockholders."
BROAD DISCRETION OF MANAGEMENT AS TO USE OF PROCEEDS
A substantial portion of the net proceeds to be received by the Company in
connection with this offering is not allocated for any specific purpose, but
will be allocated to working capital and general corporate purposes. A portion
or all of the net proceeds of this offering may also be used for strategic
acquisitions of businesses,
11
<PAGE>
products or technologies complementary to those of the Company; however, the
Company is not currently a party to any commitments or agreements and is not
currently involved in any negotiations with respect to any material
acquisitions. Accordingly, management will have broad discretion with respect
to the expenditure of such proceeds. Purchasers of shares of Common Stock
offered hereby will be entrusting their funds to the Company's management,
upon whose judgment they must depend, with limited information concerning the
specific working capital requirements and general corporate purposes to which
the funds will ultimately be applied. See "Use of Proceeds."
INTELLECTUAL PROPERTY RIGHTS
In order to protect its proprietary rights in its various intellectual
properties, the Company relies upon a combination of copyright and trade
secret laws, nondisclosure and other contractual arrangements. India is a
member of the Berne Convention, an international treaty. As a member of the
Berne Convention, the government of India has agreed to extend copyright
protection under its domestic laws to foreign works, including works created
or produced in the United States. The Company believes that laws, rules,
regulations and treaties in effect in the United States and India are adequate
to protect it from misappropriation or unauthorized use of its intellectual
property. However, there can be no assurance that such laws will not change
and, in particular, that the laws of India will not change in ways that may
prevent or restrict the transfer of software components, libraries and
toolsets from India to the United States. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance, however, that the steps
taken by the Company to protect its proprietary rights will be adequate to
deter misappropriation of its intellectual property, or that the Company will
be able to detect unauthorized use and take appropriate steps to enforce its
rights. The Company presently holds no patents or registered copyrights.
Although the Company believes that its intellectual property rights do not
infringe on the intellectual property rights of others, there can be no
assurance that such a claim will not be asserted against the Company in the
future, that assertion of such claims will not result in litigation or that
the Company would prevail in such litigation or be able to obtain a license
for the use of any infringed intellectual property from a third party on
commercially reasonable terms. Additionally, the Company may in the future
license certain technologies to its customers. There can be no assurance that
the Company will be able to successfully license these technologies, protect
them from infringement or misuse, or prevent infringement claims against the
Company in connection with its licensing efforts. The Company expects that the
risk of infringement claims against the Company will increase if more of the
Company's competitors are able to successfully obtain patents for software
products and processes. Any such claims, regardless of their outcome, could
result in substantial cost to the Company and divert management's attention
from the Company's operations. Any infringement claim or litigation against
the Company could, therefore, have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Intellectual Property Rights."
NO PUBLIC MARKET FOR THE COMMON STOCK; PRICE AND MARKET VOLATILITY
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price has been determined by negotiations between the
Company and the Representatives of the Underwriters and may not be indicative
of the market price of the Common Stock in the future. See "Underwriting" for
a discussion of the factors considered in determining the initial public
offering price.
Investors should be aware that market prices for securities of IT services
companies such as the Company are highly volatile. The market price of the
Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results, changes in earnings estimates by
securities analysts and other factors. In addition, the securities markets
recently have experienced substantial price and volume fluctuations that have
been unrelated or disproportionate to the operating performance of particular
companies. These broad fluctuations may adversely affect the market price of
the Common Stock.
12
<PAGE>
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock in this offering will suffer an
immediate and substantial dilution in the net tangible book value of the
Common Stock from the initial public offering price. See "Dilution."
ABSENCE OF DIVIDENDS
No dividends have been paid on the Common Stock to date and the Company does
not anticipate paying dividends on the Common Stock in the foreseeable future.
See "Dividend Policy."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") authorizes the Board of Directors to issue,
without stockholder approval, 4,999,800 shares of Preferred Stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of Common Stock. The issuance of
Preferred Stock or of rights to purchase Preferred Stock could be used to
discourage an unsolicited acquisition proposal. In addition, the possible
issuance of Preferred Stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Company's Common Stock
or limit the price that investors might be willing to pay in the future for
shares of the Company's Common Stock. The Certificate of Incorporation also
provides that: (i) the affirmative vote of the holders of at least 70% of the
voting power of all of the then outstanding shares of the capital stock of the
Company shall be required to adopt, amend or repeal any provision of the By-
laws of the Company, (ii) following the closing of an initial public offering,
stockholders of the Company may not take any action by written consent, (iii)
following the closing of an initial public offering, the Board of Directors
will be classified into three classes with staggered terms of three years each
and (iv) members of the Board of Directors may be removed only for cause and
after reasonable notice and an opportunity to be heard before the body
proposing to remove such director. The foregoing provisions of the Certificate
of Incorporation could have the effect of delaying, deterring or preventing a
change in control of the Company. Delaware law also contains provisions that
may have the effect of delaying, deferring or preventing a non-negotiated
merger or other business combination involving the Company. These provisions
are intended to encourage any person interested in acquiring the Company to
negotiate with and obtain the approval of its Board of Directors in connection
with the transaction. Certain of these provisions may, however, discourage a
future acquisition of the Company not approved by the Board of Directors in
which stockholders might receive an attractive value for their shares or that
a substantial number or even a majority of the Company's stockholders might
believe to be in their best interest. As a result, stockholders who desire to
participate in such a transaction may not have the opportunity to do so. See
"Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect the market price of the Common Stock.
Upon completion of this offering, the 2,400,000 shares offered hereby will be
freely tradable by persons other than "affiliates" of the Company without
restriction. The remaining 5,156,750 shares held by current stockholders of
the Company are subject to lock-up agreements (the "Lock-Up Agreements") under
which the holders of such shares have agreed not to sell or otherwise dispose
of such shares without the prior written consent of Cowen & Company, one of
the Representatives of the Underwriters, for a period of 180 days after the
date of this Prospectus. Upon expiration of the Lock-Up Agreements 180 days
after the date of this Prospectus (and assuming no exercise of outstanding
options), approximately 4,275,000 additional shares of Common Stock will be
available for sale in the public market, subject to the provisions of Rule 144
or Rule 701 under the Securities Act. The remaining 881,750 shares of Common
Stock will become eligible for sale in the public market, subject to the
provisions of Rule 144, over a period of less than one year and could be sold
earlier if the holders thereof exercise their registration rights. Promptly
following the consummation of this offering, the Company intends to register
an aggregate of 427,500 shares of Common Stock issuable under the 1997
Employee, Director and Consultant Stock Plan. Holders of approximately
5,302,750 shares of Common Stock (including 53,050 shares of Common Stock that
may be
13
<PAGE>
acquired pursuant to the exercise of options held by them and which are
exercisable as of December 31, 1997 or within 60 days thereafter) have agreed
pursuant to the Lock-Up Agreements, not to sell, offer, contract or grant any
option to sell, pledge, transfer or otherwise dispose of such shares for 180
days after the date of this Prospectus.
Commencing 180 days after the date of this Prospectus, the holders of
approximately 881,750 shares of Common Stock will be entitled to certain
piggyback and S-3 registration rights with respect to such shares. By
exercising their registration rights, such holders could cause a large number
of shares to be registered and sold in the public market. Sales pursuant to
Rule 144 or other exemptions from registration, or pursuant to registration
rights, may have an adverse effect on the market price for the Common Stock and
could impair the Company's ability to raise capital through an offering of its
equity securities. See "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriting."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,100,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$20.7 million, assuming an initial public offering price of $11.00 per share
and after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company. The principal purposes of this
offering are to increase the Company's equity capital, to create a public
market for the Common Stock, to facilitate future access by the Company to
public equity markets and to provide liquidity for the Company's existing
stockholders.
The Company intends to use a portion of the net proceeds for the repayment
of the outstanding balance under its secured credit facility with People's
Bank ($800,000 outstanding as of December 31, 1997, bearing interest at the
bank's prime rate plus 0.5% per annum). Amounts outstanding under such credit
facility were used by the Company for working capital purposes. The credit
facility matures on August 15, 1998. The Company also intends to use a portion
of the net proceeds to pay accumulated and unpaid dividends on its Series A
and Series B Convertible Preferred Stock ($75,474 as of December 31, 1997 and
anticipated to be approximately $300,000 upon the consummation of this
offering) upon the Preferred Stock Conversion. The actual amount of the
accumulated dividends to be paid with a portion of the net proceeds will be
based on the period of time the Series A and Series B Convertible Preferred
Stock are actually outstanding. The Company intends to use the balance of the
net proceeds from this offering (i) to expand its sales and marketing
capabilities and (ii) for general corporate purposes, including working
capital. The Company may also use a portion of such net proceeds for
acquisitions of businesses that are complementary to those of the Company.
While the Company from time to time evaluates such potential acquisitions, the
Company currently has no understandings, commitments or agreements with
respect to any acquisitions. The Company has not determined the amounts it
plans to expend with respect to each of the expected uses or the timing of
such expenditures. As a consequence, management will have the discretion to
allocate the net proceeds from this offering. The amounts actually expended
for each use may vary significantly depending on a number of factors,
including the amount of future revenue, the amount of cash generated or used
by the Company's operations, the progress of the Company's sales and marketing
efforts, the success of the Company's recruiting efforts, the status of
competitive services and acquisition opportunities presented to the Company.
Pending such uses, the net proceeds to the Company from this offering will be
invested in short-term, investment-grade, interest-bearing instruments.
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders" and "Certain
Transactions--Transactions with Phoenix."
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock.
The Company is, however, obligated to pay a 10% dividend on its Series A and
Series B Convertible Preferred Stock and intends to pay such accrued and
unpaid dividends with a portion of the net proceeds of this offering upon the
Preferred Stock Conversion. Following the Preferred Stock Conversion, the
Company does not anticipate paying any other cash dividends in the foreseeable
future and intends to retain any earnings to fund future growth and the
operation of its business. Under the terms of the Company's revolving line of
credit with People's Bank, the Company is currently prohibited from declaring
or paying any dividends, other than payment of dividends to the holder of its
Series A and Series B Convertible Preferred Stock provided that no event of
default exists. See "Risk Factors--Absence of Dividends," "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis, (ii) on a pro forma basis to reflect
the Series B Issuance, the Minority Interest Purchase and the Preferred Stock
Conversion and (iii) on a pro forma basis as adjusted to reflect the issuance
and sale by the Company of 2,100,000 shares of Common Stock offered hereby,
assuming an initial public offering price of $11.00 per share, after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company and the application of the net proceeds thereof. The
following table should be read in conjunction with the Consolidated Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2)
------ -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt................................ $2,168 $ 2,168 $ 890
====== ======= =======
Minority interest.............................. $ 987 $ -- $ --
Preferred stock, $.01 par value; 5,000,000
shares authorized:
Series A convertible preferred stock, 100
shares authorized, issued and outstanding;
and no shares issued and outstanding, pro
forma as adjusted............................ 2,163 -- --
Series B convertible preferred stock, 100
shares authorized, issued and outstanding;
and no shares issued and outstanding, pro
forma as adjusted............................ -- -- --
Stockholders' equity (deficit):
Common stock, $.01 par value; 25,000,000
shares authorized; 4,275,000 shares issued
and outstanding; 5,456,750 shares issued and
outstanding pro forma and 7,556,750 pro forma
as adjusted(3)............................... 1 109 130
Additional paid-in capital.................... -- 10,078 30,790
Accumulated deficit........................... (742) (785) (785)
Cumulative translation adjustment............. 15 15 15
------ ------- -------
Total stockholders' equity (deficit)......... (726) 9,417 30,150
------ ------- -------
Total capitalization....................... $2,424 $ 9,417 $30,150
====== ======= =======
</TABLE>
- --------
(1) Gives effect to the Series B Issuance, the Minority Interest Purchase and
the Preferred Stock Conversion.
(2) As adjusted to reflect the sale of 2,100,000 shares of Common Stock offered
by the Company hereby, assuming an initial public offering price of $11.00
per share and the anticipated application of the estimated net proceeds
therefrom, including payment of amounts outstanding under the Company's
credit facility. See "Use of Proceeds."
(3) Excludes 204,600 shares of Common Stock issuable upon the exercise of stock
options outstanding under the 1997 Plan as of the date of this Prospectus
at a weighted average exercise price of $7.37 per share, 50,550 of which
are currently exercisable. See "Management--Employee Benefit Plans."
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was approximately $2.4 million or $0.44 per share of Common Stock. Pro
forma net tangible book value per share is determined by dividing the net
tangible book value of the Company (pro forma tangible assets less total
liabilities) by the number of shares of Common Stock outstanding. Dilution per
share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the offering made hereby and the pro
forma net tangible book value per share of Common Stock immediately after
completion of the offering. Without taking into account any changes in such
pro forma net tangible book value after September 30, 1997, other than to give
effect to (i) the sale of 2,100,000 shares of Common Stock by the Company in
this offering assuming an initial public offering price of $11.00 per share
and after deducting the underwriting discounts and commissions and estimated
offering expenses and (ii) the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company as of
September 30, 1997 would have been approximately $23.1 million or $3.06 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.62 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $7.94 per share to new investors. The
following table illustrates this dilution on a per share basis.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)............. $11.00
Pro forma net tangible book value per share before offering.. $0.44
Increase per share attributable to new investors............. 2.62
-----
Pro forma net tangible book value per share after offering..... 3.06
------
Dilution per share to new investors............................ $ 7.94
======
</TABLE>
- --------
(1) Before deducting estimated underwriting discounts and commissions and
offering expenses.
The following table summarizes on a pro forma basis, as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share of
Common Stock paid by the existing stockholders and new investors in this
offering, assuming an initial public offering price of $11.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER (1) PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 5,456,750 72.2% $10,187,000 30.6% $ 1.87
New investors.................. 2,100,000 27.8 23,100,000 69.4 11.00
--------- ----- ----------- -----
Total........................ 7,556,750 100.0% $33,287,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares held by existing stockholders to 5,156,750 or approximately
68.2% (4,796,750 shares or approximately 63.5% if the Underwriters' over-
allotment option is exercised in full) and will increase the number of
shares held by new investors to 2,400,000 or approximately 31.8%
(2,760,000 shares or approximately 36.5% if the Underwriters' over-
allotment option is exercised in full) of the total number of shares of
Common Stock outstanding after this offering. See "Principal and Selling
Stockholders."
The foregoing table excludes 204,600 shares of Common Stock issuable upon
the exercise of stock options outstanding under the 1997 Plan as of the date
of this Prospectus, at a weighted average exercise price of $7.37 per share,
50,550 of which are currently exercisable. To the extent that such options are
exercised in the future, there will be further dilution to new investors. See
"Capitalization," "Management--Employee Benefit Plans" and "Description of
Capital Stock."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1994,
1995 and 1996 and for the three years ended December 31, 1996 are derived from
and are qualified by reference to the audited Consolidated Financial
Statements of the Company and the Notes thereto. The selected consolidated
financial data as of December 31, 1992 and 1993 and September 30, 1996 and
1997 and for the years ended December 31, 1992 and 1993 and the nine months
ended September 30, 1996 and 1997 are derived from unaudited consolidated
financial statements. The unaudited consolidated financial statements include
all adjustments, consisting only of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for these periods. Operating results for the
nine months ended September 30, 1997 are not necessarily indicative of results
that may be expected for the entire year ending December 31, 1997. Historical
results are not necessarily indicative of results to be expected in the
future. The data should be read in conjunction with the Consolidated Financial
Statements, including the Notes thereto, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other financial
information included herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue............... $ 3,801 $ 6,127 $ 9,272 $ 12,436 $ 17,069 $ 12,563 $ 17,742
Cost of revenue....... 2,752 5,721 6,890 9,108 12,494 8,842 11,989
------- ------- ------- -------- -------- -------- --------
Gross profit......... 1,049 406 2,382 3,328 4,575 3,721 5,753
Selling, general and
administrative
expenses............. 803 608 2,102 3,013 5,172 3,461 5,284
------- ------- ------- -------- -------- -------- --------
Income (loss) from
operations.......... 246 (202) 280 315 (597) 260 469
Other expense, net.... (19) (38) (55) (50) (75) (27) (241)
------- ------- ------- -------- -------- -------- --------
Income (loss) before
income taxes and
minority interest.... 227 (240) 225 265 (672) 233 228
Income tax (provision)
benefit.............. (4) (16) (32) (44) 8 (7) (13)
Income tax (provision)
for change in
corporate status..... -- -- -- -- -- -- (693)
------- ------- ------- -------- -------- -------- --------
Income (loss) before
minority interest.... 223 (256) 193 221 (664) 226 (478)
Minority interest in
net (income) loss.... -- -- -- -- 241 -- (184)
------- ------- ------- -------- -------- -------- --------
Net income (loss)..... $ 223 $ (256) $ 193 $ 221 $ (423) $ 226 $ (662)
======= ======= ======= ======== ======== ======== ========
Net income (loss) per
share of common
stock................ $ 0.05 $ (0.06) $ 0.04 $ 0.05 $ (0.09) $ 0.05 $ (0.15)
======= ======= ======= ======== ======== ======== ========
Shares used in per
share calculation.... 4,646 4,646 4,646 4,646 4,646 4,646 4,646
======= ======= ======= ======== ======== ======== ========
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $ 43 $ 93 $ 83 $ 223 $ 444 $ (184) $ 673
Working capital
(deficit)............ 230 338 85 85 (99) 503 95
Total assets.......... 727 1,112 1,188 2,294 4,816 3,342 8,121
Short-term debt....... 112 114 436 949 1,452 73 2,168
Long-term debt........ 344 593 -- -- 1,145 400 --
Series A preferred
stock................ -- -- -- -- -- -- 2,163
Stockholders' equity
(deficit)............ 254 (50) 143 365 (58) 591 (726)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Consolidated Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus.
OVERVIEW
The Company is a solutions provider offering IT services based on leading
technologies, including a wide variety of technology services, management
consulting, and product procurement and education services. Historically, the
Company has derived the majority of its revenue from the Company's traditional
IT consulting services and software and hardware procurement services.
However, as a result of the introduction of Year 2000 solutions services in
December 1996 and the significant demand for such services, a growing
percentage of the Company's revenue during the nine months ended September 30,
1997 has been for the provision of Year 2000 solutions services, and the
Company expects this percentage to increase over the near term.
Over 90% of the Company's service revenue is billed on a time and materials
basis. Revenue from services provided on a time and materials basis is
recognized in the period that services are provided. The balance of the
Company's service revenue is derived from services provided on a fixed-price
basis. Such revenue is recognized using the percentage-of-completion method.
The Company bears the risk of cost overruns and inflation with respect to its
fixed-price projects. When entering into such contracts, the Company strives
to mitigate the attendant risks by subdividing such projects into smaller,
more manageable phases with fixed price and time frames. See "Risk Factors--
Variability of Quarterly Operations and Financial Results."
In the mid-1990s, several conferences and market pronouncements increased
worldwide awareness of the Year 2000 problem (which prevents existing
applications from properly interpreting dates after 1999). The Company began
providing Year 2000 solutions services in December 1996 through its workforce
both in the U.S. and at the Offshore Technology Resource Center in response to
the needs and demands of its customers. The Company has generated new
contracts for a significant number of Year 2000 conversion projects as a
result of the Company's methodology and experience with Year 2000 projects.
The Company recently increased its staff of software development professionals
in its Offshore Technology Resource Center to approximately 141 as of December
31, 1997 to perform the significant additional services required by its new
Year 2000 contracts. See "Risk Factors--Finite Nature of Demand for Year 2000
Solutions Services; Other Risks of Decreased Demand" and "Business--Industry
Overview."
Personnel and rent expenses represent a significant percentage of the
Company's operating expenses and are relatively fixed in advance of any
particular quarter. Senior management manages the Company's personnel
utilization rates by carefully monitoring its needs and basing most personnel
increases on specific project requirements. To the extent revenues do not
increase at a rate commensurate with these additional expenses, the Company's
results of operations could be materially and adversely affected.
During 1996, the Company entered into an agreement with Phoenix Home Life
Mutual Insurance Company ("Phoenix") to organize Command International
Software Pvt. in Bangalore, India, to establish the Offshore Technology
Resource Center. Initially, the Company and Phoenix maintained a 51% and 49%
interest, respectively, in Command International Software Pvt. As of December
31, 1997, Phoenix, acting through a wholly-owned subsidiary, exchanged its 49%
interest for shares of the Company's Series B Convertible Preferred Stock
which will be automatically converted into 659,250 shares of Common Stock upon
consummation of this offering. Accordingly, the Company currently owns 100% of
the Offshore Technology Resource Center. See "Certain Transactions."
As a result of the acquisition of the minority interest in the Offshore
Technology Resource Center, the Company will record goodwill of approximately
$7.0 million which will be amortized over a period of 15 years commencing
January 1, 1998. Consequently, the Company will no longer report a minority
interest.
19
<PAGE>
INCOME TAX MATTERS
From its inception through August 23, 1997, the Company elected to be taxed
under the S corporation provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). An S corporation generally is not subject to income tax
at the corporate level (with certain exceptions under state income tax laws).
This election was terminated in conjunction with the formation of the Company
as a Delaware holding corporation and the issuance of its Series A Convertible
Preferred Stock.
In connection with the termination of its S corporation status, the Company
is required by the Code to change its method of accounting for tax reporting
purposes from the cash method to the accrual method. This change resulted in a
net charge to earnings in the three months ended September 30, 1997 of
$693,000 resulting from differences (of approximately $2.0 million) in the tax
treatment of certain of the Company's assets and liabilities under the cash
and accrual methods of accounting and is reflected through an increase in
current and deferred income tax liabilities. Under current statutes, this
liability will be payable over a period of four years.
The Offshore Technology Resource Center is eligible for certain favorable
tax provisions provided under India law including: (i) an exemption from
payment of corporate income taxes for a period of five consecutive years in
the first eight years of operation (the "Tax Holiday") or (ii) an exemption
from income taxes on the profits derived from India (the "Export Exemption").
The Export Exemption remains available after expiration of the Tax Holiday. As
a result of the availability of these exemptions, the Company has not recorded
deferred income taxes applicable to the undistributed earnings of the Offshore
Technology Resource Center, which aggregated approximately $282,000 (before
minority interest) as of September 30, 1997. The Company considers these
earnings to be permanently invested in India and does not anticipate
repatriating any of these earnings to the U.S. If any earnings of Command
Software are repatriated to the U.S. in the future, the Company will be
required to record a provision for income taxes on such amounts and, upon
repatriation of the funds, pay U.S. taxes thereon. See Note 6 of the Notes to
Consolidated Financial Statements for September 30, 1997.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
revenue for the periods indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
----------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue............. 74.3 73.2 73.2 70.4 67.6
------- ------- ------- -------- --------
Gross profit............... 25.7 26.8 26.8 29.6 32.4
Selling, general and
administrative expenses.... 22.7 24.2 30.3 27.5 29.8
------- ------- ------- -------- --------
Income (loss) from
operations................ 3.0 2.6 (3.5) 2.1 2.6
Other expense, net.......... (0.6) (0.4) (0.5) (0.2) (1.4)
------- ------- ------- -------- --------
Income (loss) before income
taxes and minority
interest................... 2.4 2.2 (4.0) 1.9 1.2
Income tax (provision)
benefit.................... (0.3) (0.4) -- (0.1) (0.1)
Income tax (provision) for
change in corporate
status..................... -- -- -- -- (3.9)
------- ------- ------- -------- --------
Income (loss) before
minority interest.......... 2.1 1.8 (4.0) 1.8 (2.8)
Minority interest in net
(income) loss.............. -- -- 1.4 -- (1.0)
------- ------- ------- -------- --------
Net income (loss)........... 2.1% 1.8% (2.6)% 1.8% (3.8)%
======= ======= ======= ======== ========
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Revenue. Revenue during the nine months ended September 30, 1997 increased by
40% to $17.7 million from $12.6 million during the nine months ended September
30, 1996. This increase resulted primarily from an increase in demand for the
Company's traditional IT consulting services and the introduction of Year 2000
solutions services in December 1996.
Gross Profit. Cost of revenue consists primarily of salaries and employee
benefits for personnel as well as the cost of hardware and software purchased
for resale to customers. Gross profit during the nine months ended September
30, 1997 increased by 57% to $5.8 million from $3.7 million during the nine
months ended September 30, 1996. Gross profit as a percentage of revenue
increased to 32.4% during the nine months ended September 30, 1997 from 29.6%
during the nine months ended September 30, 1996. This increase resulted
primarily from the introduction of the Company's Year 2000 solutions services
which are performed primarily from the Company's Offshore Technology Resource
Center and which typically carry higher margins than the Company's IT services
performed in the United States.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of salaries and employee benefits for
selling and administrative personnel as well as travel, telecommunications, and
occupancy costs for the Company's U.S. and India operations. Selling, general
and administrative expenses during the nine months ended September 30, 1997
increased by 51% to $5.3 million from $3.5 million during the nine months ended
September 30, 1996. Selling, general and administrative expenses as a
percentage of revenue increased to 29.8% during the nine months ended September
30, 1997 from 27.5% during the nine months ended September 30, 1996. The
increase resulted primarily from costs associated with the continued expansion
of the Company's offshore capabilities as well as the expansion of the
Company's sales, marketing and recruiting capabilities.
Income from Operations. Income from operations during the nine months ended
September 30, 1997 increased by 80% to $469,000 from $260,000 during the nine
months ended September 30, 1996. Income from operations as a percentage of
revenue increased to 2.6% during the nine months ended September 30, 1997 from
2.1% during the nine months ended September 30, 1996.
21
<PAGE>
Other Expense. Other expense during the nine months ended September 30, 1997
increased to $241,000 from $27,000 during the nine months ended September 30,
1996. The increase resulted primarily from an increase in borrowing by the
Company to support the expansion of its Offshore Technology Resource Center.
Income Tax Provision. Income tax provision during the nine months ended
September 30, 1997 increased to $706,000 from $7,000 during the nine months
ended September 30, 1996. This increase was a result of the Company's change
from S corporation status to a C corporation, pursuant to which the Company
incurred a one-time charge in the amount of $693,000 because of the related
requirement to change from the cash method of accounting to the accrual method
of accounting.
Minority Interest in Net Income. Minority interest in net income consisted
of the 49% ownership interest by Phoenix in the Company's Offshore Technology
Resource Center. Minority interest in net income was $184,000 during the nine
months ended September 30, 1997. In December 1997 the Company purchased the
49% interest from a wholly-owned subsidiary of Phoenix. See "Certain
Transactions."
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue. Revenue during the year ended December 31, 1996 increased by 37% to
$17.1 million from $12.4 million during the year ended December 31, 1995. The
increase resulted primarily from an increase in demand for the Company's
traditional IT consulting services.
Gross Profit. Gross profit during the year ended December 31, 1996 increased
by 38% to $4.6 million from $3.3 million during the year ended December 31,
1995. Gross profit as a percentage of revenue remained constant at 26.8%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses during the year ended December 31, 1996 increased by
72% to $5.2 million from $3.0 million during the year ended December 31, 1995.
Selling, general and administrative expenses as a percentage of revenue
increased to 30.3% during the year ended December 31, 1996 from 24.2% during
the year ended December 31, 1995. The increase resulted primarily from
expansion of the Company's sales, marketing and recruiting capabilities to
support a higher level of revenue.
Income (Loss) from Operations. Loss from operations during the year ended
December 31, 1996 was $597,000 compared to income of $315,000 during the year
ended December 31, 1995.
Other Expense. Other expense during the year ended December 31, 1996
increased to $75,000 from $50,000 during the year ended December 31, 1995. The
increase resulted primarily from an increase in borrowing by the Company to
support the creation of the Offshore Technology Resource Center.
Minority Interest in Net Income. Minority interest in net income was
$241,000 during the year ended December 31, 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue. Revenue during the year ended December 31, 1995 increased by 34% to
$12.4 million from $9.3 million during the year ended December 31, 1994. The
increase resulted primarily from an increase in demand for the Company's
traditional IT consulting services.
Gross Profit. Gross profit during the year ended December 31, 1995 increased
by 39% to $3.3 million from $2.4 million during the year ended December 31,
1994. Gross profit as a percentage of revenue increased to 26.8% during the
year ended December 31, 1995 from 25.7% during the year ended December 31,
1994. The increase resulted primarily from a change in the mix of services
provided by the Company toward services that carry higher margins.
22
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses during the year ended December 31, 1995 increased by
43% to $3.0 million from $2.1 million during the year ended December 31, 1994.
Selling, general and administrative expenses as a percentage of revenue
increased to 26.8% during the year ended December 31, 1995 from 22.7% during
the year ended December 31, 1994. The increase resulted primarily from an
increase in expenses related to the expansion of the Company's infrastructure
and costs associated with the relocation of the Company's headquarters.
Income from Operations. Income from operations during the year ended
December 31, 1995 increased by 13% to $315,000 from $280,000 during the year
ended December 31, 1994. Income from operations as a percentage of revenue
decreased to 2.6% during the year ended December 31, 1995 from 3.0% during the
year ended December 31, 1994.
Other Expense. Other expense during the year ended December 31, 1995
decreased to $50,000 from $55,000 during the year ended December 31, 1994.
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain quarterly operating information for
each of the seven quarters ending September 30, 1997, both in dollars and as a
percentage of revenue. This information was derived from the unaudited
consolidated financial statements of the Company, which, in the opinion of
management, were prepared on the same basis as the Consolidated Financial
Statements, including the Notes thereto, appearing elsewhere in this Prospectus
and include all adjustments, consisting of normal recurring accruals, which
management considers necessary for the fair presentation of the information for
the periods presented. The financial data given below should be read in
conjunction with the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus. Results for any previous
fiscal quarter are not necessarily indicative of results for the full year or
for any future quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenue................ $3,699 $4,568 $4,295 $4,507 $5,144 $5,736 $6,861
Cost of revenue........ 2,636 3,157 3,048 3,653 3,811 3,912 4,265
------ ------ ------ ------ ------ ------ ------
Gross profit.......... 1,063 1,411 1,247 854 1,333 1,824 2,596
Selling, general and
administrative
expenses.............. 1,062 1,212 1,187 1,711 1,474 1,731 2,079
------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations........... 1 199 60 (857) (141) 93 517
Other (expense) income,
net................... 15 (18) (24) (48) (38) (130) (73)
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes and
minority interest..... 16 181 36 (905) (179) (37) 444
Income tax (provision)
benefit............... -- -- (7) 15 -- -- (13)
Income tax (provision)
for change in
corporate status...... -- -- -- -- -- -- (693)
------ ------ ------ ------ ------ ------ ------
Income (loss) before
minority interest..... 16 181 29 (890) (179) (37) (262)
Minority interest in
net (income) loss..... -- -- -- 241 (57) 33 (160)
------ ------ ------ ------ ------ ------ ------
Net income (loss)...... $ 16 $ 181 $ 29 $ (649) $ (236) $ (4) $ (422)
====== ====== ====== ====== ====== ====== ======
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue........ 71.3 69.1 71.0 81.1 74.1 68.4 62.4
------ ------ ------ ------ ------ ------ ------
Gross profit.......... 28.7 30.9 29.0 18.9 25.9 31.6 37.6
Selling, general and
administrative
expenses.............. 28.7 26.5 27.7 38.0 28.6 30.0 30.1
------ ------ ------ ------ ------ ------ ------
Income (loss) from op-
erations............. -- 4.4 1.3 (19.1) (2.7) 1.6 7.5
Other (expense) income,
net................... 0.4 (0.4) (0.6) (1.1) (0.7) (2.3) (1.1)
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes and
minority interest..... 0.4 4.0 0.7 (20.2) (3.4) (0.7) 6.4
Income tax (provision)
benefit............... -- -- -- 0.4 -- -- (0.2)
Income tax (provision)
for change in
corporate status...... -- -- -- -- -- -- (10.1)
------ ------ ------ ------ ------ ------ ------
Income (loss) before
minority interest..... 0.4 4.0 0.7 (19.8) (3.4) (0.7) (3.9)
Minority interest in
net (income) loss..... -- -- -- 5.4 (1.1) 0.6 (2.3)
------ ------ ------ ------ ------ ------ ------
Net income (loss)...... 0.4% 4.0% 0.7% (14.4)% (4.5)% (0.1)% (6.2)%
====== ====== ====== ====== ====== ====== ======
</TABLE>
24
<PAGE>
The Company's operations and related revenue and operating results
historically have varied substantially from quarter to quarter and the Company
expects such variations to continue. Among the factors causing these
variations have been the number, timing and scope of IT assignments in which
the Company is engaged, the accuracy of estimates of resources and time frames
required to complete ongoing assignments, and general economic conditions. A
high percentage of the Company's selling, general and administrative expenses,
particularly salary relatively fixed in advance of any particular quarter. As
a result, unanticipated variations in the number and timing of the Company's
engagements may cause significant variations in operating results in any
particular quarter. An unanticipated termination of a major engagement, a
client's decision not to pursue a new assignment, or the completion during a
quarter of several major client engagements could require the Company to pay
for underutilized personnel therefore have a material adverse effect on the
Company's business, financial condition and results of operations. Demand for
the Company's services generally is lower in the fourth quarter due to reduced
activity during the holiday season and fewer working days for those customers
which curtail operations during such period. The Company anticipates that its
business will continue to be subject to such seasonal variations. See "Risk
Factors--Variability of Quarterly Operations and Financial Results."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and capital
expenditures primarily with internally generated cash flows, borrowings under
its line of credit facilities and proceeds from the issuance of subordinated
notes to Phoenix.
The Company's operating activities used cash of $674,000 for the nine months
ended September 30, 1997, $1.1 million in 1996 and $108,000 in 1995. The
Company generated cash of $221,000 in 1994. The Company's use of cash for the
nine months ended September 30, 1997 and in 1996 and 1995 were due primarily
to increases in accounts receivable. In addition, in 1996 the Company incurred
an operating loss associated with start up expenses for its Offshore
Technology Resource Center.
The Company's capital expenditures used cash of $1.5 million during the nine
months ended September 30, 1997 and $955,000 for the year ended 1996, which
were primarily related to the operations of the Company's Offshore Technology
Resource Center. The Company's investing activities used cash of $264,000 in
1995 and $12,000 in 1994, to finance additions to equipment and improvements.
The Company's financing activities provided cash of $2.4 million for the
nine months ended September 30, 1997, $2.2 million in 1996 and $512,000 in
1995, and used cash of $169,000 in 1994. During the nine months ended
September 30, 1997, cash was generated primarily through the Company's
issuance of subordinated notes to Phoenix, investments by Phoenix in the
Offshore Technology Resource Center and bank borrowings. The Company generated
cash in 1996 primarily through the issuance of subordinated notes to Phoenix
in order to finance the establishment of its Offshore Technology Resource
Center. In 1995 financing activities generated cash primarily as a result of
borrowings under the Company's bank credit facilities. The Company's use of
cash in 1994 was due primarily to the repayment of borrowings.
As of September 30, 1997, the Company had working capital of $95,000 and
cash and cash equivalents of $673,000. Available bank lines of credit for its
U.S. facilities totaled $1.2 million as of September 30, 1997 ($2.5 million
less $1.3 million outstanding). Borrowings under these bank lines of credit
are secured by the Company's eligible accounts receivable and are utilized
primarily to fund the Company's working capital requirements. Such borrowings
are also guaranteed by Edward G. Caputo, the Company's President and Chief
Executive Officer.
The Company's Offshore Technology Resource Center maintains a credit
facility of $2.0 million with the Deutsche Bank. The outstanding balance as of
December 31, 1997 was $557,000; $450,000 of the facility is denominated in
U.S. dollars and is secured by a "Risk Take Over Agreement of Deutsche Bank
AG, New York." The balance of $107,000 is denominated in Indian rupees.
Maturity of the existing $557,000 outstanding is as follows: $157,000 in
January 1998 and $400,000 in March 1998. Borrowings under the Indian credit
facility are unsecured and are utilized primarily to fund the working capital
requirements of the Offshore
25
<PAGE>
Technology Resource Center. Such borrowings are guaranteed by a wholly-owned
subsidiary of Phoenix. The Company's Offshore Technology Resource Center
invoices its U.S. clients in U.S. dollars to mitigate exchange risk; however,
local expenses are denominated in local currency. The Company presently incurs
a significant amount of its costs in local currency in India. In contrast, the
Company presently generates most of its revenue in U.S. dollars. Accordingly,
the Company is subject to risks that, as a result of currency fluctuations,
the translation of foreign currencies into U.S. dollars could adversely affect
its business, financial condition and results of operations. Historically, the
Company has not hedged any meaningful portion of its foreign exchange
transactions. See "Risk Factors--Risks of Doing Business in International
Markets."
The Company believes that the net proceeds of this offering, together with
available funds, existing credit facilities and the cash flow expected to be
generated from operations, will be adequate to satisfy its current and planned
operations for at least the next 24 months.
INFLATION
The Company's most significant costs are the salaries and related benefits
for its consultants and other professionals. Competition in India and the U.S.
for IT professionals with the advanced technological skills necessary to
perform the services offered by the Company have caused wages to increase at a
rate greater than the general rate of inflation. As with other IT service
providers, the Company must adequately anticipate wage increases. Further,
India has in the past experienced significant inflation. Historically, the
Company's wage costs in India have been significantly lower than its wage
costs in the U.S. for comparably skilled employees, although wage costs in
India are presently increasing at a faster rate than in the U.S. There can be
no assurance that the Company will be able to recover cost increases through
increases in the prices that it charges for its services in the U.S. See "Risk
Factors--Competitive Market for Technical Personnel."
26
<PAGE>
BUSINESS
SUMMARY
The Company provides a wide range of IT solutions and services to financial
services organizations to support their evolving business processes. The
Company utilizes leading technologies to offer its customers a comprehensive
range of IT services, including technology services, management consulting,
and product procurement and education services. In anticipation of the growing
demand for IT services, including Year 2000 solutions services, and the
shortage of skilled IT professionals in the United States, in 1996 the Company
established its Offshore Technology Resource Center in Bangalore, India, which
today provides its customers with increased access to skilled IT professionals
on a cost-effective basis. As of December 31, 1997, the Company employed 293
full-time consultants in its four U.S. offices and the Offshore Technology
Resource Center. The Company develops and maintains long-term relationships
with its customers. In 1997, the Company provided services to over 100
customers and for each of 1996 and 1997 over 60% of the Company's revenue was
derived from existing customers from the previous year. The Company's
customers are typically large financial services organizations, especially
leading insurance companies, such as The Hartford, Mass Mutual, Phoenix and
Aetna, and G.E. Capital.
INDUSTRY OVERVIEW
Intense competition, globalization, rapid technological innovation and
deregulation are accelerating the rate of change in business today,
particularly for organizations in such data and technology intensive
industries as the insurance, banking, brokerage and other financial services
industries. Financial services organizations face increasing pressures to
improve product and service quality, reduce costs, improve operating
efficiencies and strengthen customer relationships. These organizations are
changing and adapting their business processes in order to achieve these
objectives and therefore require systems and personnel that are flexible and
capable of rapid change. Accordingly, a financial services organization's
ability to successfully integrate and deploy advanced IT systems and
applications in a timely and cost-effective manner has become critical to its
success in today's rapidly changing business environment. In addition, many
financial services organizations have begun to view IT solutions as strategic
tools that can be used to gain competitive advantages such as reducing the
time to market of products, providing an expanded mix of value-added client
services, reducing the cost of development and maintenance of systems and
providing timely access to information.
At the same time, rapid technological advances have accelerated the pace of
transition from mainframe to client/server architectures and from the
utilization of many interdepartmental systems to enterprise-wide integrated
systems. These technological advances have also increased the use of network
and Internet/intranet communications systems. In addition, such technological
advances have accelerated the convergence of the foregoing technologies.
Although these rapid technological advances and other emerging and converging
technologies offer the promise of faster, more functional and more flexible IT
systems and applications, the implementation of business solutions utilizing
these new technologies presents organizations and IT departments with major
challenges. Evaluating, developing and integrating these solutions requires a
large number of highly skilled individuals trained in many diverse
technologies and architectures. However, there is a shortage of these
individuals, and consequently many organizations either will not have
sufficient staffing to satisfy their needs or will not have personnel with
adequate expertise. Moreover, many companies have made a strategic decision to
focus on their core competencies, minimize their fixed costs and reduce their
work forces, thereby preventing them from investing in large IT staffs.
As a result, many organizations are increasingly turning to third-party IT
service providers to help them evaluate, develop, implement and support new IT
systems and applications, and to help them maintain existing legacy systems
and applications. Consequently, demand for IT services has grown
significantly. According to industry sources, the U.S. market for outsourced
IT services is expected to grow from over $13 billion in 1996 to approximately
$24 billion in the year 2001, representing an average annual growth rate of
12.8%. IT services
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are particularly essential to the financial services industry, whose business
is highly dependent on effective data processing management and analysis.
Third-party implementation of such services in a timely and cost-effective
manner requires not only technical expertise, but also highly developed
project management skills and prior experience with the customers' systems.
Also, because of needs specific to their industry, financial services
organizations frequently seek IT service providers with financial industry
experience.
Financial services organizations are particularly sensitive to, and need to
address, the Year 2000 problem (which prevents existing applications from
properly interpreting dates after 1999), because it would prevent or inhibit
the proper calculation of critical data and ultimately, if not corrected, may
lead to an interruption or discontinuation of service. Solving a Year 2000
problem is a highly time and labor intensive project, typically requiring (i)
identification and analysis of programs that are or may be affected, (ii)
analysis of up to millions of lines of code and millions of items of data,
(iii) renovation of affected code and (iv) testing. Although the cost to
remedy the Year 2000 problem is difficult to estimate, a recognized industry
source has estimated that the worldwide costs (including in-house costs) to
resolve the Year 2000 problem could range from $300 billion to $600 billion.
Many providers of IT services expect to have an opportunity to leverage
services rendered in connection with solving Year 2000 problems into other
projects that require experience with these same customer systems, including
(i) maintaining and reengineering legacy systems, which many financial
services organizations choose to maintain in order to maximize their
investments in these systems and because of the high degree of customized
functionality they provide and (ii) addressing the growing backlog of
applications development projects that are accumulating while IT departments
devote greater portions of their limited budgets and deploy more of their
personnel on the Year 2000 problem.
As organizations continue to maintain legacy systems, migrate from mainframe
to client/server architectures, implement other emerging IT technologies and
address the Year 2000 problem, the demand for IT professionals will continue
to rise and the shortage of IT professionals is expected to become more
severe. Meanwhile, financial services organizations continue to be challenged
by the rising costs of applications development and maintenance and the large
and growing backlog of applications development projects. For these reasons,
financial services organizations are increasingly turning to outside IT
service providers. By outsourcing IT services, companies are able to (i) focus
on their core business, (ii) access specialized technical skills, (iii)
implement IT solutions more rapidly, (iv) benefit from flexible staffing and
(v) reduce the cost of recruiting and training.
THE COMMAND SYSTEMS SOLUTION
Command Systems provides IT services and solutions to financial services
organizations by integrating and deploying new IT technologies to support
evolving business processes in an efficient and cost-effective manner. The
following are key attributes of the Command Systems solution:
Broad Range of IT Services. The Company provides its customers with a
single source for a broad range of IT services including (i) application
development and implementation, (ii) network design and deployment, (iii)
Internet/intranet application development, (iv) Year 2000 solutions, (v) IT
staff augmentation and (vi) systems maintenance. The Company provides its
services in a wide variety of computing environments (including
client/server and legacy-based platforms) and utilizes leading technologies
such as object-oriented development, database management systems and
various Internet/intranet networking technologies. In addition, the Company
has recently introduced management consulting services to meet the
strategic IT needs of its customers.
Strategic Focus on Financial Services Industry. By focusing on the
financial services industry since 1985, and particularly on the needs of
large insurance companies, the Company has developed expertise in a large
vertical market dominated by large organizations with extensive IT needs.
The Company leverages its expertise in the financial services industry to
increase its customer base and to increase its business from existing
customers. By hiring personnel with experience in the financial services
industry, the Company has been able to establish new relationships with
customers in this industry as well as maintain or strengthen existing
relationships.
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Offshore Technology Resource Center. In anticipation of the growing
demand for IT services, including Year 2000 solutions services, and the
shortage of skilled IT professionals in the United States, the Company in
1996 established the Offshore Technology Resource Center in Bangalore,
India. The Company believes that its Offshore Technology Resource Center
offers customers certain advantages, including access to a large pool of IT
professionals and lower development costs.
Complete Range of Year 2000 Solutions Services. The Company's services
include a comprehensive approach to the Year 2000 problem that (i)
identifies and analyzes programs that are or may be affected, (ii) analyzes
up to millions of lines of code and millions of items of data, (iii)
renovates affected code to make it Year 2000 compliant and (iv) conducts
multi-level testing. The Company believes that its Command2000 conversion
methodology results in cost-effective and timely conversion solutions for
its customers.
Expertise in Key and Emerging Technologies. The Company hires highly
skilled personnel who are experienced with key technologies (such as
client/server development and design and network integration) and emerging
technologies (such as data warehousing and object-oriented analysis and
design). Additionally, the Company's IT professionals receive initial and
ongoing training in a variety of technology platforms. The Company assists
customers in understanding the latest IT developments and guides them
through the implementation of the IT solutions best suited to their needs.
BUSINESS STRATEGY
The Company's objective is to become the preferred provider of IT services
to an expanding base of customers. The Company's strategies to achieve this
objective include the following:
Cross-Sell Services to Existing Customers. The Company's relationships
with its customers provide it with an opportunity to market additional
services and solutions to such customers. The Company seeks to maximize its
customer retention rate and secure additional engagements by providing
high-quality, responsive services. As a result of the Company's expertise
in the financial services industry and the addition of strategic IT
management consulting services, the Company is taking greater
responsibility for the delivery of management level strategic systems
solutions, thereby positioning itself to leverage its insurance industry
expertise to provide management consulting services to its existing
customer base. In addition, the Company believes that the detailed
knowledge of customers' organizations, systems and needs that it gains
during the performance of its Year 2000 conversion projects will serve as a
competitive advantage in securing other projects from these customers.
Leverage Expertise in Insurance Market. The Company will seek to leverage
its expertise within the insurance industry into a larger, more diverse
customer base within the broader financial services market, especially as
deregulation encourages the creation of full service financial services
organizations. The insurance, banking and other financial services
industries are generally dominated by large companies with extensive IT
needs. The Company will seek to leverage its industry-specific expertise
and its existing accounts into a larger number of customers in these IT
intensive markets. As the Company expands its customer base, it intends to
open additional regional sales offices in the U.S. to enable the Company to
sell to and support existing and new customers in expanded geographic areas
and industries. To achieve these goals, the Company may seek strategic
acquisitions of organizations that complement or enhance the Company's core
skills.
Continue Migration to Higher Margin Services. The Company seeks to
continue to derive a greater percentage of its revenue from higher margin
services. To support this goal, in December 1996 the Company began to
manage Year 2000 solutions services for its customers and in July 1997 the
Company began offering management consulting services. The Company has also
reorganized its sales force to focus on the delivery of complete projects
and solutions to its clients. The Company believes that projects managed by
the Company will carry higher margins and will better enable it to become a
full service technology solutions provider to its customers.
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Further Develop Offshore Technology Resource Center. To help meet the
growing demand for IT services, the Company will continue to invest in its
Offshore Technology Resource Center in Bangalore, India. The Company
believes that the further development of its offshore infrastructure will
improve the Company's access to IT professionals, reduce its costs
associated with providing IT services and enable it to provide better
support to its customers. This facility, which has been operational since
December 1996, utilizes state-of-the-art technology and is connected via
secure, high-speed satellite links to the Company's headquarters, branch
offices and customer sites. The staff at the Offshore Technology Resource
Center has grown to 153 employees as of December 31, 1997 from 26 employees
at the end of 1996.
Continued Development of Long-Term Relationships with Customers. The
Company continues to develop preferred provider relationships with its
customers. The Company's on-site personnel are integrated into the
operations of its customers' IT departments. In addition, the Company makes
significant investments in technology enhancements to support the strategic
technical direction of its customers. The Company also uses several methods
to obtain continuous customer feedback, including customer satisfaction
surveys, consultant performance surveys and regularly scheduled meetings
with senior management of each customer. A significant portion of the
compensation of the Company's senior executives, sales executives and
senior project managers is directly linked to customer satisfaction and the
delivery of high quality, timely IT services at or below budget. The
Company believes that these initiatives foster long-term customer
satisfaction as evidenced by the fact that for each of the fiscal years
ended December 31, 1996 and 1997 existing customers from the previous
fiscal year generated over 60% of the Company's revenue.
Attract, Train and Retain Highly Skilled IT Professionals. The Company's
future success depends to a significant extent on its ability to attract,
train, motivate and retain highly skilled IT professionals, particularly
project managers, software engineers and other technology leaders. To
achieve this objective, the Company maintains programs and personnel to
identify and hire the best available IT professionals. The Company conducts
training of its IT professionals in both legacy systems and emerging
technologies to maintain its position as a technological leader and to
enhance its methodologies. In addition, the Company utilizes its IT
educational courses as an additional method of recruiting IT professionals.
In order to attract, motivate and retain its employees in the face of
existing shortages of IT professionals, the Company focuses on its
corporate culture, incentive programs, compensation and benefits and
provides a career and education management program to create an
individualized structured career growth plan for its employees. The Company
also has access to a large pool of IT professionals through its state-of-
the-art Offshore Technology Resource Center.
SERVICES
The Company is a solutions provider offering IT services based on leading
technologies, including a wide variety of technology services, management
consulting, and product procurement and education services. These services may
be provided individually or as a combination of services offerings to provide
complete solutions. The Company has adopted an integrated approach to
providing solutions to its customers. Each of the Company's service offerings
is led by a technology leader, supported by a team of dedicated IT consultants
with focused expertise in the technologies specific to such service offering.
The Company's dedicated teams of service providers work closely with each
other, with the Company's customers and with a wide variety of technology
vendors to ensure the availability of leading-edge technologies and
capabilities, cost efficient and timely delivery of services and the
development of solutions for specific business needs and objectives. The
Company believes that its integrated approach to designing, developing and
implementing its services offerings promotes long-term customer satisfaction,
active customer involvement and a more complete understanding of customer
requirements. The Company offers the following services:
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TECHNOLOGY SERVICES
The Company solves business problems by building technical solutions for
customers utilizing the Company's business and technology expertise. The
Company's organization enables focused attention to customer requirements
and is based on the following services:
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COMMAND SYSTEMS SOLUTIONS DESCRIPTION
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COMMANDPRO--Project-based applica- . Requirements definition and
tion development and implementa- vision
tion services, including turnkey . General analysis
application systems development, . Prototype sizing and
migration and/or integration of functionality assessment
client/server systems through all . Detail analysis
phases of the development life cy- . Platform and tool selection
cle from design through production . Data modeling and interface
implementation. development
. Development and implementation
The Company develops application scheduling
systems based on partnerships with . Prototype development
leading technology tools vendors, . Prototype deployment to
such as: selected users
. Full architectural and platform
. Microsoft development
. Powersoft . Total application system
. Oracle development
. Rational . Enterprise testing
. Lotus/IBM . Implementation
. Cognos
- --------------------------------------------------------------------------------
COMMANDNET--Integrated network . Workstation Migration--Deploys
services to design and deploy net- consistent enterprise user
works, including related hardware workstations.
and software systems to: . Messaging--Provides better
communications and reduced
. Reduce network complexity cost of management.
. Improve deployment speed . Network Systems Engineering--
. Standardize platforms Designs and deploys LAN/WAN
. Integrate messaging software and hardware.
. Manage software assets . Enterprise Software
. Reduce help desk support Management--Designs and
. Improve enterprise network deploys software management
efficiency solutions.
. Reduce cost of ownership
- --------------------------------------------------------------------------------
COMMANDWEB--Internet/intranet ap- . Web-enabling legacy
plication development services. application development
Provides web-based application and . Web page design
communication solutions to improve . Graphics and multimedia
internal and external communica- . Security protection
tions and services. . Internet application
development
CommandWEB incorporates the use of
leading technologies such as: Ja-
va, HTML, PERL, and leading web
servers from Microsoft, Oracle and
Sun Microsystems.
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COMMAND SYSTEMS SOLUTIONS
DESCRIPTION
- --------------------------------------------------------------------------------
COMMAND2000--Year 2000 solu- The Company provides the following
tions services. Provides ex- six step methodology to analyze,
pertise to cost-effectively as- renovate and test millions of lines
sess business requirements and of code and millions of items of
develop quality solutions util- data:
izing a combination of on-site
project management staff and
programming support from the
Company's Offshore Technology
Resource Center in Bangalore,
India.
. Management Awareness--Advise
corporate executives of the na-
ture and scope of the Year 2000
problem.
. Inventory Analysis--Provide a
comprehensive survey, data col-
lection and analysis of the
scope of the Year 2000 problem
by application, line of busi-
ness or enterprise.
. Portfolio Assessment--Perform
an in-depth assessment of all
of the date fields and date
processing routines. Source
code is analyzed and computer
program interaction is docu-
mented.
. Change Strategy--Determine the
conversion schedule and logis-
tics by focusing on the rela-
tionships of computer system
components.
. Application Renovation--Deliver
on-site project management and
analysis at the customer facil-
ity, combined with the renova-
tion of affected code.
. Testing--Provide unit testing
and parallel testing compari-
sons back to the predetermined
baseline of each application
system.
- --------------------------------------------------------------------------------
COMMANDOO--Object- . Incorporate the use of business
oriented development services objects within the application
to improve new application de- design.
velopment time to market and . Establish a repeatable process
reduce ongoing application for the project life cycle.
maintenance expense by provid- . Develop and utilize enterprise-
ing and utilizing leading ob- wide object repository.
ject-oriented tools, methodolo-
gies and expertise.
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COMMANDSTAFF-- . Design
IT staff augmentation services . Data modeling
to provide customers with . Analysis
highly skilled IT profession- . Programming
als, over a wide range of tech- . Development
nologies from client server . Testing
and/or traditional technology . Networking
developers to help desk support . Implementation
to supplement IT requirements . Help Desk
on demand and as needed. IT
professionals are carefully se-
lected and technically quali-
fied to match areas of expert-
ise with specific customer re-
quirements.
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COMMANDSOURCE--Provides long- Outsource and/or insource ongoing
term maintenance of application customer application maintenance
systems by utilizing a range of and enhancement needs across
technology toolsets. The Com- client/server and mainframe com-
pany provides carefully se- puter environments, onsite at cus-
lected and qualified resources tomer locations, offsite at the
that are fully integrated into Company's domestic offices and/or
the customer's IT environment. at the Offshore Technology Resource
Center.
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EDUCATIONAL SERVICES
The Company believes that an integral part of delivering technology
solutions to customers is developing the expertise needed by the
customers' IT staff. The Company focuses on providing its customers' IT
staff with the most current skills required for application systems
development.
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COMMAND SYSTEMS SOLUTIONS DESCRIPTION
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COMMANDU--Certified Technology Ed- . Provides certified
ucation Centers. The Company is client/server, networking,
authorized to train and certify object-oriented techniques and
software developers in state-of- database training for
the-art development tools by lead- developers of application
ing software tool vendors such as: systems and network
integrators.
. Microsoft
. Powersoft . Provides technical development
. Oracle training program for the skill
. Rational migration of customers' staff
. Lotus/IBM and the technical skill
. Informix development of the Company's
new hires.
MANAGEMENT CONSULTING SERVICES
The Company develops long-term technology plans that help customers
achieve specific strategic business objectives. The Company's management
consultants typically interface with the customers' senior management.
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COMMAND SYSTEMS SOLUTIONS DESCRIPTION
- --------------------------------------------------------------------------------
COMMANDMCS--These strategic con- . Electronic Commerce
sulting services address the needs . Business Process Reengineering
of senior IT management and orga- . Technology Migration Planning
nizational design to enhance and . Change Management
maximize the use of resources. . Technical Architecture
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SOFTWARE AND HARDWARE SOLUTIONS
One of the Company's goals is to provide comprehensive turnkey IT
solutions for its customers. Primarily for its middle market customers,
the Company incorporates product procurement services into the IT
solutions that it provides, including electronic product ordering, product
configuration, testing and delivery.
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COMMAND SYSTEMS SOLUTIONS DESCRIPTION
- -------------------------------------------------------------------------------
COMMANDWARE--The Company can offer . Turnkey solutions to middle
complete IT solutions, including market customers as a value-
the procurement of software and added reseller of hardware
hardware products necessary for products from several leading
the rapid migration toward new manufacturers.
technological environments.
. Software products and
application solutions through
value-added resales of
software products from several
leading software developers.
. C-BOLT--Character-Based On
Line Testing for Year 2000
mainframe automated software
quality assurance testing
through a proprietary terminal
emulation software product
that extends the power of the
Rational SQA Suite.
CUSTOMERS
The Company focuses its sales efforts on Fortune 500 companies in the
financial services industries and middle market companies in the insurance,
banking and brokerage industries with significant IT budgets and recurring
software development needs. During 1997, the Company has provided services to
over 100 customers. The Company seeks to maximize its customer retention rate
and secure additional engagements by (i) providing quality services and
customer responsiveness, (ii) leveraging its expertise within the financial
services industry into a larger, more diverse customer base and (iii) cross-
selling additional services to existing customers.
Typical development projects for insurance companies include applications
systems such as claims processing; agency management; coordination of benefits
and subrogation, pension, premium and loss reporting; accounting;
compensation; annual statement; actuarial; underwriting and benefits. Typical
development projects for other financial services organizations include
applications for mutual fund analysis, fund tracking, stock transfer, customer
information, cash distribution, accounting, annual statement, portfolio
accounting and human resource systems. Organizations in these industries are
highly information dependent and use IT systems to gain a competitive
advantage.
The Company has historically derived, and may in the future derive, a
significant amount of revenue from a relatively small number of customers.
During the nine months ended September 30, 1997, the Company's three largest
customers, New York Life Insurance Company ("New York Life"), The Hartford
Financial Services Group, Inc. ("The Hartford") and Phoenix, accounted for
14.6%, 13.0% and 11.9% of the Company's total revenue, respectively. For the
year ended December 31, 1996, the Company's two largest customers, The
Hartford and New York Life, accounted for 13.6% and 12.5% of the Company's
total revenue, respectively. No other single customer accounted for more than
10% of the Company's total revenue during these periods. For each of the
fiscal years ended December 31, 1996 and 1997 existing customers from the
previous fiscal year generated at least 60% of the Company's revenue.
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Organizations to which the Company provided services during the nine months
ended September 30, 1997 include among others:
<TABLE>
<CAPTION>
CUSTOMER SERVICES PROVIDED CUSTOMER SERVICES PROVIDED
- -------- ----------------- -------- -----------------
<S> <C> <C> <C>
Aetna . CommandOO New York Life . CommandOO
. CommandPRO . CommandPRO
. CommandSTAFF . CommandSTAFF
. CommandU . CommandWARE
. CommandWARE . Command2000
. Command2000
Otis Eastern
Service . CommandPRO
Boston Mutual . Command2000 . CommandSTAFF
Citibank . CommandSTAFF Phoenix . CommandNET
. CommandPRO
Fleet Services . CommandPRO . CommandSTAFF
. CommandSTAFF . CommandU
. CommandWARE
General Electric Capital . CommandPRO
Corporation . CommandSTAFF QualMed . CommandWEB
. CommandWARE
General Reinsurance . CommandPRO The Hartford . CommandNET
. CommandSTAFF . CommandPRO
. CommandWARE . CommandSTAFF
. CommandU
J.P. Morgan . CommandSTAFF . CommandWARE
. Command2000
Kaiser Permanente . CommandMCS
. CommandPRO The Mutual Life . Command2000
. CommandSTAFF Insurance Company . CommandSTAFF
of New York . CommandWARE
Liberty Mutual Group . Command2000
. CommandSTAFF TransAmerica . CommandOO
. CommandWARE Leasing . CommandWARE
Massachusetts Mutual Life . CommandPRO Unicare Life & . CommandSTAFF
Insurance Company . CommandSTAFF HealthCompany
United Parcel . CommandSTAFF
Service
</TABLE>
REPRESENTATIVE ENGAGEMENTS
Examples of the Company's engagements, which are representative of the
nature of the Company's services and customer relationships, are set forth
below:
COMMANDPRO--Project management and application development for a major
New England-based, Fortune 500 insurance company. The Company was awarded a
contract to manage a turnkey project to develop an insurance underwriting
application system, designed to fully automate the underwriting process.
The Company developed a system with built-in sophisticated algorithms and
underwriting business logic to automatically calculate business ratings and
various premiums. The Company's expertise in the insurance industry also
enabled it to develop the underwriting system so that it was fully
integrated with the customer's accounting system in order to streamline and
automate the customer's billing process. The Company utilized a team of 12
CommandPRO consultants with insurance industry expertise in order to
reengineer this component of the customer's business process. Command
Systems is a Preferred Vendor and has successfully completed more than a
dozen projects for this insurance company.
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COMMANDNET--The Company provided project management and implementation
for a network and workstation migration and infrastructure upgrade of more
than 3000 desktops for another Fortune 500 insurance company at the
customer's corporate headquarters. The Company is also in the process of
providing such services at over 75 field offices for this customer. The
Company was awarded this multi-million dollar contract to develop a turnkey
process to provide a standardized single workstation environment to support
over 200 applications on desktop workstations. The Company is also training
all of the customer's affected employees in order to minimize productivity
interruptions. The Company planned and implemented the deployment, managed
the rollout and successfully migrated these desktops at the customer's
headquarters ahead of schedule. The solution provides central desktop and
application administration, automated update and version control. Command
Systems is a Preferred Vendor and has successfully completed more than a
dozen projects for this insurance company.
COMMANDWEB--The Company web-enabled an enrollment application for a large
Midwest-based, managed health care company. The Company was awarded a
contract to develop a three-tier, interactive online health benefits
enrollment program utilizing Internet technology and designed and coded an
online extranet application for this customer. This enrollment application
(consisting of fractional and architectural components such as Javascript
code, NetDynamics Application Server, Netscape Fasttrack Web Server and
Oracle Database Server) allows users to execute certain transactions via
the Internet, such as opening a new enrollment, adding additional
dependents to the existing plan, deleting dependents, and terminating
coverage. Once entered, data is processed by a legacy application using a
customized feed from an Oracle database.
COMMAND2000--An ongoing Year 2000 solutions project for a large New York-
based insurance company. Command Systems was awarded a multi-million dollar
contract to assess and renovate over 8 million lines of code for century
change compliance. Due to the speed, efficiency and effectiveness of the
Command2000 process, Command Systems has been engaged to renovate another 2
million lines of code for this customer.
SALES AND MARKETING
The Company focuses its marketing efforts on financial services
organizations with substantial IT budgets and recurring IT staffing and
services needs. Marketing programs include direct mail campaigns, seminars,
conferences, trade shows and other activities intended to generate and
maintain an interest in the Company's services. In addition, the Company has
organized its staff into areas of technology expertise and has branded such
areas to promote market awareness and differentiation.
The Company markets its services through a direct sales force located
throughout the Company's offices in Farmington and Stamford, Connecticut,
Natick, Massachusetts and New York, New York, as well as senior executives
from corporate headquarters. The Company sells to customers utilizing a sales
team approach in which each team is led by a senior sales executive and
supported by one or more junior sales executives, recruiters and technology
leaders. The members of the team combine their efforts to present a
comprehensive solution proposal to each customer.
In order to develop an in-depth understanding of each customer's individual
needs and to form strong customer relationships, sales executives are assigned
to a limited number of customers that generally does not exceed twelve. These
executives are responsible for providing highly responsive service and
ensuring that the Company's applications solutions achieve customer
objectives. Commissions based upon the gross profit generated from each
business transaction constitute a substantial portion of the total
compensation for each sales executive.
The Company's services require a substantial financial commitment by
customers and, therefore, typically involve a long sales cycle. Once a lead is
generated, the Company endeavors to understand quickly the potential
customer's business needs and objectives in order to develop the appropriate
solution and bid accordingly. The
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Company's technology leaders are involved throughout the sales cycle to ensure
mutual understanding of customer goals, including time to completion, and
technological requirements. Sales cycles for complex business solutions
projects typically range from one to six months from the time the Company
initially meets with a prospective customer until the customer decides whether
to authorize commencement of an engagement.
As of December 31, 1997, the Company had 21 persons engaged in sales and
marketing full-time. In addition to its sales and marketing force, the Company
also uses an outside public relations firm that coordinates all corporate
communications, including the scheduling of press conferences to promote the
Company's services and delivery methodologies.
HUMAN RESOURCES
As of December 31, 1997, the Company employed 17 full-time personnel
dedicated to recruiting IT professionals and managing its human resources. The
Company actively recruits in the United States and India. Recruiting methods
include advertisement on television, in leading newspapers, in trade magazines
and on the Company's web site and through participation in career fairs. The
Company also participates in on-campus recruiting for recent college graduates
and has hired employees from various schools with degrees in computer science
and management information systems. In addition, the Company has established
an employee referral plan, which actively involves employees in referring
individuals and screening candidates for new positions. Upon completion of
this offering, the Company intends to utilize stock options as part of its
recruitment and retention strategy.
The Company's strategy for employee retention includes career planning,
thorough initial and ongoing training, allocation of assignments in accordance
with employee skills and career objectives and a comprehensive benefits
package, including incentive-based compensation and tuition reimbursement. As
part of its retention efforts, the Company seeks to minimize turnover by
emphasizing (i) contractual limitations effective upon termination of
employment, (ii) competitive salaries, (iii) employee stock options and (iv)
deferred compensation.
All IT professionals receive ongoing training on a variety of technology
platforms. The Company's education and training department helps employees
make the transition from legacy to client/server skills by providing cross-
platform training in new technologies. In addition to comprehensive technical
training, the Company provides extensive training in software quality
implementation processes. The Certified Technology Training Centers provide
ancillary benefits to the Company by reducing the cost to train its own
software developers and provide the Company with highly trained individuals.
The training services provided by the Company also provide it with a pool of
new talent for development projects.
The Company's IT professionals typically have Bachelor's or Master's degrees
in Computer Science or another technical discipline, and, as of December 31,
1997, the average U.S.-based professional, including newly hired personnel,
has over 5 years of relevant industry work experience. As of December 31,
1997, the Company had 362 employees comprised of 293 salaried IT
professionals, 21 sales and marketing personnel and 48 general and
administrative personnel. As of December 31, 1997, the Company also utilized
27 independent contractors to supplement its IT workforce.
The Company believes that there is a shortage of, and significant
competition for, IT professionals and that its future success is highly
dependent upon its ability to attract, train, motivate and retain skilled IT
consultants with the advanced technical skills necessary to perform the
services offered by the Company.
The Company's employees are not represented by any labor unions. The Company
considers its relations with its employees to be good.
COMPETITION
The IT services industry is highly competitive and fragmented and served by
numerous international, national, regional and local firms, all of which are
either existing or potential competitors of the Company.
37
<PAGE>
Primary competitors include other IT service providers, along with
participants from a variety of market segments, including "Big Six" accounting
firms, implementation firms, applications software firms, service groups of
computer equipment companies, general management consulting firms, programming
companies and temporary staffing firms, as well as in-house IT departments. In
addition, a significant and increasing number of companies have recently
announced that they offer Year 2000 solutions services or automated Year 2000
solutions software products. Many of the Company's competitors have
significantly greater financial, technical and marketing resources and
generate greater revenue than the Company, and there can be no assurance that
the Company will not lose existing customers to such competitors. The Company
believes that the principal competitive factors in the IT services industry
include the range of services offered, industry expertise, technical
expertise, responsiveness to customer needs, speed in delivering IT solutions,
quality of service and perceived value. See "Risk Factors--Competition."
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of copyright and trade secret laws,
nondisclosure and other contractual arrangements in order to protect its
proprietary rights in its various intellectual properties. India is a member
of the Berne Convention, an international treaty. As a member of the Berne
Convention, the government of India has agreed to extend copyright protection
under its domestic laws to foreign works, including works created or produced
in the United States. The Company believes that laws, rules, regulations and
treaties in effect in the United States and India are adequate to protect it
from misappropriation or unauthorized use of its intellectual property.
However, there can be no assurance that such laws will not change and, in
particular, that the laws of India will not change in ways that may prevent or
restrict the transfer of software components, libraries and toolsets from
India to the United States. The Company enters into confidentiality agreements
with its employees and limits distribution of proprietary information. There
can be no assurance, however, that the steps taken by the Company to protect
its proprietary rights will be adequate to deter misappropriation of its
intellectual property, or that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its rights. The Company presently
holds no patents or registered copyrights. Although the Company believes that
its intellectual property rights do not infringe on the intellectual property
rights of others, there can be no assurance that such a claim will not be
asserted against the Company in the future, that assertion of such claims will
not result in litigation or that the Company would prevail in such litigation
or be able to obtain a license for the use of any infringed intellectual
property from a third party on commercially reasonable terms. Additionally,
the Company may in the future license certain technologies to its customers.
There can be no assurance that the Company will be able to successfully
license these technologies, protect them from infringement or misuse, or
prevent infringement claims against the Company in connection with its
licensing efforts. The Company expects that the risk of infringement claims
against the Company will increase if more of the Company's competitors are
able to successfully obtain patents for software products and processes. Any
such claims, regardless of their outcome, could result in substantial cost to
the Company and divert management's attention from the Company's operations.
Any infringement claim or litigation against the Company could, therefore,
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors--Intellectual Property Rights."
FACILITIES
The Company leases approximately 10,870 square feet of office space in
Farmington, Connecticut which is used by the Company's senior management,
administrative personnel, human resources and sales and marketing functions.
This lease expires on December 1, 2001. The Company also leases facilities in
Stamford, Connecticut, Natick, Massachusetts, and New York, New York.
In addition, the Company leases approximately 19,720 square feet of office
space in downtown Bangalore, India for its Offshore Technology Resource
Center. This lease expires on December 1, 2002. The Company expects that it
may require additional space in India during 1998. The Company believes that
it will be able to obtain any additional space necessary in a timely manner
and on commercially reasonable terms.
38
<PAGE>
The Company believes that these facilities, together with additional space
to be obtained at the Company's headquarters in Farmington, Connecticut and,
if necessary, in Bangalore, India will be adequate for its presently
anticipated future needs.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
39
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of January 2, 1998 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------- --- ------------------------------------------------
<C> <C> <S>
Edward G. Caputo......... 47 President, Chief Executive Officer and Chairman
of the Board
Stephen L. Willcox....... 46 Executive Vice President, Chief Operating
Officer, Secretary and Director
Robert B. Dixon.......... 60 Vice President of Finance
45 Vice President of Marketing and Assistant
Glenn M. King............ Secretary
Lee Lapioli.............. 56 Vice President of Management Consulting Services
David R. Wheeland........ 56 Vice President of Operations
Mary Lou Welch........... 49 Vice President of Sales and Recruiting
John J.C. Herndon(1)(2).. 66 Director
James M. Oates(1)(2)..... 51 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Edward G. Caputo founded the Company in April 1985 and has served as its
President, Chief Executive Officer and Chairman of the Board of Directors since
inception. Prior to founding the Company, for eight years Mr. Caputo served as
President of Computech, Inc. ("Computech"), a privately held consulting
services company which he founded in 1977 and sold to Price Waterhouse in 1985.
From 1972 until he founded Computech, Mr. Caputo was a programmer for
Electronic Data Systems, a systems integration company.
Stephen L. Willcox has served as Executive Vice President, Chief Operating
Officer and Secretary since January 1998 and as a Director of the Company since
October 1997. From July 1997 until January 1998, Mr. Willcox served as a
strategic and financial consultant for the Company. From January 1995 to
December 1996, Mr. Willcox served in various executive capacities, including
President and Chief Operating Officer, of United HealthCare Administrators,
Inc. (including its predecessor), a subsidiary of United HealthCare, a publicly
held managed care company. From January 1993 to December 1994, Mr. Willcox
served as the Vice President of Employee Benefits for The Travelers Corporation
("Travelers"). From January 1982 to December 1993, Mr. Willcox held various
positions in The Travelers Insurance Companies, where he most recently served
as its Vice President of Corporate Finance. From 1973 to 1981, Mr. Willcox was
employed by Coopers & Lybrand, including as General Practice Manager. Mr.
Willcox is also a Certified Public Accountant and a Certified Management
Accountant.
Robert B. Dixon has served as Vice President of Finance for the Company since
March 1997. From October 1996 to March 1997, Mr. Dixon served as a financial
consultant to the Company. From July 1993 to October 1996, Mr. Dixon served as
the Deputy Director and Executive Vice President of the Connecticut Development
Authority, a quasi-public merchant bank that was responsible for the economic
development of the State of Connecticut. In 1986 Mr. Dixon founded Dixon &
Associates, a financial consulting services firm, and from inception until July
1993, Mr. Dixon served as its principal. Previously, Mr. Dixon has held senior
financial positions with Citibank, The Hertz Corporation, The Gillette Company
and The Ford Motor Company.
Glenn M. King has been employed by the Company in various capacities since
September 1986, most recently as Vice President of Marketing since November
1997. From May 1983 to September 1986, Mr. King served as a Systems Analyst for
the Travelers Insurance Company, the Hartford Insurance Group and Vantage
Computer Systems. From May 1979 to May 1983, Mr. King served as a Licensed
Insurance Adjuster for Metropolitan Property and Casualty Insurance Co.
40
<PAGE>
Lee Lapioli has served as Vice President of Management Consulting Services
for the Company since June 1997. From December 1994 to May 1997, Mr. Lapioli
served as Senior Vice President and Chief Information Officer of New York
Life, a multi-line mutual insurance company. From February 1982 to November
1994, Mr. Lapioli served as Senior Vice President for Phoenix Home Life, a
mutual insurance company. From February 1973 to January 1982, Mr. Lapioli
served as Vice President and Chief Operating Officer of Penn Mutual Life, a
mutual insurance company. From February 1964 to January 1973, Mr. Lapioli
served as Manager of Actuarial Services for Provident Mutual Life, a mutual
insurance company.
David R. Wheeland has served as Vice President of Operations for the Company
since September 1994. From June 1987 to September 1994, Mr. Wheeland served as
Worldwide Director of Sales and Marketing to the insurance industry for
Digital Equipment Corporation. From February 1977 to June 1987, Mr. Wheeland
served as Assistant Vice President of Personal Lines Systems for Commercial
Union Insurance Company. From February 1962 to June 1977, Mr. Wheeland served
as Regional Sales Manager for Nationwide Insurance.
Mary Lou Welch has served as Vice President of Sales and Recruiting for the
Company since November 1997. From July 1995 to July 1997, Ms. Welch served as
Vice President of Sales and Marketing for Portable Data Collection for WPI
Oyster/Termiflex. From November 1994 to July 1995, Ms. Welch served as
Director of Marketing for Worldwide Services for Data General Corporation.
From June 1984 to November 1994, Ms. Welch held various positions from Sales
Executive to Director of Marketing to the banking industry for Digital
Equipment Corporation. From June 1977 to June 1984, Ms. Welch served as a
Sales Representative for Control Data Corporation.
John J.C. Herndon has served as a Director of the Company since December
1997. Mr. Herndon has served as the Vice President of Strategic Development
for Phoenix since April 1996. In 1995, Mr. Herndon was a consultant to the
Advest Group and successfully raised a venture capital fund for investment in
companies based in Connecticut. From 1993 to 1994, he was President of the
Connecticut Development Authority, a quasi-public merchant bank for economic
development, and he served as Deputy Chief of Staff under Governor Lowell
Weicker. From 1977 to 1985, Mr. Herndon was Senior Vice President of City
Investing Company in New York, a diversified international corporation engaged
in insurance, manufacturing, construction and consumer services.
James M. Oates has served as a Director of the Company since December 1997.
Mr. Oates currently is, and since 1994 has been, Managing Director of the
Wydown Group, a consulting firm specializing in start-ups and growth
strategies. From 1984 to 1994, Mr. Oates served as President and Chief
Executive Officer of Neworld Bancorp. From 1983 to 1984, Mr. Oates served as
President and Chief Operating Officer of Burgess and Leith, a full service
brokerage firm. From 1977 to 1983, Mr. Oates served as President and Chief
Operating Officer to Metro Bancholding Corporation. From 1973 to 1977, Mr.
Oates served as Vice President of Centerre Bank, N.A. Mr. Oates serves on the
Board of Directors of Investors Financial Services, Inc., Stifel Financial,
Phoenix Duff & Phelps, and Plymouth Rubber Company, all of which are publicly
traded companies, and Phoenix Funds, Investors Bank & Trust, The Govett Funds
and Emerson Investment, all of which are registered investment companies under
the Investment Company Act of 1940.
During the period of Mr. Willcox's service as Vice President of Corporate
Finance for Travelers, the Securities and Exchange Commission (the
"Commission") commenced an investigation into the manner in which Travelers
and its wholly-owned subsidiary The Travelers Insurance Company ("TIC")
implemented an accounting rule known as FAS 97. FAS 97, which was promulgated
by the Financial Accounting Standards Board in 1988, required the elimination
in 1989 of certain types of reserves for real estate investments. The
Commission contended that Travelers had omitted to state material facts in its
1988 annual report and in the 1989 annual and quarterly reports of Travelers
and TIC by failing to eliminate a $231 million risk reserve and taking a $231
million charge against its 1989 earnings, which would have reduced Travelers'
1989 earnings to $130 million from the reported $361 million. In early 1989,
Travelers' Chief Financial Officer assigned Mr. Willcox to assemble and lead a
task force to recommend the proper implementation of FAS 97 with respect to
certain reserves maintained by TIC's Asset Management and Pension Services
Department ("AMPS"). The task force consisted of several of Travelers'
employees, representing a cross section of Travelers' employees with
41
<PAGE>
information relevant to the implementation of FAS 97, and included
representatives from AMPS' and Travelers' financial standards, corporate tax,
and financial reporting units. While the task force reviewed information
provided by AMPS' personnel regarding how the reserve was developed and
funded, representatives from Travelers and its independent accountants, a
nationally recognized accounting firm, also worked on TIC's implementation of
FAS 97. Following investigative proceedings pursuant to Section 21C of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Commission in May 1994 entered into an order (the "Order") (i) requiring
Travelers and TIC to restate their consolidated financial statements as of and
for the year ended December 31, 1989 in order to implement FAS 97 properly and
(ii) directing TIC, Travelers' Chief Financial Officer and Mr. Willcox to
cease and desist from violating or causing violations of Section 13(a) of the
Exchange Act and Rules 12b-20, 13a-1 and 13a-13. As part of the settlement
with the Commission, Travelers, its Chief Financial Officer, TIC and Mr.
Willcox agreed to the Commission's Order without admitting or denying the
charges. Following the release of the Commission's Order, the AICPA closed an
investigation as to whether Mr. Willcox violated the Codes of Professional
Conduct of the AICPA or the Connecticut Society of CPAs and took no action.
Pursuant to the Company's Amended and Restated Certificate of Incorporation
and By-Laws, on or prior to the date on which the Company first provides
notice of an annual meeting of the stockholders (or a special meeting in lieu
thereof) following this offering (the "Initial Public Meeting"), the Board of
Directors of the Company shall divide the directors nominated for election at
such meeting into three classes, as nearly equal in number as reasonably
possible, with the term of office of the first class to expire at the first
annual meeting of stockholders or any special meeting in lieu thereof
following the Initial Public Meeting, the term of office of the second class
to expire at the second annual meeting of stockholders or any special meeting
in lieu thereof following the Initial Public Meeting, and the term of office
of the third class to expire at the third annual meeting of stockholders or
any special meeting in lieu thereof following the Initial Public Meeting. At
each annual meeting of stockholders or special meeting in lieu thereof
following such initial classification, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire
at the third succeeding annual meeting of stockholders or special meeting in
lieu thereof after their election and until their successors are duly elected
and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees
of and consultants to the Company, establishes and approves salaries and
incentive compensation for executive officers and administers the Company's
1997 Employee, Director and Consultant Stock Plan, and an Audit Committee,
which reviews the results and scope of audits and other services provided by
the Company's independent public accountants.
COMPENSATION OF DIRECTORS
Directors do not receive an annual retainer or any fees for attending
regular meetings of the Board of Directors. Directors are reimbursed for
reasonable out-of-pocket expenses incurred in attending such meetings. Non-
employee directors are, however, eligible for participation in the Company's
1997 Employee, Director and Consultant Stock Plan and the Company has, and may
in the future, grant non-qualified stock options to non-employee directors as
an incentive to join or remain on the Board of Directors. Upon joining the
Board of Directors, each of Messrs. Herndon and Oates were granted an option
to purchase 5,000 shares of Common Stock at an exercise price of $9.00 per
share, 25% of which vested immediately and the remainder of which will vest
ratably on each of the first, second and third anniversary of the date of the
initial grant.
KEY PERSON LIFE INSURANCE
The Company presently maintains key person life insurance in the amount of
$5.0 million on Edward G. Caputo, the Company's President and Chief Executive
Officer.
42
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and its four
other most highly compensated executive officers (the "Named Executive
Officers") whose total salary and bonus for fiscal 1997 exceeded $100,000, for
services rendered to the Company and its subsidiaries in all capacities during
that fiscal year. No executive who would otherwise have been includable in
such table on the basis of salary and bonus earned for fiscal 1997 has
resigned or otherwise terminated employment during fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(2) AWARDS
------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL SALARY BONUS OPTIONS
POSITION (1) YEAR ($) ($) (#)
- ------------------------------------- ---- -------- ------- ------------
<S> <C> <C> <C> <C>
Edward G. Caputo..................... 1997 151,198 -- --
President and Chief Executive
Officer
Robert B. Dixon...................... 1997 107,333(3) 10,000 12,500
Vice President of Finance
Glenn M. King........................ 1997 100,833 10,000 14,250
Vice President of Marketing and
Assistant Secretary
Lee Lapioli.......................... 1997 116,574 -- --
Vice President of Management
Consulting Services
David R. Wheeland.................... 1997 110,000 10,000 12,500
Vice President of Operations
</TABLE>
- --------
(1) Mr. Willcox and Ms. Welch, who joined the Company in January 1998 and
November 1997, respectively, would be among the five most highly
compensated individuals had they been with the Company during all of
fiscal 1997. Mr. Willcox's base salary is $175,000 and Ms. Welch's base
salary is $120,000.
(2) The costs of certain benefits are not included because they did not
exceed, in the case of each Named Executive Officer, the lesser of $50,000
or 10% of the total annual salary and bonus for such Named Executive
Officer.
(3) Includes $24,000 received as compensation for consulting services rendered
to the Company for the first two months of 1997.
43
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made pursuant to the Company's 1997 Plan during 1997 to each of
the Named Executive Officers.(/1/)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------- -----------------------
NUMBER OF POTENTIAL REALIZABLE
SECURITIES VALUE AT ASSUMED
UNDERLYING PERCENT OF TOTAL EXERCISE ANNUAL RATES OF STOCK
OPTIONS OPTIONS GRANTED OR BASE PRICE APPRECIATION FOR
GRANTED TO EMPLOYEES IN PRICE EXPIRATION OPTION TERM(3)
NAME (#)(2) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------------ ---------- ---------------- -------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Edward G. Caputo........ -- -- -- -- -- --
President and Chief
Executive Officer
Robert B. Dixon......... 12,500 5.9% 4.00 8/20/07 31,445 79,687
Vice President of
Finance
Glenn M. King........... 12,500 5.9% 4.00 8/20/07 31,445 79,687
Vice President of 1,750 * 9.00 12/31/07 9,905 25,101
Marketing and Assistant
Secretary
Lee Lapioli............. -- -- -- -- -- --
Vice President of
Management Consulting
Services
David R. Wheeland....... 12,500 5.9% 4.00 8/20/07 31,445 79,687
Vice President of
Operations
</TABLE>
- --------
* Less than one percent.
(1) Mr. Willcox was granted an option to purchase 5,000 shares of Common Stock
on August 20, 1997 at an exercise price of $4.00 per share (in exchange for
units of shadow stock granted under the Company's Shadow Stock Incentive
Plan on July 21, 1997) and an option to purchase 50,000 shares of Common
Stock on December 31, 1997 at an exercise price of $9.00 per share. Ms.
Welch was granted an option to purchase 12,500 shares of Common Stock on
December 31, 1997 at an exercise price of $9.00 per share.
(2) Options are granted pursuant to and in accordance with the Company's 1997
Plan. See " -- Employee Benefit Plans."
(3) Potential realizable value is based on the assumption that the price per
share of Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. The assumed 5% and 10% annual rates of
appreciation (compounded annually) over the term of the option are set
forth in accordance with the rules and regulations adopted by the
Commission and do not represent the Company's estimate of stock price
appreciation.
44
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
options during 1997 by each of the Named Executive Officers and the fiscal
year-end value of unexercised in-the-money options.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL
FISCAL YEAR-END
YEAR-END ($)
(#) EXERCISABLE/
EXERCISABLE/ UNEXERCISABLE
NAME UNEXERCISABLE (1)
- ------------------------------------------------- ------------- --------------
<S> <C> <C>
Edward G. Caputo................................. --/-- --/--
President and Chief Executive Officer
Robert B. Dixon.................................. --/12,500 --/62,500
Vice President of Finance
Glenn M. King.................................... 12,500/1,750 62,500/--
Vice President of Marketing and Assistant
Secretary
Lee Lapioli...................................... --/-- --/--
Vice President of Management Consulting Services
David R. Wheeland................................ 7,500/5,000 37,500/25,000
Vice President of Operations
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock at December 31, 1997 of
$9.00 per share as determined by the Board of Directors, less the exercise
price payable for such shares.
Employment Agreement
The Company and Mr. Caputo have entered into an employment agreement (the
"Employment Agreement") with an initial term expiring January 1, 2001, and
which will be automatically extended annually for an additional period of one
year unless either Mr. Caputo or the Company gives 60 days' prior written
notice to the other that such automatic extension will not occur. The
Employment Agreement sets forth (i) the terms of Mr. Caputo's employment as
President and Chief Executive Officer of the Company, (ii) Mr. Caputo's
agreement not to compete with the Company by rendering IT consulting or
staffing services to customers in the insurance, banking, brokerage or other
financial services industries during the term of his employment and for a
period of two (2) years following the expiration or termination of such
employment and (iii) Mr. Caputo's agreement to protect and preserve
information and property which is confidential and proprietary to the Company.
The Employment Agreement does not provide for any specified compensation to
Mr. Caputo and contains no provisions regarding compensation in the event of
his severance or upon a change of control of the Company.
EMPLOYEE BENEFIT PLANS
1997 Employee, Director and Consultant Stock Plan
The Company's 1997 Employee, Director and Consultant Stock Plan (the "1997
Plan"), was approved by the Company's Board of Directors and stockholders in
August 1997. The 1997 Plan provides for the grant of stock options and shares
of Common Stock ("Stock Grants") to employees, directors and consultants of
the Company or its affiliates. Under the 1997 Plan, the Company may grant
incentive stock options and non-qualified stock options. Incentive stock
options may only be granted to employees of the Company. Effective upon the
closing of this offering, a total of 427,500 shares of Common Stock have been
reserved for issuance under the 1997 Plan. As of the date of this Prospectus,
options to purchase a total of 204,600 shares of Common Stock were outstanding
under the 1997 Plan, and no options to purchase Common Stock had been
exercised. As of December 31, 1997, no grants of Common Stock had been made
under the 1997 Plan.
45
<PAGE>
The 1997 Plan is administered by the Compensation Committee of the Board of
Directors (the "Administrator"), except to the extent such authority is
retained by the Board of Directors. Subject to the provisions of the 1997
Plan, the Administrator has the authority to administer the provisions of the
1997 Plan and to select the participants to whom options or Stock Grants are
granted and determine the terms of each option or Stock Grant, including (i)
the number of shares of Common Stock subject to such option or Stock Grant,
(ii) when an option becomes exercisable, (iii) the option exercise price or
Stock Grant purchase price, which, in the case of incentive stock options,
must be at least 100% (110% in the case of incentive stock options granted to
a stockholder owning in excess of 10% of the Company's voting stock) of the
fair market value of the Common Stock as of the date of grant, (iv) the
duration of the option (which, in the case of incentive stock options,
generally may not exceed ten years) and (v) in the case of Stock Grants, the
terms of any right of the Company to reacquire the shares of Common Stock
subject to the Stock Grant, including the time and events upon which such
rights shall accrue and the purchase price therefor, if any.
An incentive stock option granted under the 1997 Plan may be exercised after
the termination of the optionholder's employment with the Company (other than
by reason of death, disability or termination for "cause" as defined in the
1997 Plan), to the extent exercisable on the date of termination, at any time
prior to the earlier of the option's specified expiration date or 90 days
after such termination. The Administrator may specify the termination or
cancellation provisions applicable to a non-qualified stock option. In the
event of the optionholder's death or disability, both incentive stock options
and non-qualified stock options generally may be exercised, to the extent
exercisable on the date of death or disability, by the optionholder or the
optionholder's survivors at any time prior to the earlier of the option's
specified expiration date or one year from the date of death or disability.
Generally, in the event of the optionholder's termination for cause, all
outstanding and unexercised options are forfeited.
If the Company is to be consolidated with or acquired by another entity in a
merger, sale of all or substantially all of the Company's assets or otherwise
(an "Acquisition"), all outstanding options shall become fully exercisable. In
addition, the Administrator or the board of directors of any entity assuming
the obligations of the Company under the 1997 Plan shall as to outstanding
options under the plan, either (i) make appropriate provision for the
continuation of such options by substituting, on an equitable basis, for the
shares then subject to such options, the consideration payable with respect to
the outstanding shares of Common Stock in connection with the Acquisition or
securities of the successor or acquiring entity; or (ii) upon written notice
to the optionholders, provide that all options must be exercised within a
specified number of days of the date of such notice, at the end of which
period the options shall terminate; or (iii) terminate all options in exchange
for a cash payment equal to the excess of the fair market value of the shares
subject to each such option over the exercise price thereof.
401(k) Retirement Savings Plan
The Company's 401(k) Retirement Savings Plan (the "401(k) Plan") is a
defined contribution plan covering all full-time employees of the Company who
have six months of service and are age twenty and one-half or older. Each
year, participants may contribute up to 15% of pretax annual compensation,
subject to the statutory limit (a maximum of $9,500 in 1997). Participants may
also contribute amounts representing distributions from other qualified
defined benefit or contribution plans. Additional amounts may be contributed
at the option of the Company's Board of Directors. Participants are
immediately vested in their contributions plus actual earnings thereon.
Vesting in the Company's discretionary contribution portion of their accounts
plus actual earnings thereon is based on years of continuous services. A
participant is 100% vested after six years of credited service.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors did not have a Compensation Committee
during 1997. Consequently, all Directors participated in deliberations
concerning executive compensation, including decisions relative to their own
compensation. In January 1998 following the addition of Messrs. Herndon and
Oates, the Board of Directors created a Compensation Committee. The Company's
Compensation Committee makes recommendations concerning salaries and incentive
compensation for employees of and consultants to the Company, establishes
46
<PAGE>
and approves salaries and incentive compensation for executive officers and
administers the 1997 Plan. No executive officer of the Company serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board
of Directors or Compensation Committee. Mr. Herndon is the Vice President of
Strategic Development for Phoenix. See "Certain Transactions."
47
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH PHOENIX
In June 1996, the Company entered into an agreement with Phoenix to
establish the Offshore Technology Resource Center. In connection therewith,
the Company formed Command International Holdings, a corporation organized
under the laws of Mauritius ("Command Holdings"), and Command International
Software Pvt., an Indian unlimited liability company ("Command Software").
Pursuant to the terms of the agreement the Company owned 100% of the
outstanding equity of Command Holdings which in turn owned 51% of the
outstanding equity of Command Software. The remaining 49% ownership in Command
Software was owned by PHL Global Holding Co., a wholly-owned subsidiary of PM
Holdings, Inc., which in turn is wholly-owned by Phoenix. In addition, during
the period from July 11, 1996 to April 3, 1997, Phoenix made advances pursuant
to a subordinated debt agreement to the Company and Command Holdings totaling
approximately $2.0 million in the aggregate. Notes evidencing these advances
(the "Notes") bore interest at 15% per annum and were due and payable in full
five years from the date of each such Note.
On August 26, 1997, the Company and Phoenix effected a transaction pursuant
to which the Notes, including the right to receive prior interest accrued
thereon, evidencing indebtedness to Phoenix of approximately $2.2 million,
were exchanged for an aggregate of 100 shares of the Company's Series A
Convertible Preferred Stock (the "Series A Stock"). These shares of Series A
Stock are convertible on a 5,225 for one basis into 522,500 shares of the
Company's Common Stock. In addition, the Series A Stock is entitled to a
mandatory 10% cash dividend. Phoenix was granted certain registration rights
in connection with this transaction. See "Shares Eligible for Future Sale--
Registration Rights."
As of December 31, 1997, the Company and Phoenix completed a transaction
whereby the 49% interest in Command Software owned by PHL Global Holding Co.
("PHL"), an indirect wholly-owned subsidiary of Phoenix, was exchanged for 100
shares of the Company's Series B Convertible Preferred Stock (the "Series B
Stock"). These shares of Series B Stock are convertible on a 6,592.5 for one
basis into 659,250 shares of Common Stock and are entitled to a mandatory 10%
cash dividend. Phoenix was granted certain registration rights in connection
with this transaction. See "Shares Eligible for Future Sale--Registration
Rights."
All shares of Series A Stock and Series B Stock outstanding as of the
consummation of this offering will be converted into an aggregate of 1,181,750
shares of Common Stock.
In connection with the issuance of the Series A Stock and Series B Stock,
the Company entered into a Co-Sale Agreement with Mr. Caputo and each of
Phoenix and PHL (collectively, the "Co-Sale Agreements"). Pursuant to the Co-
Sale Agreements, Mr. Caputo has granted to Phoenix and PHL the right to
participate in any sale of Common Stock or preferred stock, if any, of the
Company (collectively, "Co-Sale Stock") by Mr. Caputo, upon the same terms and
conditions as the proposed sale, with the exception of certain specified
transfers. The Co-Sale Agreements will terminate upon the earliest to occur of
(i) ten years after the date of such agreement, (ii) the date that Mr. Caputo
ceases to own shares of Co-Sale Stock constituting at least 25% of the
Company's issued and outstanding Common Stock on a fully-diluted basis and
(iii) the date that Phoenix and PHL, together with their respective
affiliates, cease to own shares of Common Stock constituting at least 5% of
the Company's issued and outstanding Common Stock on a fully-diluted basis.
The Company provided IT services to Phoenix that generated revenue to the
Company of approximately $3.3 million, $2.8 million and $1.3 million during
the years ended December 31, 1994, 1995 and 1996, respectively. For the nine
months ended September 30, 1997, the Company provided IT services to Phoenix,
which generated revenue of approximately $2.3 million. These services were
provided on terms no less favorable to the Company than were obtained during
these same periods from unaffiliated third parties. Mr. Herndon, a director of
the Company, is the Vice President of Strategic Development for Phoenix. There
can be no assurance that the Company will continue to provide this level of
services to Phoenix, if at all.
48
<PAGE>
TRANSACTIONS WITH CERTAIN OFFICERS
In February 1997, the Company guaranteed a loan of $80,000 from People's
Bank to Mr. Wheeland. Pursuant to the terms of the loan, Mr. Wheeland pledged
25,000 units of Command Systems, Inc. shadow stock (which has since been
converted into 12,500 stock options) as collateral for the loan. To guarantee
the loan, the Company granted People's Bank a put option whereby upon default
of the loan, People's Bank could require the Company to purchase the shadow
stock for the outstanding balance of the loan. This loan bears interest at
People's Bank's Long Term Cost of Funds Rate, plus 325 basis points (9.68% at
inception) and matures on March 17, 2000.
All future transactions, including any loan from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by
a majority of the Board of Directors, including a majority of the independent
and disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 31, 1997,
and as adjusted to reflect the sale of the shares offered by the Company and
the Selling Stockholders in this offering, by (i) each person (or group of
affiliated persons) known by the Company to beneficially own more than five
percent of the outstanding shares of Common Stock, (ii) each Selling
Stockholder, (iii) each of the Company's directors, (iv) each of the Named
Executive Officers and (v) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING(1) THE OFFERING(1)
----------------------- SHARES -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
- ------------------------------------ --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Edward G. Caputo........ 4,275,000 78.3% -- 4,275,000 56.6%
c/o Command Systems,
Inc.
76 Batterson Park Road,
Farmington, Connecticut
06032
Phoenix................. 1,181,750(3) 21.7 300,000 881,750 11.7
One America Row
P.O. Box 5956
Hartford, CT 06102
Stephen L. Willcox...... 5,000(4) * -- 5,000(4) *
Robert B. Dixon......... 2,500(4) * -- 2,500(4) *
Glenn M. King........... 12,500(4) * -- 12,500(4) *
Lee Lapioli............. -- -- -- -- --
David R. Wheeland....... 7,500(4) * -- 7,500(4) *
John J.C. Herndon....... 1,183,000(5) 21.7 300,000 883,000(5) 11.7
James M. Oates.......... 1,250(4) * -- 1,250(4) *
All current directors
and executive officers
as a group (9 per-
sons).................. 5,486,750(6) 100.0% 300,000 5,186,750(6) 68.4%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the Common Stock.
(1) Except as indicated in footnotes to this table, the Company believes that
the stockholders named in this table have sole voting and investment power
with respect to all shares of Common Stock shown to be beneficially owned
by them based on information provided to the Company by such stockholders.
(2) Applicable percentage of ownership is based on 5,456,750 shares of Common
Stock outstanding on December 31, 1997 and 7,556,750 shares of Common
Stock outstanding after the completion of the offering and assumes the
Preferred Stock Conversion.
(3) Consists of 1,181,750 shares of Common Stock issuable upon the Preferred
Stock Conversion, 522,500 of which are beneficially owned by Phoenix and
659,250 of which are beneficially owned by PHL Global Holding Co. ("PHL"),
an indirectly wholly-owned subsidiary of Phoenix.
(4) Consists solely of shares of Common Stock underlying options which are
exercisable as of December 31, 1997 or within 60 days of such date.
(5) Includes 1,181,750 shares of Common Stock owned by Phoenix and PHL. Mr.
Herndon is the Vice President of Strategic Development for Phoenix. Mr.
Herndon expressly disclaims beneficial ownership of such shares. Also
includes 1,250 shares of Common Stock underlying options which are
exercisable as of December 31, 1997 or within 60 days of such date.
(6) See Notes 4 and 5. Includes an additional 7,500 shares of Common Stock
underlying options which are exercisable as of December 31, 1997 or within
60 days of such date.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock and 4,999,800 shares
of undesignated preferred stock.
COMMON STOCK
At December 31, 1997, there were 5,456,750 shares of Common Stock
outstanding held of record by three stockholders. There will be 7,556,750
shares of Common Stock outstanding after giving effect to the sale of shares
of Common Stock offered hereby. Holders of Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
stockholders and are not entitled to cumulative voting rights. Holders of
Common Stock are entitled to receive dividends ratably, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a dissolution,
liquidation or winding-up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities and any
payment required to be made to holders of Preferred Stock. Holders of Common
Stock have no preemptive or other subscription rights and no right to convert
their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are, and, when issued, all shares of Common Stock offered
hereby will be, fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation permits the Company's Board of
Directors, without further vote or action by the stockholders, to issue shares
of the preferred stock in one or more series and to determine the
designations, preferences, voting powers, qualifications and special or
relative rights and privileges of the shares of each such series, including
the dividend rights, dividend rate, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences, the number of shares constituting any series and the
designation of such series. These rights and privileges could limit the voting
power of holders of Common Stock and restrict their rights to receive
dividends or liquidation proceeds in an adverse manner.
The Company has granted the Board of Directors authority to issue preferred
stock and to determine its rights and preferences to eliminate delays
associated with a stockholder vote on specific issuances. The Company believes
that this authority will provide flexibility in connection with possible
corporate transactions. However, it could also have the effect of making it
more difficult for a third-party to acquire, or of discouraging a third-party
from attempting to acquire, control of the Company. Further, the issuance of
preferred stock could adversely affect the voting power of holders of Common
Stock and restrict their rights to receive payments upon liquidation of the
Company. The Board of Directors could also utilize shares of preferred stock
in order to adopt a stockholders' rights plan (a so-called "poison pill"),
which could also have the effect of discouraging or delaying a takeover of the
Company. The Company has no present plans to issue any shares of preferred
stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law (the "DGCL"). In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a company's outstanding voting stock), from engaging in a "business
combination" (as defined in Section 203), with such company for three years
following the date that person becomes an interested stockholder unless (a)
before that person became an interested stockholder, such company's Board of
Directors approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (b) upon
completion of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least
85% of the voting stock outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of such company
51
<PAGE>
and by employee stock plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or (c) following the transaction in
which that person became an interested stockholder, the business combination
is approved by such company's Board of Directors and authorized at a meeting
of stockholders by the affirmative vote of the holders of at least 66 2/3% of
the outstanding voting stock not owned by the interested stockholder.
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") authorizes the Board of Directors to issue,
without stockholder approval, 4,999,800 shares of Preferred Stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of Common Stock. The issuance of
Preferred Stock or of rights to purchase Preferred Stock could be used to
discourage an unsolicited acquisition proposal. In addition, the possible
issuance of Preferred Stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Company's Common Stock
or limit the price that investors might be willing to pay in the future for
shares of the Company's Common Stock. The Certificate of Incorporation also
provides that: (i) the affirmative vote of the holders of at least 70% of the
voting power of all of the then outstanding shares of the capital stock of the
Company shall be required to adopt, amend or repeal any provision of the By-
laws of the Company; (ii) following the closing of an initial public offering,
stockholders of the Company may not take any action by written consent and a
meeting of the stockholders may only be called by the Board of Directors;
(iii) following the closing of an initial public offering, the Board of
Directors will be classified into three classes with staggered terms of three
years each; (iv) advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in a timely manner as
provided in the By-Laws of the Corporation and (v) members of the Board of
Directors may be removed only for cause and after reasonable notice and an
opportunity to be heard before the body proposing to remove such director. The
Certificate of Incorporation also provides that the affirmative vote of the
holders of shares of voting stock of the Corporation representing at least
seventy percent (70%) of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class, shall be
required to (i) reduce or eliminate the number of authorized shares of Common
Stock or the number of authorized shares of preferred stock or (ii) amend or
repeal, or adopt certain provisions of the Certificate of Incorporation
regarding the management of the Corporation, the indemnification of officers
and directors, the election and classification of the Board of Directors, the
ability of the Board of Directors or the Stockholders to amend or repeal the
Certificate of Incorporation or the By-laws and the super majority voting
requirements. The foregoing provisions of the Certificate of Incorporation
could have the effect of delaying, deterring or preventing a change in control
of the Company. See "Risk Factors--Certain Anti-Takeover Provisions."
The Company's Certificate of Incorporation contains provisions eliminating
or limiting the personal financial liability of the Company's directors to the
fullest extent permitted by the DGCL. Delaware law provides that directors
will not be personally liable to a corporation or its stockholders for
monetary damages for breach of their fiduciary duties as directors, except for
liability where there has been a breach of the duty of loyalty, a failure to
act in good faith, an act of intentional misconduct, a knowing violation of
law, certain unlawful payments of dividends, stock repurchases or redemptions,
or any transaction from which the director derives an improper personal
benefit. In addition, the Company's Certificate of Incorporation and By-Laws
include provisions to indemnify its officers and directors and persons serving
in various other capacities at the request of the Company to the fullest
extent permitted by the DGCL against expenses, judgments, fines and amounts
paid in connection with threatened, pending or completed suits and proceedings
against such persons by reason of having served as officers or directors or in
other capacities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston Equiserve,
Inc.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have outstanding
7,556,750 shares of Common Stock. Of such shares, the 2,400,000 shares offered
hereby will be freely tradable by persons other than "affiliates" of the
Company without restriction. The remaining 5,156,750 shares held by current
stockholders of the Company are subject to Lock-Up Agreements under which the
holders of such shares have agreed not to sell or otherwise dispose of such
shares without the prior written consent of Cowen & Company, one of the
Representatives of the Underwriters, for a period of 180 days after the date
of this Prospectus. Upon expiration of the Lock-Up Agreements (and assuming no
exercise of outstanding options), approximately 4,275,000 additional shares of
Common Stock will be available for sale in the public market, subject to the
provisions of Rule 144 or Rule 701 under the Securities Act. The remaining
881,750 shares of Common Stock will become eligible for sale in the public
market, subject to the provisions of Rule 144, over a period of less than one
year and could be sold earlier if the holders thereof exercise their
registration rights. Promptly following the consummation of this offering, the
Company intends to register an aggregate of 427,500 shares of Common Stock
issuable under the 1997 Employee, Director and Consultant Stock Plan. In
addition, holders of options to purchase 53,050 shares of Common Stock which
are exercisable as of December 31, 1997 or will become exercisable within 60
days thereafter have agreed pursuant to the Lock-Up Agreements, not to sell,
offer, contract or grant any option to sell, pledge, transfer or otherwise
dispose of such shares for 180 days after the date of this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated with those of others), including any affiliate of
the Company, is entitled to sell in brokers' transactions or directly to
market makers within any three-month period a number of Restricted Shares that
does not exceed the greater of (i) 1% of the class of such shares then
outstanding (75,567 shares of Common Stock based on the number of shares to be
outstanding after consummation of this offering) or (ii) the average weekly
trading volume of the class of such shares in the over-the-counter market
during the four calendar weeks preceding the date on which notice of such sale
is filed with the Commission, provided that certain current public information
concerning the Company is then available, that the seller complies with
certain manner of sale provisions and notice requirements, and that at least
one year has elapsed since the Restricted Shares were fully paid for and
acquired from the Company or an affiliate of the Company. A person (or persons
whose shares are aggregated with those of others), who is not an affiliate of
the Company at any time during the three months preceding any sale by such
person, is entitled to sell such shares, under Rule 144(k), without regard to
the limitations described above, provided that at least two years have lapsed
since the Restricted Shares were fully paid for and acquired from the Company
or an affiliate of the Company. The above is a summary of Rule 144 and is not
intended to be a complete description thereof or of the rights of the parties
to sell shares of Common Stock thereunder.
As of the date of this Prospectus, options to purchase 204,600 shares of
Common Stock are outstanding, 50,550 of which options are vested on the date
hereof. Upon exercise of these options, the underlying shares of Common Stock
will be eligible for sale to the public in the open market under Rule 701.
In general, under Rule 701 as currently in effect, absent contractual
restrictions on transfer, any employee, officer or director of or consultant
or advisor to, the Company who purchases shares from the Company pursuant to a
written compensatory stock option or other benefit plan or written contract
relating to compensation is eligible to resell such shares, in each case
commencing 90 days after the date of this Prospectus, in reliance on Rule 144,
but without compliance with certain restrictions contained in Rule 144. Shares
acquired pursuant to Rule 701 may be sold by nonaffiliates without regard to
the holding period, volume limitations, information or notice requirements of
Rule 144, and by affiliates without regard to the holding period requirement.
As of the date of this Prospectus, the Company has reserved an aggregate of
427,500 shares of Common Stock for issuance pursuant to the 1997 Employee,
Director and Consultant Stock Plan. The Company may elect to register such
shares under the Securities Act. Shares so registered will be eligible for
sale in the public market after the effective date of such registration,
subject to Rule 144 limitations applicable to affiliates and subject to the
lock-up agreements described below.
53
<PAGE>
Except as indicated above, the Company is unable to estimate the amount,
timing or nature of future sales of outstanding Common Stock. There was no
market for the Common Stock prior to this offering, and no predictions can be
made as to the effect, if any, that market sales of shares or the availability
of shares for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the Common Stock in the public
market may have an adverse effect on the market price thereof, and could
impair the Company's ability to raise capital through the future sale of its
equity securities.
REGISTRATION RIGHTS
Upon the consummation of the offering, Phoenix and PHL will hold in the
aggregate 881,750 shares of the Company's Common Stock (the "Registrable
Securities"). Each of Phoenix and PHL or their transferees are entitled to
certain rights with respect to the registration of such securities under the
Securities Act. These rights are provided under the terms of an agreement
between the Company and the holders of the Registrable Securities. If the
Company registers any of its securities either for its own account or for the
account of other security holders, the holders of Registrable Securities are
entitled to include their securities in the registration, subject to the
ability of the underwriters to limit the number of shares included in an
underwritten offering. When use of such form becomes available to the Company,
any holder of the Registrable Securities may request that the Company register
all or any portion of their Registrable Securities on Form S-3 provided that
the reasonably anticipated aggregate price to the public is at least $500,000
and that no more than one such registration may be requested and obtained
during any nine month period. All registration expenses must be borne by the
Company and all selling expenses relating to the Registrable Securities must
be borne by the holders of the securities being registered. Except to the
extent included herein, the holders of the Registrable Securities have waived
their right to have such securities registered under the Securities Act as
part of this offering and for a period of 180 days following this offering.
LOCK-UP AGREEMENTS
Pursuant to the Underwriting Agreement, all of the Company's directors,
executive officers and stockholders, owning as of the date hereof all of the
outstanding Common Stock (representing an aggregate of 5,302,750 shares of
Common Stock, including vested and unvested stock options), have agreed that
they will not, without the prior written consent of Cowen & Company, offer,
sell or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them, for a period of 180
days after the date of this Prospectus. See "Underwriting."
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated as
of the date hereof (the "Underwriting Agreement"), the Company and the Selling
Stockholders have agreed to sell to each of the Underwriters named below, and
each of the Underwriters, for whom Cowen & Company and Volpe Brown Whelan &
Company, LLC are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company and the Selling Stockholders the
respective number of shares of Common Stock set forth opposite the name of
such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME COMMON STOCK
---- ------------
<S> <C>
Cowen & Company.................................................
Volpe Brown Whelan & Company, LLC...............................
----
Total.........................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares of Common Stock offered hereby (other
than those covered by the over-allotment option described below), if any of
such shares are purchased.
The Underwriters propose to offer the shares of Common Stock, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and, in part, to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the Representatives.
The Selling Stockholders have granted the Underwriters an option,
exercisable for up to 30 days after the date of this Prospectus, to purchase
up to an aggregate of 360,000 additional shares of Common Stock to cover over-
allotments, if any. With respect to the over-allotment option only, the term
Selling Stockholders includes Edward G. Caputo, the Company's President and
Chief Executive Officer. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of
shares to be purchased by each of them as shown in the foregoing table bears
to the 2,400,000 shares of Common Stock offered hereby. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of 2,400,000 shares of Common Stock offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, and to contribute to payments that the
Underwriters may be required to make in respect thereof.
The Company, the Company's officers and directors, and all Selling
Stockholders have agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or any right to acquire Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent (which consent may be given without notice to the
Company's stockholders or other public announcement) of Cowen & Company. Cowen
& Company has advised the Company that it has no present intention of
releasing any of the Company's stockholders from such lock-up agreements until
the expiration of such 180-day period. See "Shares Eligible for Future Sale."
The Representatives have advised the Company that they currently intend to
make a market in the Company's Common Stock following this offering although
they have no obligation to do so and may cease such market making at any time.
There can be no assurance that a market in the Common Stock will develop after
the offering.
55
<PAGE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales in excess of 5% of the
shares offered hereby to any accounts over which they exercise discretionary
authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiation among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in such negotiations are
the prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalization and stage of development of other
companies that the Company, the Selling Stockholders and the Representatives
believe to be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development and other
factors deemed relevant.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "CMND."
LEGAL MATTERS
The validity of issuance of the Common Stock offered hereby will be passed
upon for the Company by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
Boston, Massachusetts. Certain legal matters will be passed upon for the
Underwriters by Buchanan Ingersoll, Princeton, New Jersey.
EXPERTS
The Consolidated Financial Statements of the Company at December 31, 1996
and 1995, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form S-1, including amendments thereto (the
"Registration Statement"), under the Securities Act with respect to the shares
of Common Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules filed therewith,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding 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
deemed to be qualified in its entirety by such reference. The Registration
Statement, including all exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: the New York regional office located at 7 World Trade Center,
Suite 1300, New York, New York 10048, and the Chicago regional office located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of this material may also be obtained
from the Commission's Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, such material may
also be accessed electronically at the Commission's Internet home page:
(http://www.sec.gov).
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants,
and will make available quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information and such other periodic
reports as the Company may determine to be appropriate or as may be required
by law.
56
<PAGE>
COMMAND SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... F-2
AUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1995 and 1996................ F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996..................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996..................................................... F-5
Notes to Consolidated Financial Statements............................... F-6
UNAUDITED FINANCIAL STATEMENTS:
Consolidated Balance Sheet at September 30, 1997......................... F-12
Consolidated Statements of Operations for the nine month periods ended
September 30, 1996 and 1997............................................. F-13
Consolidated Statements of Cash Flows for the nine month periods ended
September 30, 1996 and 1997............................................. F-14
Notes to Consolidated Financial Statements............................... F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Command Systems, Inc.
We have audited the accompanying consolidated balance sheets of Command
Systems, Inc. as of December 31, 1995 and 1996, and the related consolidated
statements of operations and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Command
Systems, Inc. at December 31, 1995 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Hartford, Connecticut
September 22, 1997
except for Note 9, as to which the date
is December 31, 1997 and Note 10 as to
which the date is January , 1998
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 10 to the
consolidated financial statements.
Ernst & Young LLP
Hartford, Connecticut
January 8, 1998
F-2
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 222,940 $ 443,505
Accounts receivable, net of allowance for doubtful
accounts of $24,500 in 1996......................... 1,762,067 2,375,064
Prepaid expenses and other assets.................... 29,830 416,116
---------- ----------
Total current assets................................ 2,014,837 3,234,685
Equipment and improvements:
Furniture and equipment.............................. 359,831 914,452
Leasehold improvements............................... 119,138 554,873
---------- ----------
478,969 1,469,325
Less accumulated depreciation........................ (219,462) (396,785)
---------- ----------
Net equipment and improvements......................... 259,507 1,072,540
Other assets:
Deposits............................................. 19,782 441,644
Other non-current assets............................. -- 67,396
---------- ----------
$2,294,126 $4,816,265
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Line of credit....................................... $ 875,500 $1,378,890
Accounts payable and accrued expenses................ 589,573 1,281,058
Accrued payroll and related costs.................... 301,545 376,305
Loan payable to officer.............................. 73,224 73,224
Deferred revenue..................................... -- 150,434
Income taxes payable................................. 1,700 1,700
Deferred state income taxes.......................... 88,043 72,095
---------- ----------
Total current liabilities........................... 1,929,585 3,333,706
Notes payable.......................................... -- 1,145,463
---------- ----------
Total liabilities................................... 1,929,585 4,479,169
Minority interest...................................... -- 395,561
Stockholder's equity (deficit):
Common stock, 25,000,000 shares authorized, $.01 par
value; 4,275,000 shares issued and outstanding...... 1,000 1,000
Retained earnings (deficit).......................... 363,541 (59,465)
---------- ----------
Total stockholder's equity (deficit).............. 364,541 (58,465)
---------- ----------
Total liabilities and stockholder's equity
(deficit)........................................ $2,294,126 $4,816,265
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Revenue................................. $9,272,376 $12,436,529 $17,069,417
Cost of revenue......................... 6,889,883 9,108,436 12,494,448
---------- ----------- -----------
Gross profit.......................... 2,382,493 3,328,093 4,574,969
Selling, general and administrative
expenses............................... 2,102,143 3,012,869 5,171,912
---------- ----------- -----------
Operating income (loss)................. 280,350 315,224 (596,943)
Other income and expense:
Other income.......................... -- -- 42,786
Interest income....................... 1,001 2,195 14,138
Interest expense...................... (56,118) (52,405) (132,482)
---------- ----------- -----------
(55,117) (50,210) (75,558)
---------- ----------- -----------
Income (loss) income before income taxes
and minority interest.................. 225,233 265,014 (672,501)
State income tax (provision) benefit.... (32,131) (43,577) 8,056
---------- ----------- -----------
193,102 221,437 (664,445)
---------- ----------- -----------
Minority interest....................... -- -- 241,439
---------- ----------- -----------
Net income (loss)....................... $ 193,102 $ 221,437 $ (423,006)
========== =========== ===========
Per share amounts:
Net income (loss) per common share.... $ 0.04 $ 0.05 $ (0.09)
========== =========== ===========
Shares used in per share calculation.. 4,645,851 4,645,851 4,645,851
========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................... $ 193,102 $ 221,437 $ (423,006)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization........... 27,607 58,963 136,796
Bad debt expense........................ -- -- 24,500
Deferred state taxes.................... (18,378) 42,079 (15,948)
Minority interest....................... -- -- (241,439)
Accrued interest capitalized............ -- -- 38,370
Other................................... -- -- 4,773
Changes in operating assets and
liabilities:
Accounts receivable................... (83,110) (718,936) (637,497)
Prepaid expenses...................... (96) (23,566) (386,286)
Deposits and other noncurrent assets.. 16,913 (17,410) (489,258)
Deferred financing costs.............. 13,932 -- --
Accounts payable and accrued
expenses............................. (1,224) 268,475 691,485
Accrued payroll and related costs..... 74,365 60,716 74,760
Deferred revenue...................... -- -- 150,434
Income taxes payable.................. (2,149) -- --
--------- --------- -----------
Net cash (used in) provided by
operating activities............... 220,962 (108,242) (1,072,316)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to equipment and
improvements............................. (11,946) (263,884) (954,602)
--------- --------- -----------
Net cash used in investing
activities......................... (11,946) (263,884) (954,602)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit
agreement................................ 643,100 987,500 715,890
Payments of borrowings under revolving
line of credit agreement................. (292,041) (475,100) (212,500)
Principal payments on term loan........... (520,000)
Minority investment in affiliate.......... -- -- 637,000
Proceeds from notes payable............... -- -- 1,107,093
--------- --------- -----------
Net cash provided by (used in)
financing activities............... (168,941) 512,400 2,247,483
--------- --------- -----------
Increase in cash.......................... 40,075 140,274 220,565
Cash, beginning of year................... 42,591 82,666 222,940
--------- --------- -----------
Cash, end of year......................... $ 82,666 $ 222,940 $ 443,505
========= ========= ===========
CASH PAID FOR:
Interest expense.......................... $ 52,824 $ 52,405 $ 104,482
Income taxes.............................. 1,741 1,498 3,581
</TABLE>
See accompanying notes.
F-5
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Command Systems, Inc. (the "Company") provides information technology
solutions and services to financial services organizations.
On May 21, 1996, Command Systems, Inc. and its sole stockholder created
Command International Holdings ("CIH"), a corporation organized under the laws
of Mauritius. CIH is a holding company for a 51% interest in Command
International Software Pvt., an Indian unlimited liability company ("CIS").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Concentration of Credit Risk
The Company markets its services primarily to the financial services
industry. The Company performs periodic credit evaluations of a customer's
financial condition and generally does not require collateral. Credit losses
have been within management's expectations. Approximately 60%, 50% and 42% of
the Company's 1994, 1995 and 1996 revenue, respectively, were generated from
four domestic customers in the financial services industry.
Revenue Recognition
Revenue from contract services is earned under time and materials, cost
reimbursement and fixed price type contracts. Revenue, including applicable
fees and profits, under such contracts are recorded concurrently with costs
incurred thereon. If estimates indicate a probable ultimate loss on a fixed
price contract, provision is made at that date for the entire anticipated
loss.
Billings in excess of revenue earned are classified as deferred revenue.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation on equipment is
calculated on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are being amortized on a straight-line basis
over the shorter of the lease term or estimated useful life of the assets.
Income Taxes
The Company has elected to be taxed as an S Corporation in accordance with
the provisions of the Internal Revenue Code. As an S Corporation, the taxable
income of the Company is reportable on the individual Stockholder's federal
tax return. Accordingly, the financial statements reflect no provision or
liability for federal income taxes. Income tax expense on the statement of
operations represents the provision for state income taxes.
F-6
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable, and other accrued liabilities approximate fair
value due to the short maturity of these items. The carrying value of the
notes payable approximate fair value based on the Company's borrowing rate for
similar financing arrangements. Amounts due under the line of credit
approximate fair value because the interest rates vary with market interest
rates.
Stock-Based Compensation
Effective in fiscal 1996, the Company adopted Financial Accounting Statement
No. 123, "Accounting for Stock-Based Compensation." This statement defines a
fair value based method of accounting for employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans in accordance with Accounting Principle Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." Under APB No. 25, compensation
cost is the excess, if any, of the market price of the stock at the grant date
over the amount the employee must pay to acquire the stock. The Company has
elected to continue to account for awards granted under its Shadow Stock
Incentive Plan under APB No. 25.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated into
United States dollars at current exchange rates. Income and expense accounts
are translated at average rates of exchange prevailing during the period.
Per Share Data
Earnings per common share is computed using the treasury stock method based
on the weighted average number of common and common equivalent shares
outstanding during the period adjusted on a retroactive basis to reflect the
reorganization of stockholder interests into a Delaware holding company (see
Note 9) and the 1-for-2 reverse stock split (see Note 10). However, for
purposes of computing net income (loss) per share, options and warrants
granted by the Company during the 12 months preceding the initial public
offering date and common stock issuable upon the automatic conversion of the
Series A convertible preferred stock (see Note 9) have been included in the
calculation of common and common equivalent shares outstanding as if they were
outstanding for all periods presented using the treasury stock method and
assuming an initial public offering price of $11.00 per share.
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share."
The statement is effective for fiscal years ending after December 15, 1997,
including interim periods, and requires public companies to present basic
earnings per share and, if applicable, diluted earnings per share. The Company
will adopt Statement No. 128 in 1997. The statement will not impact the
Company's earnings per share as disclosed.
3. DEBT
In May 1996, the Company refinanced its line of credit from $1,000,000, to
the lesser of 65% of the Company's accounts receivable less than 90 days past
due, or $2,500,000 at the bank's prime rate of interest plus 1/2% (10%, 10%
and 8.75%, in 1994, 1995 and 1996, respectively).
The line of credit is guaranteed by the Company's sole stockholder and
president, and is collateralized by all the assets of the Company. The
agreement also contains several restrictive covenants which require, among
other things, the Company to maintain defined ratios and amounts. On May 27,
1997, the bank agreed to waive compliance with these covenants for the year
ended December 3l, 1996 and for the subsequent period ending June 15, 1997.
F-7
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On June 30, 1997, the Company amended its line of credit agreement to the
lesser of 75% of the Company's accounts receivable less than 90 days past due,
or $2,500,000 at the bank's prime rate of interest plus 1/2%. The line of
credit expires on June 30, 1998. On June 30, 1997, the outstanding debt under
the line of credit amounted to $1,677,535.
On July 1, 1996, the Company, its sole stockholder and CIH entered into a
note purchase agreement (the "Agreement") with a related party under which the
Company can authorize the issuance and sale from time to time of up to $3
million (U.S. dollars) aggregate principal amount of its 15% Subordinated
Secured Series Notes (the "C Notes") and the capitalization of accrued
interest on such notes and the issuance and sale from time to time under this
Agreement of its Zero Coupon Receivables-Based Subordinated Secured Series
Notes (the "Z Notes"). The Z Notes shall not be counted towards the $3 million
limit and shall have no specified limit on the aggregate original amount that
may be issued by the Company. Also, under this Agreement, CIH can authorize
the issuance and sale from time to time of up to $3 million (U.S. dollars)
aggregate principal amount of its 15% Guaranteed Senior Secured Series Notes
(the "M Notes") and the capitalization of accrued interest on such notes. The
payment obligations of the Company in respect to the C Notes and the Z Notes
shall rank junior and subordinate in right of payment to the senior
indebtedness of the Company under the M Notes. Payment and performance
obligations under the Agreement are guaranteed by the Company and its sole
stockholder (See Note 9).
The Agreement also contains several restrictive covenants which require,
among other things, the Company to maintain defined ratios and amounts. On May
30, 1997, the related party agreed to waive compliance with these covenants
for the year ended December 31, 1996 and for the subsequent period ending July
31, 1997.
At December 31, 1996, outstanding debt (including accrued interest of
$38,370) on the C, Z and M Notes amounted to $214,370, $196,000 and $735,093,
respectively. These notes are held by the 49% stockholder, Phoenix Home Life
Mutual Insurance Co ("PHL"), in CIS. Repayment of the debt is due in 2001.
The payment obligations of the Company in respect to the C, Z, and M Notes
shall rank junior and subordinate in right of payment to the senior
indebtedness of the Company under the line of credit.
The Company's outstanding letter of credit, relating to leased office space,
amounted to $124,444 and $31,108 at December 31, 1995 and 1996, respectively.
The letter of credit expired on March 31, 1997.
CIS entered into a Rs. 20,000,000 ($560,000) letter of credit facility as of
December 31, 1996. This facility is guaranteed by PHL. There were no
outstanding balances under this letter of credit at December 31, 1996.
4. INCOME TAXES
State income taxes consist of:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Current............................................ $ 1,700 $ 1,498 $ 5,270
Deferred........................................... 30,431 42,079 (13,226)
------- ------- --------
Total.............................................. $32,131 $43,577 $ (8,056)
======= ======= ========
</TABLE>
Deferred state income taxes of approximately $88,000 and $72,000 as of
December 31, 1995 and 1996, respectively, consist of a deferred tax liability
of approximately $107,000 and $78,700, respectively, resulting from the use of
cash basis accounting for income tax purposes and a deferred tax asset of
approximately $19,000
F-8
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and $11,000, respectively, resulting from a net operating loss ("NOL")
carryforward of approximately $184,000 and $118,000, respectively. The NOL
expires through 2010.
During 1996, the Company's foreign subsidiaries incurred losses of $492,732
prior to adjustment for minority interest.
The financial statements reflect no foreign income tax provision. CIH is not
subject to a corporate tax and since CIS earns all of its income from export
activities, CIS is eligible for certain tax exemptions. As a result of such
exemptions, no deferred tax asset is recognized.
5. LEASES
The Company leases office space from unrelated third parties. Total rent
expense for the years ended December 31, 1994, 1995 and 1996 was $70,713,
$132,839 and $251,597, respectively.
Security deposits totaling $421,862 have been paid for office space rented
in Bangalore, India.
Future minimum lease payments under non-cancelable operating leases at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 429,811
1998.............................................................. 469,813
1999.............................................................. 163,135
2000.............................................................. 122,351
2001.............................................................. --
----------
$1,185,110
==========
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company has a noninterest bearing loan payable to its Stockholder. The
outstanding balance at December 31, 1994, 1995 and 1996 was $73,224. The loan
is payable on demand and is subordinated to the debt described in Note 3.
The Company provided IT services to PHL representing revenues of
approximately $3,300,000, $2,800,000 and $1,300,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
7. MINORITY INTEREST
During 1996, the Company entered into an agreement with PHL to establish a
joint venture in India which would provide software services on a
subcontracting basis to the Company. Under the terms of the agreement, the
Company owns a 51 percent interest in CIS, which is the entity through which
the joint venture is conducted. During 1996, PHL invested $637,000 in CIS.
At December 31, 1996, included in prepared expenses and other assets, are
receivables from PHL approximating $365,000; included in accounts payable and
accrued expenses are payables to PHL approximating $481,000.
8. BENEFIT PLANS
The Company has established a 401(k) Retirement Savings Plan (the "401(k)
Plan"). All employees are eligible to participate in the 401(k) Plan after
completing six months of service and attaining age twenty and one-half.
Employees are allowed to contribute between 1% and 15% of their annual
compensation up to the
F-9
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
maximum contribution allowable each year under IRS regulations. The Company
did not make any contributions to the 401(k) Plan during 1994, 1995 or 1996.
The Company maintains a Shadow Stock Incentive Plan (the "Shadow Plan") for
certain key employees, whereby awards, expressed in units, are earned only
upon the occurrence of certain events including continued employment for five
years after the grant date. The Shadow Plan provides for any earned benefits
to be paid either in cash or in the form of common stock of the Company. At
December 31, 1994, 1995 and 1996 there were 80,000, 53,750 and 61,500 units
outstanding, respectively.
The Company accounts for this Shadow Plan as a stock appreciation right and,
therefore, accrues amounts based on a formula value defined in the Shadow Plan
which reflects the benefits to be earned. There was no compensation expense
recognized under the Shadow Plan for the years ended December 31, 1994, 1995
and 1996, respectively.
9. SUBSEQUENT EVENTS
On July 1, 1997 Command Systems, Inc., a Delaware corporation ("CSI-
Delaware"), was established and exchanged 4,275,000 shares of its common stock
for the 100 shares of issued and outstanding common stock of the Company held
by its sole stockholder and became the ultimate holding company for the
Command group of companies. CSI-Delaware was authorized to issue 10,650,000
shares of $.01 par value common stock and 1,000 shares of $.01 par value
preferred stock. This contribution was accounted for at historical cost in a
manner similar to a pooling of interests. The number of common shares
authorized, issued and outstanding have been restated for all periods to
reflect the new capitalization. Effective December 31, 1997 the Company was
authorized to issue up to 25,000,000 shares of its common stock and 5,000,000
shares of preferred stock. The consolidated financial statements have been
adjusted to reflect this change.
On August 26, 1997 CSI-Delaware entered into an agreement with PHL whereby
CSI-Delaware issued to PHL 100 shares of its Series A Convertible Preferred
Stock in exchange for the aggregate outstanding indebtedness (including
accrued interest) of $2,186,137 of C, Z and M Notes (see Note 3). The Series A
Convertible Preferred Stock entitles the holder to one vote per convertible
common share, including the right to elect one director as a class, and has a
dividend of 10% per annum which shall accrue on a cumulative basis (which rate
will increase to 15% if certain thresholds are not met). These shares are
convertible into 1,045,000 shares of CSI-Delaware common stock.
With the issuance of the Series A Convertible Preferred Stock, the Company's
ability to be taxed as an S Corporation automatically terminated and the
ability to report taxable income using a cash basis of accounting ceased. The
Company anticipates that it will recognize additional taxable income as a
result and that the associated tax liability will approximate $693,000. Under
current statutes this liability will be payable over a period of four years.
In August 1997 the Company created the Command Systems, Inc. 1997 Employee,
Directors and Consultant Stock Option Plan (the "Option Plan"). The Company
reserved 427,500 shares of its common stock for issuance under the Option
Plan. In conjunction with the establishment of the Option Plan, the Company
issued options to purchase 66,500 shares of its common stock exercisable at a
price of $4.00 per share (the fair market value as determined by the Board of
Directors of such stock at the date of grant) to certain persons who, upon
such issuance, relinquished their rights under the Company's Shadow Plan (see
Note 8).
F-10
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On December 31, 1997 PHL exchanged its 49% interest in the Indian joint
venture for 100 shares of the Company's Series B convertible preferred stock
valued at $8,000,000. As a result of this transaction the Company will no
longer recognize a minority interest in the earnings and financial position of
the venture. The excess of the purchase price (approximately $7,000,000) over
the estimated fair value of assets acquired has been allocated to good will
and will be amortized over 15 years.
In October 1997 the loan to the Company by its stockholder of $73,224 was
repaid.
10. INITIAL PUBLIC OFFERING
The Company expects to complete an initial public offering in early 1998 of
2,100,000 shares of common stock. In conjunction with the offering, the
Company will effectuate a 1-for-2 reverse stock split. All share and per share
data has been restated retroactively. In addition the Company's Series A and
Series B Convertible Preferred Stock will simultaneously convert into
1,181,750 shares of Common Stock.
F-11
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................ $ 673,262
Accounts receivable, net of allowance for doubtful accounts of
$229,259....................................................... 4,394,723
Prepaid expenses and other assets............................... 234,610
----------
Total current assets........................................... 5,302,595
Equipment and improvements:
Furniture and equipment......................................... 2,003,326
Leasehold improvements.......................................... 919,944
----------
2,923,270
Less accumulated depreciation................................... 687,305
----------
Net equipment and improvements.................................... 2,235,965
Other assets:
Deposits........................................................ 438,568
Other non-current assets........................................ 143,827
----------
$8,120,955
==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Line of credit.................................................. $1,277,535
Bank loan....................................................... 817,614
Accounts payable and accrued expenses........................... 1,895,662
Accrued payroll and related costs............................... 800,668
Loan payable to officer......................................... 73,224
Deferred revenue................................................ 49,598
Income taxes payable............................................ 267,685
Deferred income taxes........................................... 25,347
----------
Total current liabilities...................................... 5,207,333
Deferred income taxes............................................. 489,401
----------
Total liabilities.............................................. 5,696,734
Minority interest................................................. 986,617
Series A convertible preferred stock, 100 shares authorized, $.01
par value; 100 shares issued and outstanding..................... 2,163,428
Stockholder's equity (deficit):
Common stock, 25,000,000 shares authorized, $.01 par value;
4,275,000 shares issued and outstanding........................ 1,000
Accumulated (deficit)........................................... (742,022)
Cumulative translation adjustment............................... 15,198
----------
Total stockholder's equity (deficit)........................... (725,824)
----------
Total liabilities and stockholder's equity (deficit)........... $8,120,955
==========
</TABLE>
See accompanying notes.
F-12
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue.............................................. $12,562,791 $17,741,755
Cost of revenue...................................... 8,841,908 11,988,686
----------- -----------
Gross profit....................................... 3,720,883 5,753,069
Selling, general and administrative expenses......... 3,461,131 5,283,863
----------- -----------
Operating income................................... 259,752 469,206
Other income and expense:
Other income....................................... 37,465 110
Interest income.................................... 3,044 21,131
Interest expense................................... (67,216) (262,287)
----------- -----------
(26,707) (241,046)
----------- -----------
Income before income taxes and minority interest..... 233,045 228,160
Provision for income taxes........................... (6,581) (705,996)
----------- -----------
226,464 (477,836)
Minority interest.................................... -- (184,454)
----------- -----------
Net income (loss).................................... $ 226,464 (662,290)
===========
Accrual of dividends on preferred stock.............. (20,364)
-----------
Net income (loss) available to common stockholders... $ (682,654)
===========
Per share amounts:
Net income per common share........................ $ 0.05 $ (0.15)
=========== ===========
Shares used in per share calculation............... 4,645,851 4,645,851
=========== ===========
</TABLE>
See accompanying notes.
F-13
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................................... $ 226,464 $ (662,290)
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization....................... 103,803 290,520
Bad debt expense.................................... 24,500 203,859
Deferred income taxes............................... (1,311) 442,653
Accrued interest capitalized........................ 132,674
Minority interest................................... -- (184,454)
Other............................................... -- 15,198
Changes in operating assets and liabilities:
Accounts receivable............................... (864,435) (2,223,518)
Prepaid expenses.................................. (405,116) 181,506
Deposits and other assets......................... (21,773) (73,355)
Accounts payable and accrued expenses............. 132,709 614,604
Accrued payroll and related costs................. 17,571 424,363
Deferred revenue.................................. (41,188) (100,836)
Income taxes payable.............................. -- 265,155
--------- -----------
Net cash used in operating activities........... (828,776) (673,921)
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to equipment and improvements........... (291,492) (1,453,078)
--------- -----------
Net cash used in investing activities........... (291,492) (1,453,078)
CASH FLOWS FROM FINANCING ACTIVITIES
Preferred stock issuance costs........................ -- (43,013)
Proceeds from bank loan............................... -- 817,614
Borrowings (payments) under revolving line of credit
agreement............................................ 313,390 (101,355)
Proceeds from notes payable........................... 400,000 908,000
Minority investment in affiliate...................... -- 775,510
--------- -----------
Net cash provided by financing activities....... 713,390 2,356,756
--------- -----------
(Decrease) increase in cash........................... (406,878) 229,757
Cash, beginning of period............................. 222,940 443,505
--------- -----------
Cash, end of period................................... $(183,938) $ 673,262
========= ===========
CASH PAID FOR
Interest expense...................................... $ 67,216 $ 262,287
Income taxes.......................................... 6,581 830
NON-CASH FINANCING ACTIVITIES
Preferred stock exchanged for notes payable........... -- $ 2,186,137
</TABLE>
See accompanying notes.
F-14
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Command
Systems, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1997, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included on pages F-1 through F-11
of this document.
2. PER SHARE DATA
Earnings per common share is computed using the treasury stock method based
on the weighted average number of common and common equivalent shares
outstanding during the period adjusted on a retroactive basis to reflect the
reorganization of Stockholder interests into a Delaware holding company and
the 1-for-2 reverse stock split. However, for purposes of computing net income
(loss) per share, options and warrants granted by the Company during the 12
months preceding the initial public offering date and common stock issuable
upon the automatic conversion of the Series A convertible preferred stock have
been included in the calculation of common and common equivalent shares
outstanding as if they were outstanding for all periods presented using the
treasury stock method and assuming an initial public offering price of $11.00
per share.
In February 1997 the FASB issued Statement No. 128, "Earnings Per Share."
The statement is effective for fiscal years ending after December 15, 1997,
including interim periods, and requires public companies to present basic
earnings per share and, if applicable, diluted earnings per share. The Company
will adopt Statement No. 128 in 1997. The statement will not impact the
Company's earnings per share as disclosed.
3. STOCKHOLDER'S EQUITY
On July 1, 1997 Command Systems, Inc. ("CSI-Delaware") was established and
exchanged 4,275,000 shares of its common stock for the 100 shares of issued
and outstanding common stock of the Company held by its sole stockholder and
became the ultimate holding company for the Command group of companies. CSI-
Delaware was authorized to issue 10,650,000 shares of $.01 par value common
stock and 1,000 shares of $.01 par value preferred stock. This contribution
was accounted for at historical cost in a manner similar to a pooling of
interests. The number of common shares authorized, issued and outstanding have
been restated for all periods to reflect the new capitalization. Effective
December 31, 1997 the Company was authorized to issue up to 25,000,000 shares
of its common stock and 5,000,000 shares of preferred stock. The consolidated
financial statements have been adjusted to reflect this change.
During August 1997, the Company created the Command Systems, Inc. 1997
Employee, Directors and Consultant Stock Option Plan (the "Option Plan"). The
Company reserved 427,500 shares of its Common Stock for issuance under the
Option Plan. In conjunction with the establishment of the Option Plan, the
Company issued options to purchase 66,500 shares of its common stock
exercisable at a price of $4.00 per share (the fair market value of such stock
at the date of grant) to certain persons who, upon such issuance, relinquished
their rights under the Company's Shadow Stock Incentive Plan.
F-15
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
The Company's Series B Convertible Preferred Stock has a liquidation
preference of $8,000,000 and has a dividend of 10% per annum which shall
accrue on a cumulative basis. The holders are also entitled to one vote per
convertible common share and the right to elect one director as a class. These
shares are redeemable after July 31, 1999 and are convertible into 659,250
shares of the Company's common stock. These Series B convertible preferred
stock converts automatically subject to certain conditions following a
qualified public offering.
4. DEBT
On August 26, 1997 CSI-Delaware entered into an agreement with Phoenix Home
Life Mutual Insurance Company ("PHL") whereby CSI-Delaware issued to PHL 100
shares of its Series A Convertible Preferred Stock in exchange for the
aggregate outstanding indebtedness (including accrued interest of $171,044) of
$2,186,137 of C, Z and M Notes; costs incurred of $43,013 related to this
transaction have been recorded as a reduction to preferred stock. The Series A
Convertible Preferred Stock entitles the holder to one vote per convertible
common share, including the right to elect one director as a class, and has a
dividend of 10% per annum which shall accrue on a cumulative basis (which rate
will increase to 15% if certain thresholds are not met). Cumulative and unpaid
dividends are $20,364 at September 30, 1997. These shares are redeemable at
PHL's option after July 31, 1999 and are convertible into 522,500 shares of
CSI-Delaware common stock. The Series A convertible preferred stock converts
automatically subject to certain conditions following a qualified public
offering.
CIS maintains a short term credit facility for $2 million ($817,614
outstanding at September 30, 1997). Each borrowing under the facility has a
term of 8 months from the date of disbursement and bears interest at varying
rates from 10.65% to 16% and is secured by a Risk Takeover Agreement.
5. MINORITY INTEREST
During 1997, PHL invested $775,510 in the India joint venture. At September
30, 1997, included in prepaid expenses and other assets, are receivables from
PHL approximating $29,000; included in accounts payable and accrued expenses
are payables to PHL approximating $307,000.
On December 31, 1997 PHL exchanged its 49% interest in the Indian joint
venture for 100 shares of the Company's Series B convertible preferred stock
valued at $8,000,000. As a result of this transaction the Company will no
longer recognize a minority interest in the earnings and financial position of
the venture. The excess of the purchase price (approximately $7,000,000) over
the estimated fair value of assets acquired has been allocated to goodwill and
will be amortized over 15 years. Had this transaction occurred on January 1,
1997 on a pro forma basis there would have been no effect on revenue, the net
loss for the period would have increased to $828,000 and net loss per common
share would have been $(0.18).
F-16
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
6. INCOME TAXES
Components of the provision for income taxes follow:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1997
-----------------
<S> <C> <C>
Federal
Current................................................. $ -- $ 261,832
Deferred................................................ -- 451,838
------- ---------
Total federal......................................... -- 713,670
State
Current................................................. 5,270 1,500
Deferred................................................ 1,311 (9,174)
------- ---------
Total state........................................... 6,581 (7,674)
------- ---------
Total provision....................................... $ 6,581 $ 705,996
======= =========
</TABLE>
The effective tax rate from operations differed from the federal statutory
rate for the following reasons:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
-------------------
<S> <C> <C>
Federal statutory rate................................. 34.0% $ 77,574
State income taxes, net of federal benefit............. (4.2) (9,574)
No federal income tax benefit for S corporation period
loss.................................................. 13.1 29,975
Tax effect of conversion from S corporation to C
corporation, related primarily to accounting method
change................................................ 303.7 693,031
Foreign profits not subject to tax..................... (41.9) (95,728)
Other.................................................. 4.7 10,718
------- ----------
Effective income tax rate.............................. 309.4% $ 705,996
======= ==========
</TABLE>
With the issuance of the Series A convertible preferred stock, the Company's
ability to operate as an S corporation automatically terminated and the
ability to report on the cash basis of accounting ceased. The Company
anticipates that it will recognize additional taxable income as a result and
that the associated liability will approximate $693,000. Under current
statutes this liability will be payable over a period of four years.
The Company has net operating loss ("NOL") carryforwards for state tax
purposes of $118,000 and $605,000 as of September 30, 1996 and 1997,
respectively. The NOL expires through 2010.
For the nine months ended September 30, 1997 the Company's foreign
subsidiaries earned income of $281,554 prior to the adjustment for minority
interest.
The financial statements reflect no foreign income tax provision. CIH is not
subject to a corporate tax and since CIS earns all of its income from export
activities, CIS is eligible for certain tax exemptions. As a result of such
exemptions, no deferred tax asset or liability is recognized.
F-17
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
Significant components of the Company's deferred tax assets and liabilities
at September 30, 1997 follow:
<TABLE>
<S> <C>
Deferred tax assets
State net operating loss carryforwards.......................... $ 31,968
Bad debt reserve................................................ 90,099
Reserves and accruals........................................... 83,596
--------
205,663
--------
Deferred tax liabilities
Tax effect of change from S corporation to C corporation,
primarily related to accounting method change.................. 693,031
Tax over book depreciation...................................... 27,380
--------
720,441
--------
Net deferred federal and state liabilities.................... $514,748
========
</TABLE>
F-18
<PAGE>
[INSIDE BACK COVER WILL INCLUDE A PICTURE OF THE COMPANY'S FARMINGTON,
CONNECTICUT FACILITY AND ITS BANGALORE, INDIA FACILITY]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS, ANY OF THE UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLIC-
ITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANYONE IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION
TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HERE-
OF.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 27
Management............................................................... 40
Certain Transactions..................................................... 48
Principal and Selling Stockholders....................................... 50
Description of Capital Stock............................................. 51
Shares Eligible For Future Sale.......................................... 53
Underwriting............................................................. 55
Legal Matters............................................................ 56
Experts.................................................................. 56
Additional Information................................................... 56
Index to Consolidated Financial Statements............................... F-1
</TABLE>
--------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,400,000 SHARES
[LOGO]
COMMAND SYSTEMS, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
COWEN & COMPANY
VOLPE BROWN WHELAN & COMPANY
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the Registrant's expenses in connection with
the issuance and distribution of the securities being registered. Except for
the SEC Registration Fee and the National Association of Securities Dealers,
Inc. ("NASD") Filing Fee, the amounts listed below are estimates:
<TABLE>
<S> <C>
SEC Registration Fee $ 9,770.40
NASD Filing Fee 3,812.00
Nasdaq Listing Fees 36,392.88
Legal Fees and Expenses *
Blue Sky Fees and Expenses *
Accounting Fees and Expenses *
Printing and Engraving *
Transfer Agent and Registrar Fees and Expenses *
Miscellaneous
----------
Total $
</TABLE>
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
Article NINTH of the Registrant's Amended and Restated Certificate of
Incorporation provides as follows:
NINTH: 1. To the fullest extent permitted by the Delaware General
Corporation Law as the same now exists or may hereafter be amended, the
Corporation shall indemnify, and advance expenses to, its directors, officers
and any person who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, if such person was or
is made a party to or is threatened to be made a party to or is otherwise
involved (including without limitation, as a witness) in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee
benefit plan; provided, however, that except with respect to proceedings to
enforce rights to indemnification or as is otherwise required by law, the By-
Laws of the Corporation may provide that the Corporation shall not be required
to indemnify, and advance expenses to, any director, officer or other person
in connection with a proceeding (or part thereof) initiated by such director,
officer or other person, unless such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The Corporation, by
action of its Board of Directors, may provide indemnification or advance
expenses to employees and other agents of the Corporation or other persons
only on such terms and conditions and to the extent determined by the Board of
Directors in its sole and absolute discretion.
2. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article NINTH shall not be deemed exclusive of any other
rights to which a person seeking indemnification or advancement of expenses
may be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
3. The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as
a director, employee or agent of another corporation, or of a partnership,
joint venture, trust or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under this article NINTH.
II-1
<PAGE>
4. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article NINTH shall, unless otherwise specified when
authorized or ratified, continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such director or officer. The indemnification and rights to
advancement of expenses that may have been provided to an employee or agent of
the Corporation by action of the Board of Directors, pursuant to the last
sentence of Paragraph 1 of this Article NINTH, shall, unless otherwise
specified when authorized or ratified, continue as to a person who has ceased
to be an employee or agent of the Corporation and shall inure to the benefit
of the heirs, executors and administrators of such person, after the time such
person has ceased to be an employee or agent of the Corporation, only on such
terms and conditions and to the extent determined by the Board of Directors in
its sole discretion. No repeal or amendment of this Article NINTH shall
adversely affect any rights of any person pursuant to this Article NINTH which
existed at the time of such repeal or amendment with respect to acts or
omissions occurring prior to such repeal or amendment.
Article TENTH of the Registrant's Amended and Restated Certificate of
Incorporation provides as follows:
TENTH: No director shall be personally liable to the Corporation or its
stockholders for any monetary damages for breaches of fiduciary duty as a
director, notwithstanding any provision of law imposing such liability;
provided that this provision shall not eliminate or limit the liability of a
director, to the extent that such liability is imposed by applicable law, (i)
for any breach of the director's duty of loyalty to the Corporation or its
Stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174
or successor provisions of the General Corporation Law of the State of
Delaware; or (iv) for any transaction from which the director derived an
improper personal benefit. This provision shall not eliminate or limit the
liability of a director for any act or omission if such elimination or
limitation is prohibited by the General Corporation Law of the State of
Delaware. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Article VIII of the Registrant's By-Laws provides as follows:
Section 1. Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved (including,
without limitation, as a witness), in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
he is or was a director or an officer of the Corporation or a member of the
Corporation's Scientific Advisory Board or similar entity or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement), reasonably incurred or suffered by such Indemnitee in
connection therewith; provided, however, that, except as provided in Section 3
of this Article with respect to proceedings to enforce rights to
indemnification or as otherwise required by law, the Corporation shall not be
required to indemnify or advance expenses to any such Indemnitee in connection
with a proceeding (or part thereof) initiated by such Indemnitee unless such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation.
Section 2. Right to Advancement of Expenses. The right to indemnification
conferred in Section 1 of this Article shall include the right to be paid by
the Corporation the expenses (including attorney's fees) incurred in
II-2
<PAGE>
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an Indemnitee in his capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such Indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of
an undertaking, by or on behalf of such Indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that such Indemnitee is not entitled
to be indemnified for such expenses under this Section 2 or otherwise. The
rights to indemnification and to the advancement of expenses conferred in
Sections 1 and 2 of this Article shall be contract rights and such rights
shall continue as to an Indemnitee who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the Indemnitee's heirs,
executors and administrators. Any repeal or modification of any of the
provisions of this Article shall not adversely affect any right or protection
of an Indemnitee existing at the time of such repeal or modification.
Section 3. Right of Indemnitees to Bring Suit. If a claim under Section 1 or
2 of this Article is not paid in full by the Corporation within sixty (60)
days after a written claim has been received by the Corporation, except in the
case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the Indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit, or in a suit brought by
the Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the Indemnitee shall also be entitled to be paid the expenses
of prosecuting or defending such suit. In (i) any suit brought by the
Indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the Indemnitee to enforce a right to an advancement of expenses),
it shall be a defense that, and (ii) any suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking,
the Corporation shall be entitled to recover such expenses upon a final
adjudication that, the Indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its Stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its Stockholders) that the Indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
Indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the Indemnitee, be a defense to such suit. In any suit
brought by the Indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the Indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article or otherwise shall be on the
Corporation.
Section 4. Non-Exclusivity of Rights. The rights to indemnification and to
the advancement of expenses conferred in this Article shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, the Corporation's Certificate of Incorporation as amended from time
to time, these by-laws, any agreement, any vote of stockholders or
disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article with respect to the indemnification and advancement
of expenses of directors and officers of the Corporation.
II-3
<PAGE>
OTHER INDEMNIFICATION PROVISIONS
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation has the power to indemnify a director, officer, employee or
agent of the corporation and certain other persons serving at the request of
the corporation in related capacities against amounts paid and expenses
incurred in connection with an action or proceeding to which he is or is
threatened to be made a party by reason of such position, if such person shall
have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonably cause to believe his conduct was
unlawful; provided that, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made with respect to any matter
as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the adjudicating court
determines that such indemnification is proper under the circumstances.
Under Section 6 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1.1 hereto.
The Registrant intends to obtain insurance which insures the officers and
directors of the Registrant against certain losses and which insures the
Registrant against certain of its obligations to indemnify such officers and
directors.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any director or officer.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this Registration Statement, the
Corporation has sold the following securities that were not registered under
the Securities Act:
In August 1997, the Company issued 100 shares of Series A Convertible
Preferred Stock (522,500 shares of Common Stock on an as-converted to Common
Stock basis) in exchange for notes, including the right to receive prior
interest accrued thereon, evidencing indebtedness of approximately $2.2
million.
In December 1997, the Company issued 100 shares of Series B Convertible
Preferred Stock (659,250 shares of Common Stock on an as-converted to Common
Stock basis) in exchange for the 49% minority interest in Command
International Software Pvt., an Indian unlimited liability company of which
the Company owned 51% of the outstanding equity.
Since the Company's inception through December 31, 1997, the Company has
issued options for an aggregate of 204,600 shares of Common Stock to employees
and consultants of the Company under the 1997 Employee, Director and
Consultant Stock Plan. No shares of Common Stock have been issued upon
exercise of such options.
The sale and issuance of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions by an
issuer not involving a public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationships with the Company, to information about the Registrant.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
*3.2 Form of Certificate of Amendment to Registrant's Amended and Restated
Certificate of Incorporation to be filed immediately prior to
offering.
3.3 By-Laws of the Registrant.
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to the legality of securities being registered.
10.1 1997 Employee, Director and Consultant Stock Plan.
10.2 Registration Rights Agreement dated August 26, 1997 between Registrant
and Phoenix Home Life Mutual Insurance Company.
10.3 Registration Rights Agreement dated December 31, 1997 between
Registrant and PHL Global Holding Co.
10.4 Co-Sale Agreement dated August 26, 1997 between Registrant, Edward G.
Caputo and Phoenix Home Life Mutual Insurance Company.
*10.5 Amendment No. 1, dated December 31, 1997 to Co-Sale Agreement between
Registrant, Edward G. Caputo and Phoenix Home Life Mutual Insurance
Co.
10.6 Co-Sale Agreement dated December 31, 1997 between Registrant, Edward
G. Caputo and PHL Global Holding Co.
*10.7 Employment Contract dated January 1, 1998 between Registrant and
Edward G. Caputo.
10.8 Loan and Security Agreement dated November 30, 1993 between Registrant
and People's Bank.
10.9 Amendment dated December 21, 1994 to Loan and Security Agreement
between Registrant and People's Bank.
10.10 Second Amendment dated May 28, 1996 to Loan and Security Agreement
between Registrant and People's Bank.
10.11 Third Amendment dated June 30, 1997 to Loan and Security Agreement
between Registrant and People's Bank.
10.12 Assumption Agreement dated December 1997 by and between Registrant and
People's Bank.
*10.13 Loan Agreement by and between Command International Software Pvt. and
Deutsche Bank.
11.1 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, independent accountants.
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1).
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules
None.
All financial statement schedules are omitted because the information is not
required, or is otherwise included in the Consolidated Financial Statements or
the Notes thereto.
Item 17. Undertakings
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under "Item
II-5
<PAGE>
14-Indemnification of Directors and Officers" above, 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.
(b) 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.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-6
<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 Boston, Commonwealth of
Massachusetts, on January 8, 1998.
COMMAND SYSTEMS, INC.
/s/ Edward G. Caputo
By: _________________________________
EDWARD G. CAPUTO
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY AND SIGNATURES
We the undersigned officers and directors of Command Systems, Inc., hereby
severally constitute and appoint Edward G. Caputo and Stephen L. Willcox, and
each of them singly (with full power to each of them to act alone), our true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution in each of them for him and in his name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement (or any other Registration
Statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as full to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or their or his substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities held on
the dates indicated.
SIGNATURE TITLE DATE
/s/ Edward G. Caputo President, Chief January 8, 1998
- ------------------------------------- Executive Officer
EDWARD G. CAPUTO and Chairman of the
Board (Principal
executive officer)
/s/ Stephen L. Willcox Executive Vice January 8, 1998
- ------------------------------------- President, Chief
STEPHEN L. WILLCOX Operating Officer
and Director
(Principal
financial officer)
/s/ Robert B. Dixon Vice President of January 8, 1998
- ------------------------------------- Finance (Principal
ROBERT B. DIXON accounting officer)
/s/ John J.C. Herndon Director January 8, 1998
- -------------------------------------
JOHN J.C. HERNDON
/s/ James M. Oates Director January 8, 1998
- -------------------------------------
JAMES M. OATES
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
*3.2 Form of Certificate of Amendment to Registrant's Amended and Restated
Certificate of Incorporation to be filed immediately prior to
offering.
3.3 By-Laws of the Registrant.
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to the legality of securities being registered.
10.1 1997 Employee, Director and Consultant Stock Plan.
10.2 Registration Rights Agreement dated August 26, 1997 between Registrant
and Phoenix Home Life Mutual Insurance Company.
10.3 Registration Rights Agreement dated December 31, 1997 between
Registrant and PHL Global Holding Co.
10.4 Co-Sale Agreement dated August 26, 1997 between Registrant, Edward G.
Caputo and Phoenix Home Life Mutual Insurance Company.
*10.5 Amendment No. 1, dated December 31, 1997 to Co-Sale Agreement between
Registrant, Edward G. Caputo and Phoenix Home Life Mutual Insurance
Co.
10.6 Co-Sale Agreement dated December 31, 1997 between Registrant, Edward
G. Caputo and PHL Global Holding Co.
*10.7 Employment Contract dated January 1, 1998 between Registrant and
Edward G. Caputo.
10.8 Loan and Security Agreement dated November 30, 1993 between Registrant
and People's Bank.
10.9 Amendment dated December 21, 1994 to Loan and Security Agreement
between Registrant and People's Bank.
10.10 Second Amendment dated May 28, 1996 to Loan and Security Agreement
between Registrant and People's Bank.
10.11 Third Amendment dated June 30, 1997 to Loan and Security Agreement
between Registrant and People's Bank.
10.12 Assumption Agreement dated December 1997 by and between Registrant and
People's Bank.
*10.13 Loan Agreement by and between Command International Software Pvt. and
Deutsche Bank.
11.1 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, independent accountants.
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1).
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COMMAND SYSTEMS, INC.
Under Sections 242 and 245
of the
Delaware General Corporation Law
I, Edward G. Caputo, President of Command Systems, Inc., a corporation
organized and exiting under the laws of the State of Delaware, do hereby certify
as follows:
FIRST: The name of the Corporation is Command Systems, Inc..
SECOND: The Certificate of Incorporation of the Corporation was
originally filed with the Secretary of the State of Delaware on
July 1, 1997.
THIRD: The Certificate of Incorporation of the Corporation was
originally amended and restated on August 21, 1997.
FOURTH: This Amended Restated Certificate of Incorporation further
restates and amends the Certificate of Incorporation of the
Corporation and was duly adopted pursuant to resolutions adopted
by the Board of Directors and the Stockholders of the Corporation
in accordance with Sections 242 and 245 of the Delaware General
Corporation Law.
FIFTH: The text of the Certificate of Incorporation is amended and
restated hereby to read as herein set forth in full.
IN WITNESS WHEREOF, Command Systems, Inc. has caused this certificate to be
signed by Edward G. Caputo, its President, this 31st day of December, 1997.
COMMAND SYSTEMS, INC.
By: /s/ Edward G. Caputo
----------------------------------
Edward G. Caputo
Its President
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COMMAND SYSTEMS, INC.
FIRST: The name of the Corporation (hereinafter referred to as the
"Corporation") is
COMMAND SYSTEMS, INC.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle; and the name of the registered
agent of the Corporation in the State of Delaware is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the laws of the General
Corporation Law of the State of Delaware.
FOURTH:
A. Designation and Number of Shares. The total number of shares of capital
--------------------------------
stock which the Corporation is authorized to issue is 30,000,000, which shall be
divided into two classes as follows: (i) 25,000,000 shares of common stock,
with a par value of $.01 per share (the "Common Stock") (ii) 5,000,000 shares of
preferred stock, with a par value of $.01 per share (collectively, the Preferred
Stock"), divided into (a) 100 shares of Series A Convertible Preferred Stock,
with a par value of $.01 per share (the "Series A Preferred"), (b) 100 shares of
Series B Convertible Preferred Stock, with a par value of $.01 per share (the
"Series B Preferred") and (c) 4,999,800 shares of undesignated preferred stock,
with a par value of $.01 per share (the "Undesignated Preferred Stock").
The relative powers, designations, preferences, rights, and qualifications,
limitations and restrictions and other matters relating to the Undesignated
Preferred Stock, the Series A Preferred, the Series B Preferred and the Common
Stock are as set forth below in this Article FOURTH.
B. Undesignated Preferred Stock
----------------------------
(1) Shares of Undesignated Preferred Stock may be issued in one or more
series at such time or times and for such consideration as the Board of
Directors may determine. All shares of any one series shall be of equal rank and
identical in all respects.
(2) Authority is hereby expressly granted to the Board of Directors to
fix from time to time, by resolution or resolutions providing for the
establishment and/or issuance of any series of Undesignated Preferred Stock, the
designation of such series and the powers, preferences and rights of the shares
of such series, and the qualifications, limitations or restrictions thereof,
including, without limitation, the following:
(a) The distinctive designation and number of shares comprising such
series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below the
number of shares then outstanding) from time to time by action of the Board of
Directors;
2
<PAGE>
(b) The rate of dividends, if any, on the shares of that series,
whether dividends shall be non-cumulative, cumulative to the extent earned or
cumulative (and, if cumulative, from which date or dates), whether dividends
shall be payable in cash, property or rights, or in shares of the Corporation's
capital stock, and the relative rights of priority, if any, of payment of
dividends on shares of that series over shares of any other series or class;
(c) Whether the shares of that series shall be redeemable and if so
the terms and conditions of such redemption, including the date or dates upon or
after which they shall be redeemable, and the amount per share payable in case
of redemption (which amount may vary under different conditions and at different
redemption dates) or the property or rights, including securities of any other
corporation, payable in case of redemption;
(d) Whether the series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amounts payable into
such sinking fund;
(e) The rights to which the holders of the shares of that series shall
be entitled in the event of voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, and the relative rights of priority, if any, of
payment of shares of that series in any such event;
(f) Whether the shares of that series shall be convertible into or
exchangeable for shares of stock of any other class or any other series and, if
so, the terms and conditions of such conversion or exchange, including the rate
or rates of conversion or exchange, the date or dates upon or after which they
shall be convertible or exchangeable, the duration for which they shall be
convertible or exchangeable, the event or events upon or after which they shall
be convertible or exchangeable or at whose option they shall be convertible or
exchangeable, and the method (if any) of adjusting the rates of conversion or
exchange in the event of a stock split, stock dividend, combination of shares or
similar event;
(g) Whether the issuance of any additional shares of such series, or
of any shares of any other series, shall be subject to restrictions as to
issuance, or as to the powers, preferences or rights of any such other series;
(h) Whether or not the shares of that series shall have voting rights,
the extent of such voting rights on specified matters or on all matters, the
number of votes to which the holder of shares of such series shall be entitled
in respect of each share of such series, whether such series shall vote
generally with the Common Stock on all matters or (either generally or upon the
occurrence of specified circumstances) shall vote separately as a class or with
other series of Preferred Stock; and
(i) Any other preferences, privileges and powers and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of such series, as the Board of Directors may deem advisable and
as shall not be inconsistent with the provisions of this Certificate of
Incorporation and to the full extent now or hereafter permitted by the laws of
the State of Delaware.
C. Series A Preferred and Series B Preferred. The powers, preferences, and
-----------------------------------------
relative, participating, optional or other rights, and qualifications,
limitations and restrictions thereof, with respect to the Series A Preferred
and the Series B Preferred are as follows (as used below in this Article 4,
Section C, references to a "Section" shall mean a Section of this Article 4,
Section C):
3
<PAGE>
1. Liquidation Rights.
------------------
(a) Treatment at Liquidation, Dissolution or Winding Up.
---------------------------------------------------
(i) Except as otherwise provided in Section 1(b) below, in the event
of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of the Series A
Preferred and the Series B Preferred shall be entitled to be paid first out
of the assets of the Corporation available for distribution to holders of
the Corporation's capital stock of all classes, before payment or
distribution of any of such assets to the holders of Common Stock and any
other class or series of the Corporation's capital stock designated to be
junior to each of the Series A Preferred and the Series B Preferred, an
amount in cash (or, in the event that sufficient cash does not exist and
subject to Section 1(b) below, an amount in cash and or property) equal to
(A) $21,861.37 per share, in the case of each share of Series A Preferred
(which amount shall be subject to equitable adjustment whenever there shall
occur a stock dividend, distribution, combination of shares,
reclassification or other similar event with respect to the Series A
Preferred and, as so adjusted from time to time, is hereinafter referred to
as the "Series A Base Liquidation Price") and (B) $80,000 per share, in the
case of each share of Series B Preferred (which amount shall be subject to
equitable adjustment whenever there shall occur a stock dividend,
distribution, combination of shares, reclassification or other similar
event with respect to the Series B Preferred and, as so adjusted from time
to time, is hereinafter referred to as the "Series B Base Liquidation
Price"), in each case plus all dividends accrued or declared but unpaid, to
and including the date full payment shall be tendered to the holders of the
Series A Preferred and the Series B Preferred with respect to such
liquidation, dissolution or winding up.
(ii) Following payment in full to the holders of the Series A Preferred
and the Series B Preferred of all amounts distributable to them under
Section 1(a)(i) hereof, the remaining assets of the Corporation available
for distribution to holders of the Corporation's capital stock shall be
distributed among the holders of the Common Stock on a pro rata basis.
(iii) If the assets of the Corporation shall be insufficient to permit
the payment in full to the holders of Series A Preferred and Series B
Preferred of all amounts distributable to them under Section 1(a)(i)
hereof, then the entire assets of the Corporation available for such
distribution shall be distributed pro rata in proportion to the respective
--- ----
liquidation preference amounts which would otherwise be payable upon
liquidation with respect to the outstanding shares of Series A Preferred
and Series B Preferred if all liquidation preference dollar amounts with
respect to such shares were paid in full, with the holders of each of the
Series A Preferred and the Series B Preferred sharing ratably in any
distribution to the holders of such series of Preferred Stock.
(b) Allocation; Distributions other than Cash. In the event of a distribution
-----------------------------------------
pursuant to this Section 1, any cash or cash equivalents remaining in the
Corporation shall be allocated first to the payment or distribution to the
holders of the Series A Preferred and the Series B Preferred pro rata in
--- ----
proportion to the respective liquidation preference amounts as set forth in
Section 1(a) before any cash is paid or distributed to the holders of
Common Stock and any other class or series of the Corporation's capital
stock designated to be junior to each of the Series A Preferred and the
Series B Preferred. In the event that there is not sufficient cash to pay
the entire Series A Base Liquidation Price to the holders of the Series A
Preferred and the entire Series B Liquidation Price to the holders of the
Series B Preferred, the distribution provided for in this Section 1 shall
be payable, pro rata in proportion to the respective liquidation preference
--- ----
amounts as set forth in Section 1(a),
4
<PAGE>
in property other than cash, the value of such distribution shall be the fair
market value of such property as determined in good faith by the Board of
Directors of the Corporation with the approval of the Series A Director and the
Series B Director elected by the Series A Preferred and the Series B Preferred,
respectively, pursuant to Section 3(a)(iv); provided, however, that prior to
distributing any non-cash property pursuant to this Section 1(b), the Board of
Directors, with the consent of the Series A Director and the Series B Director
elected by the Series A Preferred and the Series B Preferred, respectively,
pursuant to Section 3(a)(iv), shall have determined that it would not be
advisable for the Corporation to sell or attempt to sell such property for cash
and thereafter pay or distribute the proceeds of any such sale to the
stockholders of the Corporation as provided hereunder.
2. Conversion. The holders of Series A Preferred and Series B Preferred
----------
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert; Conversion Price. Each share of Series A
----------------------------------
Preferred and Series B Preferred shall be convertible, without the payment of
any additional consideration by the holder thereof and at the option of the
holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for such shares, into such
number of fully paid and non-assessable shares of Common Stock as is determined
by dividing (1) in the case of the Series A Preferred, $21,945 by the Series A
Applicable Conversion Price, determined as hereinafter provided, in effect at
the time of conversion or (2) in the case of the Series B Preferred, $13,185 by
the Series B Applicable Conversion Price, determined as hereinafter provided, in
effect at the time of conversion. The Series A Applicable Conversion Price for
purposes of calculating the number of shares of Common Stock deliverable upon
conversion without the payment of any additional consideration by the holder of
Series A Preferred (the "Series A Applicable Conversion Price") shall initially
be $2.10. Such initial Series A Applicable Conversion Price shall be subject to
adjustment, in order to adjust the number of shares of Common Stock into which
Series A Preferred is convertible, as hereinafter provided. The Series B
Applicable Conversion Price for purposes of calculating the number of shares of
Common Stock deliverable upon conversion without the payment of any additional
consideration by the holder of Series B Preferred (the "Series B Applicable
Conversion Price") shall initially be $1.00. Such initial Series B Applicable
Conversion Price shall be subject to adjustment, in order to adjust the number
of shares of Common Stock into which Series B Preferred is convertible, as
hereinafter provided
(b) Mechanics of Conversion. Before any holder of Series A Preferred
-----------------------
or Series B Preferred shall be entitled to convert the same into full shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for such series of Preferred Stock, and shall give written notice to the
Corporation at such office that such holder elects to convert the same and shall
state therein the name of such holder or the name or names of the nominees of
such holder in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. No fractional shares of Common Stock shall
be issued upon conversion of any shares of Series A Preferred or Series B
Preferred. In lieu of any fractional shares of Common Stock to which the holder
would otherwise be entitled, the Corporation shall pay cash equal to such
fraction multiplied by $50.00, in the case of each of the Series A Preferred and
the Series B Preferred. The Corporation shall, as soon as practicable thereafter
(but, in any case, not later than 7 business days after such surrender of such
certificates), issue and deliver at such office to such holder of Series A
Preferred or Series B Preferred, or to such holder's nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid, together with cash in lieu of any
fraction of a share and cash in the amount of all dividends then due and payable
on, and all accrued and unpaid dividends on, the shares of Series A Preferred or
Series B Preferred then being converted. Such conversion shall be deemed to have
been made immediately prior to the
5
<PAGE>
close of business on the date of such surrender of the shares of Series A
Preferred or Series B Preferred to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on such date.
(c) Optional Conversion.
-------------------
(i) Each share of Series A Preferred shall be, subject to the
requirements provided below in this clause (c), converted into shares of Common
Stock at the then effective Series A Applicable Conversion Price, and each share
of Series B Preferred shall be, subject to the requirements provided below in
this clause (c), converted into shares of Common Stock at the then effective
Series B Applicable Conversion Price:
At the option of the Corporation
(1) immediately upon the consummation of the sale by the Corporation for
its own account of Common Stock to one or more underwriters on a firm commitment
basis, if but only if,
(A) such Common Stock is, at the time of such sale, registered under
the Securities Act of 1933, as amended, pursuant to an effective
registration statement in respect of which no stop order or other
interference by the Securities Exchange Commission shall then exist,
(B) the gross sales proceeds to the Corporation from such sale of
such Common Stock based on the agreed sales price to the underwriter equals
or exceeds $20,000,000 (any public offering of Common Stock referred to in,
and satisfying the conditions of clauses (A) and (B) is referred to herein
as a "Qualified Public Offering"), and
(C) with respect to the Series A Preferred only, either (x) the
aforesaid underwriter or underwriters in connection with the aforesaid
purchase of Common Stock from the Corporation shall have offered to
purchase a number of shares of Common Stock arising from the conversion of
Series A Preferred pursuant to this clause (1) on a firm commitment basis
for an aggregate purchase price of not less than $2,500,000 at a price per
share of not less than $4.78 (which price per share shall be subject to
equitable adjustment in the event of any stock dividend, stock split,
combination, reorganization, recapitalization or similar event involving a
change in Common Stock), (y) the holders of such converted Series A
Preferred are afforded the right to register a number of shares of Common
Stock arising from such conversion (without cut-backs or reductions) and to
sell the same through the aforesaid underwriter or underwriters or
otherwise to the public in connection with the aforesaid Qualified Public
Offering at an aggregate price of not less than $2,500,000 and with initial
public offering price established in respect of such Qualified Public
Offering of not less than $4.78 per share (which price shall be subject to
equitable adjustment in the event of any stock dividend, stock split,
combination, reorganization, recapitalization or similar event involving a
change in Common Stock), or (z) the Company has offered to purchase from
the holders of the Series A Preferred a number of shares of Common Stock
arising from such conversion at a price per share equal to the greater of
(A) public offering price established in respect of such Qualified Public
Offering or (B) $4.78 (which price shall be subject to equitable adjustment
in the event of any stock dividend, stock
6
<PAGE>
split, combination, reorganization, recapitalization or similar event
involving a change in Common Stock) and for an aggregate purchase price of
not less than $2,500,000; provided that, in either of the case of subclause
(x) or subclause (y) above, the holders of Series A Preferred shall have
had a reasonable opportunity to review any registration statements and
other documents and the form and substance of the same shall be reasonably
satisfactory to them and their counsel; or
(2) at any time following a Qualified Public Offering, if but only if, (A)
in the case of the Series A Preferred, an Opportunity Date has occurred, as such
term is defined in that certain registration rights agreement between then
Corporation and the holders of the Series A Preferred (as such agreement may be
amended from time to time) and the 120-day period referred to in Section
7(c)(iii) thereof has expired without causing the annulment of the Opportunity
Date as provided for in such registration rights agreement (provided, however,
that for the purpose of dividends and other rights, the conversion of the Series
A Preferred shall, if in fact an Opportunity Date shall have occurred and shall
not have been subsequently annulled as provided for in the registration rights
agreement, be deemed to have taken place on such Opportunity Date) and (B) in
the case of the Series B Preferred, an Opportunity Date has occurred, as such
term is defined in that certain registration rights agreement between then
Corporation and the holders of the Series B Preferred (as such agreement may be
amended from time to time) and the 120-day period referred to in Section
7(c)(iii) thereof has expired without causing the annulment of the Opportunity
Date as provided for in such registration rights agreement (provided, however,
that for the purpose of dividends and other rights, the conversion of the Series
B Preferred shall, if in fact an Opportunity Date shall have occurred and shall
not have been subsequently annulled as provided for in the registration rights
agreement, be deemed to have taken place on such Opportunity Date).
In contemplation of any exercise of its rights under this clause (c), the
Corporation shall provide the holders of Series A Preferred and the Series B
Preferred, as applicable, with adequate notice of the same and an opportunity to
review and, if desired, comment upon the registration statements and other
documents.
(ii) Upon the occurrence of an event specified in Section 2(c)(i)
hereof, all shares of Series A Preferred and Series B Preferred shall be
converted automatically without any further action by any holder of such
shares and whether or not the certificate or certificates representing such
shares are surrendered to the Corporation or the transfer agent for the
Series A Preferred and the Series B Preferred, provided, however, that the
Corporation shall not be obligated to issue a certificate or certificates
evidencing the shares of Common Stock into which such shares of Series A
Preferred or Series B Preferred were convertible unless the certificate or
certificates representing such shares of Series A Preferred or Series B
Preferred being converted are either delivered to the Corporation or the
transfer agent of the Series A Preferred and the Series B Preferred, or the
holder notifies the Corporation or such transfer agent that such
certificate or certificates have been lost, stolen, or destroyed and
executes and delivers an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection
therewith and, if the Corporation so elects, provides an appropriate
indemnity.
(iii) Upon the conversion of Series A Preferred and the Series B
Preferred, each holder of Series A Preferred and the Series B Preferred
shall surrender the certificate or certificates representing such holder's
shares of Series A Preferred and Series B Preferred at the office of the
Corporation or of the transfer agent for the Series A Preferred and the
Series B Preferred. Thereupon, there shall be issued and delivered to such
holder, promptly (but, in any case, not later than 7 business days after
such surrender of such certificates) at such office and in such holder's
name as shown on such surrendered certificate or
7
<PAGE>
certificates, a certificate or certificates for the number of shares of
Common Stock into which the shares of Series A Preferred and Series B
Preferred surrendered were convertible on the date on which such automatic
conversion occurred, together with cash in the amount of all dividends then
due and payable on, and all accrued and unpaid dividends on, the shares of
Series A Preferred and Series B Preferred then being converted. No
fractional shares of Common Stock shall be issued upon the automatic
conversion of Series A Preferred or Series B Preferred. In lieu of any
fractional shares of Common Stock to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied
by $50.00 together with cash in the amount of all dividends then due and
payable on, and all accrued and unpaid dividends on such fractional share.
(d) Adjustments to Applicable Conversion Prices for Diluting Issues.
---------------------------------------------------------------
(i) Special Definitions. For purposes of this Section 2(d), the
-------------------
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe
------
for, purchase or otherwise acquire Common Stock or Convertible Securities.
(B) "Original Issue Date" shall mean July 31, 1997.
-------------------
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than Common Stock, Series A Preferred and
Series B Preferred) or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Section 2(d)(iii), deemed to be
issued) by the Corporation after the Original Issue Date, other than the
following (collectively, "Excluded Shares"):
---------------
(I) Shares of Common Stock issued or issuable upon conversion
of shares of Series A Preferred; or
(II) Shares of Common Stock issued or issuable upon conversion
of shares of Series B Preferred; or
(III) Up to 426,200 shares of Common Stock issued or issuable
to officers, employees or directors of, or consultants to, the
Corporation pursuant to stock option, stock purchase plans or
similar equity incentive plans approved by the Board of Directors,
and any other shares of Common Stock issued or issuable to officers,
employees or directors of, or consultants to, the Corporation
pursuant to stock option, stock purchase plans or similar equity
incentive plans, the issuance of which is approved by the Series A
Director and the Series B Director elected by the Series A Preferred
and the Series B Preferred, respectively, pursuant to Section
3(a)(iv).
8
<PAGE>
(ii) No Adjustment of Applicable Conversion Prices. Any provision herein
---------------------------------------------
to the contrary notwithstanding, no adjustment in the Series A Applicable
Conversion Price or the Series B Applicable Conversion Price shall be made in
respect of the issuance of Additional Shares of Common Stock or otherwise unless
the consideration per share for an Additional Share of Common Stock issued or
deemed to be issued by the Corporation is less than the Series A Applicable
Conversion Price or the Series B Applicable Conversion Price, as the case may
be, in effect on the date of, and immediately prior to, the issue of such
Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
---------------------------------------------------------------
Stock.
- ------
(A) Options and Convertible Securities. In the event the
----------------------------------
Corporation at any time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum number of shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record
date, provided that Additional Shares of Common Stock shall not be deemed
to have been issued unless the consideration per share (determined pursuant
to Section 2(d)(v) hereof) of such Additional Shares of Common Stock would
be less than the Series A Applicable Conversion Price or the Series B
Applicable Conversion Price, as the case may be, in effect on the date of
and immediately prior to such issue, or such record date, as the case may
be, and provided further that in any such case in which Additional Shares
of Common Stock are deemed to be issued:
(I) No further adjustment in the Series A Applicable Conversion
Price or the Series B Applicable Conversion Price shall be made upon the
subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or exchange of such Convertible
Securities;
(II) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable upon the exercise, conversion or exchange
thereof, the Series A Applicable Conversion Price and/or the Series B
Applicable Conversion Price, as the case may be, computed upon the original
issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any
such increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(III) Upon the expiration of any such options or any rights of
conversion or exchange under such Convertible Securities which shall not
have been exercised, the Series A Applicable Conversion Price and/or the
Series B Applicable Conversion Price, as the case may be, computed upon
9
<PAGE>
the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:
(a) In the case of Convertible Securities or Options for Common
Stock the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of
all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the
issue of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such conversion or
exchange; and
(b) In the case of Options for Convertible Securities only the
Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares
of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to
have been received by the Corporation (determined pursuant to Section
2(d)(v)) upon the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(IV) No readjustment pursuant to clause (II) or (III) above shall have
the effect of increasing the Series A Applicable Conversion Price to an
amount which exceeds the lower of (a) the Series A Applicable Conversion
Price on the original adjustment date, or (b) the Series A Applicable
Conversion Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date and no readjustment pursuant to clause (II) or (III)
above shall have the effect of increasing the Series B Applicable
Conversion Price to an amount which exceeds the lower of (a) the Series B
Applicable Conversion Price on the original adjustment date, or (b) the
Series B Applicable Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(V) In the case of any Options which expire by their terms not more
than 30 days after the date of issue thereof, no adjustment of the Series A
Applicable Conversion Price and the Series B Applicable Conversion Price
shall be made until the expiration or exercise of all such Options,
whereupon such adjustment shall be made in the same manner provided in
clause (III) above; and
(VI) If such record date shall have been fixed and such Options or
Convertible Securities are not issued on the date fixed therefor, the
10
<PAGE>
adjustment previously made in the Series A Applicable Conversion Price or
the Series B Applicable Conversion Price, as applicable, which became
effective on such record date shall be canceled as of the close of business
on such record date, and thereafter the Series A Applicable Conversion
Price and/or the Series B Applicable Conversion Price, as the case may be,
shall be adjusted pursuant to this Section 2(d)(iii)(A) as of the actual
date of their issuance.
(B) Stock Dividends, Stock Distributions and Subdivisions. In the event
-----------------------------------------------------
the Corporation at any time or from time to time after the Original Issue Date
shall declare or pay any dividend or make any other distribution on the Common
Stock payable in Common Stock or effect a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in Common Stock), then and in any such event, Additional Shares of Common Stock
shall be deemed to have been issued:
(I) In the case of any such dividend or distribution, immediately
after the close of business on the record date for the
determination of holders of any class of securities entitled to
receive such dividend or distribution, or
(II) In the case of any such subdivision, at the close of business on
the date immediately prior to the date upon which corporate
action becomes effective.
If such record date shall have been fixed and no part of such dividend
shall have been paid on the date fixed therefor, the adjustment previously
made for the Series A Applicable Conversion Price and the Series B Applicable
Conversion Price which became effective on such record date shall be canceled
as of the close of business on such record date, and thereafter the Series A
Applicable Conversion Price and the Series B Applicable Conversion Price
shall be adjusted pursuant to this Section 2(d)(iii)(B) as to the time of
actual payment of such dividend.
(iv) Adjustment of Conversion Prices Upon Issuance of Additional Shares of
---------------------------------------------------------------------
Common Stock.
------------
(A) In the event the Corporation shall issue Additional Shares of Common
Stock (including, without limitation, Additional Shares of Common Stock
deemed to be issued pursuant to Section 2(d)(iii) but excluding Additional
Shares of Common Stock deemed to be issued pursuant to Section
2(d)(iii)(B), which event is dealt with in Section 2(d)(vi) hereof),
without consideration or for a consideration per share less than the Series
A Applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, the Series A Applicable
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series A
Applicable Conversion Price by a fraction, the numerator of which shall be
(I) the number of shares of Common Stock Deemed Outstanding (as defined
below) immediately prior to such issue plus (II) the number of shares of
Common Stock which the aggregate consideration received or deemed to have
been received by the Corporation for the total number of Additional Shares
of Common Stock so issued would purchase at such Series A Applicable
Conversion Price, and the denominator of which shall be (I) the number of
shares of Common Stock Deemed Outstanding
11
<PAGE>
immediately prior to such issue plus (II) the number of Additional Shares
of Common Stock so issued or deemed to be issued.
(B) In the event the Corporation shall issue Additional Shares of Common
Stock (including, without limitation, Additional Shares of Common Stock
deemed to be issued pursuant to Section 2(d)(iii) but excluding Additional
Shares of Common Stock deemed to be issued pursuant to Section
2(d)(iii)(B), which event is dealt with in Section 2(d)(vi) hereof),
without consideration or for a consideration per share less than the Series
B Applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, the Series B Applicable
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Applicable Conversion Price by a fraction, the numerator of which shall be
(I) the number of shares of Common Stock Deemed Outstanding immediately
prior to such issue plus (II) the number of shares of Common Stock which
the aggregate consideration received or deemed to have been received by the
Corporation for the total number of Additional Shares of Common Stock so
issued would purchase at such Series B Applicable Conversion Price, and the
denominator of which shall be (I) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue plus (II) the number of
Additional Shares of Common Stock so issued or deemed to be issued.
(C) For the purposes of Sections 2(d)(iv)(A) and (B) hereof, Common
Stock Deemed Outstanding shall mean, without duplication, (i) all issued
and outstanding shares of Common Stock, (ii) all shares of Common Stock
issuable upon conversion of shares of Series A Preferred and Series B
Preferred, and upon exercise of options or other securities which are part
of or which otherwise constitute Excluded Shares, outstanding immediately
prior to any issue of Additional Shares of Common Stock, and (iii) all
Additional Shares of Common Stock previously deemed issued pursuant to
Section 2(d)(iii).
(D) Notwithstanding anything to the contrary contained herein, the
Series A Applicable Conversion Price and the Series B Applicable Conversion
Price in effect at the time Additional Shares of Common Stock are issued or
deemed to be issued shall not be reduced pursuant to Section 2(d)(iv)(A) or
(B) hereof at such time if the amount of such reduction would be an amount
less than $0.01, but any such amount shall be carried forward and reduction
with respect thereto made at the time of and together with any subsequent
reduction which, together with such amount and any other amount or amounts
so carried forward, shall aggregate $0.01 or more.
(v) Determination of Consideration. For purposes of this Section 2(d), the
------------------------------
consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-----------------
(I) Insofar as it consists of cash, be computed at the aggregate
amounts of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(II) Insofar as it consists of property other than cash, be
12
<PAGE>
computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) In the event that Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (I)
and (II) above, as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per share
----------------------------------
received by the Corporation for Additional Shares of Common Stock deemed to
have been issued pursuant to Section 2(d)(iii)(A), relating to Options and
Convertible Securities, shall be determined by dividing (I) the total
amount, if any, received or receivable by the Corporation as consideration
for the issue of such Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (II) the maximum
number of shares of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
(vi) Adjustment for Dividends, Distributions, Subdivisions, Combinations or
----------------------------------------------------------------------
Consolidations of Common Stock.
- ------------------------------
(A) Stock Dividends, Distributions or Subdivisions. In the event the
----------------------------------------------
Corporation shall issue Additional Shares of Common Stock pursuant to
Section 2(d)(iii)(B) in a stock dividend, stock distribution or
subdivision, the Series A Applicable Conversion Price and the Series B
Applicable Conversion Price in effect immediately prior to such stock
dividend, stock distribution or subdivision shall, concurrently with the
effectiveness of such stock dividend, stock distribution or subdivision, be
proportionately decreased.
(B) Combinations or Consolidations. In the event the outstanding
------------------------------
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, the Series A Applicable Conversion Price and the Series B Applicable
Conversion Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.
(vii) Capital Reorganization, Merger or Sale of Assets. If at any time
------------------------------------------------
or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, recapitalization,
reclassification or exchange of shares provided for elsewhere in this Section
2) or a consolidation or merger of the Corporation, or a sale of all or
substantially all of the assets of the Corporation, (a "Reorganization"),
then, as a part of and as a condition to such Reorganization, provision shall
be made so that the holders of shares of the Series A Preferred and Series B
Preferred shall thereafter be entitled to receive upon conversion of the
shares of the Series A Preferred and the Series B Preferred the same
13
<PAGE>
kind and amount of stock or other securities or property (including cash) of
the Corporation, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder
had converted its shares of the Series A Preferred or Series B Preferred
immediately prior to the effective time of such Reorganization. In any such
case, appropriate adjustment shall be made in the application of the
provisions of this Section 2 to the end that the provisions of this Section 2
(including adjustment of the Series A Applicable Conversion Price and the
Series B Applicable Conversion Price then in effect and the number of shares
of Common Stock or other securities issuable upon conversion of the shares of
the Series A Preferred and the Series B Preferred) shall be applicable after
such Reorganization in as nearly equivalent manner as may be reasonably
practicable.
(e) No Impairment. The Corporation shall not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series A
Preferred and the Series B Preferred against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment or
-----------------------------
readjustment of the Series A Applicable Conversion Price or the Series B
Applicable Conversion Price pursuant to this Section 2, the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each affected holder of Series A Preferred
or Series B Preferred, as the case may be, a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any affected holder of Series A Preferred or Series B
Preferred furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Applicable Conversion Price or
the Series B Applicable Conversion Price, as the case may be, at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon conversion of each
share of Series A Preferred and Series B Preferred, as applicable. Upon the
adjustment of any other dollar amount (other than the Series A Applicable
Conversion Price and the Series B Applicable Conversion Price) provided for
herein which, by the express terms hereof, is subject to equitable adjustment in
the event of any stock dividend, stock split, combination, reorganization,
recapitalization or similar event involving a change in Common Stock, the
Corporation shall, at its expense, promptly compute such adjustment or
readjustment and furnish to each holder of Series A Preferred and the Series B
Preferred a certificate setting forth the same and showing the details of the
calculation of such adjustment.
(g) Notices of Record Date. In the event of any taking by the Corporation
----------------------
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Corporation shall mail to each holder of
Series A Preferred and Series B Preferred at least ten (10) days prior to such
record date a notice specifying the date on which any such record is to be taken
for the purpose of such dividend or distribution.
(h) Common Stock Reserved. The Corporation shall reserve and keep available
---------------------
out of its authorized but unissued Common Stock such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred and Series B Preferred.
14
<PAGE>
(i) Certain Taxes. The Corporation shall pay any issue or transfer taxes
-------------
payable in connection with the conversion of any shares of Series A Preferred or
Series B Preferred, provided, however, that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer to a
name other than that of the holder of such Series A Preferred or Series B
Preferred, as the case may be.
(j) Closing of Books. The Corporation shall at no time close its transfer
----------------
books against the transfer of any Series A Preferred or Series B Preferred, or
of any shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Preferred or Series B Preferred in any manner which
interferes with the timely conversion or transfer of such Series A Preferred and
Series B Preferred.
3. Voting Rights.
-------------
(a) Except as otherwise required by law or this Certificate of Incorporation
the holders of Series A Preferred and Series B Preferred shall be entitled to
notice of any stockholders' meeting and to vote together with the holders of the
Common Stock as a single class of capital stock upon any matter submitted to the
stockholders for a vote and shall be counted in the determination of the
existence of a quorum, on the following basis:
(i) Holders of Series A Preferred shall represent and have that
number of votes per share of Series A Preferred as is equal to the number
of shares of Common Stock into which each such share of Series A Preferred
held by such holder could be converted on the date for determination of
stockholders entitled to vote at the meeting;
(ii) Holders of Series B Preferred shall represent and have that
number of votes per share of Series B Preferred as is equal to the number
of shares of Common Stock into which each such share of Series B Preferred
held by such holder could be converted on the date for determination of
stockholders entitled to vote at the meeting;
(iii) In addition to any other vote or consent required herein or by
law, the vote or written consent of the holders of at least a majority of
the outstanding shares of Series A Preferred and the outstanding shares of
Series B Preferred, voting together as a single class, shall be necessary
to:
(A) Amend, alter or repeal any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or By-laws,
including without limitation, any right or remedy in respect of the Series
A Preferred or the Series B Preferred; provided that if any such amendment,
--------
alteration or repeal would affect only one such series of Preferred Stock,
only the vote or written consent of the holders of at least a majority of
the outstanding shares of such series shall be required;
(B) Create, authorize or issue any capital stock (or class or
series thereof) or any security convertible into or evidencing the right to
purchase shares of any class or series of capital stock of the Corporation
whether or not (i) such class or series may be senior or junior to the
Series A Preferred and the Series B Preferred or (ii) such class or series
may have preference or priority to any right, preference or priority of the
Series A Preferred and the Series B Preferred (other than up to 426,200
shares of Common Stock issued or issuable to officers, employees or
directors of, or consultants to, the Corporation pursuant to stock option,
stock purchase plans or similar equity incentive plans approved by the
Board of Directors and other than the Series A Preferred and the Series B
Preferred).
15
<PAGE>
(C) Pay or declare any dividend or distribution on any shares
of Common Stock, Series A Preferred, Series B Preferred or any other class
or series of capital stock or apply any of its assets to the redemption,
retirement, purchase or other acquisition, directly or indirectly, through
subsidiaries or otherwise, of any shares of capital stock, options or
Convertible Securities.
(D) Effect (I) any liquidation, dissolution reorganization or
winding up of the Corporation or any of its subsidiaries, (II) any sale,
lease, assignment, transfer or other conveyance (other than the grant of a
mortgage or security interest in connection with indebtedness for borrowed
money) of all or substantially all the assets of the Corporation or any of
its subsidiaries, or (III) any consolidation reorganization or merger of
the Corporation or any of its subsidiaries with or into any other entity;
(E) Purchase or otherwise acquire all or substantially all of
the assets or capital stock (or other ownership interest) of any other
person or entity;
(F) incur or guarantee or cause any subsidiary of the
Corporation to issue or guarantee, any indebtedness other than funded
indebtedness to banks not exceeding $4,000,000 in the aggregate;
(G) materially change the nature of the business presently
being carried on by the Corporation or any of its subsidiaries;
(H) authorize or approve any actions taken by the Board of
Directors (or similar governing body) of any subsidiary to, or otherwise
cause any subsidiary to (i) amend, alter or repeal any provision of, or add
any provision to, any certificate of incorporation or bylaw of any
subsidiary of the Corporation, (ii) create, authorize or issue any capital
stock (of any class or series) of any subsidiary of the Corporation or any
security of any subsidiary of the Corporation convertible into or
evidencing the right to purchase shares of any class or series of capital
stock of the Corporation or any subsidiary to the Corporation, (iii) pay or
declare any dividend or distribution on any shares or capital stock of any
subsidiary of the Corporation except to the Corporation, (iv) redeem,
retire, purchase or otherwise acquire, directly or indirectly, any shares
of capital stock of any subsidiary of the Corporation or (v) sell, transfer
or otherwise dispose of any shares of capital stock of any subsidiary of
the Corporation or of all or substantially all of the assets of any such
subsidiary;
(iv) The holders of the Series A Preferred, voting as a single
class, shall be entitled to elect one member to the Board of Directors (the
"Series A Director"). The holders of the Series A Preferred, voting as a
single class, shall be entitled to remove, replace or re-elect the Series A
Director. The holders of the Series B Preferred, voting as a single class,
shall be entitled to elect one member to the Board of Directors (the
"Series B Director"). The holders of the Series B Preferred, voting as a
single class, shall be entitled to remove, replace or re-elect the Series B
Director
4. Dividend Rights.
---------------
(a) From and after July 31, 1997, (the "Series A Original Issue
Date"), dividends (the "Series A Dividends") shall accrue on a cumulative
basis on each share of the Series A Preferred then outstanding, whether or
not funds are legally available therefor and whether or not declared by the
Board of Directors, (i) initially at the rate per annum equal to 10% of the
Series A Base Liquidation Price (determined on the basis of a 360-day year
of twelve 30-day months) and (ii) at
16
<PAGE>
any time after December 31, 1998 and for so long as the holders of Series A
Preferred have not had the opportunity to sell at least 50% of their Series
A Preferred (or the Common Stock into which such Series A Preferred is
convertible) at a price per share of not less than $4.78 (on an as-if-
converted basis), at the rate per annum equal to 15% of the Series A Base
Liquidation Price (determined on the basis of a 360-day year of twelve 30-
day months), provided that, if such 15% rate shall become effective, there
shall immediately become accrued hereunder a supplemental dividend in an
amount equal to 5% per annum of the Series A Base Liquidation Price
(determined on the basis of a 360-day year of twelve 30-day months) from
the Series A Original Issue Date to the date such 15% rate becomes
effective; such accrued supplemental dividend shall be payable on the next
annual dividend payment date. To the extent permitted by law, all accrued
dividends shall be payable in cash annually commencing on the first
anniversary of the Series A Original Issue Date. Accumulated and unpaid
dividends shall compound quarterly from the applicable due date in respect
thereof at the annual rate then in effect;
(b) From and after December 31, 1997, (the "Series B Original
Issue Date"), dividends (the "Series B Dividends") shall accrue on a
cumulative basis on each share of the Series B Preferred then outstanding,
whether or not funds are legally available therefor and whether or not
declared by the Board of Directors, at the rate per annum equal to 10% of
the Series B Base Liquidation Price (determined on the basis of a 360-day
year of twelve 30-day months). To the extent permitted by law, all accrued
dividends shall be payable in cash annually commencing on the first
anniversary of the Series B Original Issue Date. Accumulated and unpaid
dividends shall compound quarterly from the applicable due date in respect
thereof at the annual rate then in effect;
(c) Except as provided in Section 4(d) below, from time to time
the Board of Directors of the Corporation may declare and pay dividends or
distributions on shares of the Common Stock if, but only if, (1) all
accrued Series A Dividends and Series B Dividends shall have been paid in
full prior to the date of any such declaration, payment or distribution and
(2) no shares of Series A Preferred or shares of Series B Preferred remain
outstanding on the date of any such declaration, payment or distribution;
(d) If, with the consent of the holders of at least a majority of
the outstanding Series A Preferred and the Series B Preferred, voting
together as a single class, the Board of Directors of the Corporation shall
declare a dividend payable upon the then outstanding shares of the Common
Stock (other than a dividend payable entirely in shares of the Common Stock
of the Corporation), then the Board of Directors shall declare at the same
time a dividend upon the then outstanding shares of the Series A Preferred
and Series B Preferred payable at the same time as the dividend paid on the
Common Stock, in an amount equal to the amount of dividends per share of
Series A Preferred and Series B Preferred as would have been payable on the
largest number of whole shares of Common Stock which each share of Series A
Preferred and Series B Preferred held by each holder thereof would have
received if such Series A Preferred and Series B Preferred had been
converted to Common Stock pursuant to the provisions of Section 2 hereof as
of the record date for the determination of holders of Common Stock
entitled to receive such dividends; and
(e) If, with the consent of the holders of at least a majority of
the outstanding Series A Preferred and the Series B Preferred, voting
together as a single class, the Board of Directors of the Corporation shall
declare a dividend payable upon any class or series of capital stock of the
corporation other than Common Stock, the Board of Directors shall declare
at the same time a dividend upon the then outstanding shares of Series A
Preferred and Series B Preferred, payable at the same time as such dividend
on such other class or series of capital stock in an amount equal to (i) in
the case of any series or class convertible into Common Stock, that
dividend per share of Series A Preferred and Series B Preferred as would
equal the dividend payable on such other class or series determined as if
all such shares of such class or series had been converted to Common
17
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Stock and all shares of Series A Preferred and series B Preferred have been
converted to Common Stock on the record date for the determination of
holders entitled to receive such dividend or (ii) if such class or series
of Capital Stock is not convertible into Common Stock, at a rate per share
of Series A Preferred and Series B Preferred determined by dividing the
amount of the dividend payable on each share of such class or series of
capital stock by the original issuance price of such class or series of
capital stock and multiplying such fraction by the Series A Base
Liquidation Price or the Series B Base Liquidation Price, as applicable,
then in effect.
5. Redemption
----------
(a) At any time from and after July 31, 1999 and for so long as
shares of Series A Preferred remains outstanding, at the option and written
election of each holder of outstanding shares of Series A Preferred, the
Corporation shall redeem such holder's shares of Series A Preferred as set
forth in such holder's written election at a price equal to $21,861.37 per
share of Series A Preferred plus all accrued or declared but unpaid
dividends thereon, if any, to the date of redemption (the "Series A
Redemption Price"). The Series A Redemption Price shall be subject to
equitable adjustment whenever there shall occur a stock dividend, stock
split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the Series A Preferred.
(b) At any time from and after July 31, 1999 and for so long as
shares of Series B Preferred remains outstanding, at the option and written
election of each holder of outstanding shares of Series B Preferred, the
Corporation shall redeem such holder's shares of Series B Preferred as set
forth in such holder's written election at a price equal to $80,000 per
share of Series B Preferred plus all accrued or declared but unpaid
dividends thereon, if any, to the date of redemption (the "Series B
Redemption Price"). The Series B Redemption Price shall be subject to
equitable adjustment whenever there shall occur a stock dividend, stock
split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the Series B Preferred.
(c) If the funds of the Corporation legally available for
redemption of shares of Series A Preferred, Series B Preferred and shares
of any other class or series of the capital stock of the Corporation on any
redemption date are insufficient to redeem the total number of shares of
Series A Preferred, Series B Preferred and any other shares of any other
class or series of the capital stock of the Corporation submitted for
redemption, those funds which are legally available shall be used first to
redeem the maximum possible number of whole shares of Series A Preferred
and Series B Preferred, pro rata in proportion to the Series A Redemption
--- ----
Price and the Series B Redemption Price as set forth in Sections 5(a) and
(b) above, payable ratably among the holders of such shares of Series A
Preferred and Series B Preferred in proportion to the full amount such
holders of Series A Preferred would otherwise be entitled to receive in
redemption of such shares, and only after payment of the full amount such
holders of Series A Preferred and Series B Preferred would otherwise be
entitled to receive in full redemption of such shares shall any payment in
redemption be made to holders of any other class or series of the capital
stock of the Corporation. The shares of Series A Preferred and Series B
Preferred not redeemed shall remain outstanding and entitled to all rights
and preferences provided herein, including, but not limited to, the accrual
of dividends pursuant to Section 4 hereof. At any time thereafter when
additional funds of the Corporation are legally available for the
redemption of such shares of Series A Preferred and Series B Preferred,
such funds shall be used, at the end of the next succeeding fiscal quarter,
to redeem the balance of such shares, or such portion thereof for which
funds are then legally available.
6. No Reissuance of Series A Preferred or Series B Preferred. No share or
---------------------------------------------------------
shares of Series A Preferred or Series B Preferred acquired by the Corporation
by reason of redemption,
18
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purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the corporation shall
be authorized to issue.
7. Residual Rights. All rights accruing to the outstanding shares of the
---------------
Corporation not expressly provided for in the terms of the Series A Preferred,
the Series B Preferred or any other series of Preferred Stock shall be vested in
the Common Stock.
C. Common Stock.
------------
1. General. The voting, dividend and liquidation and other rights of the
-------
holders of the Common Stock are subject to and qualified by the rights of the
holders of Preferred Stock, if any.
2. Voting. The holders of the Common Stock are entitled to one vote
------
for each share held. There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor if, as and when determined by the Board
of Directors, subject to any provision of this Certificate of Incorporation, as
amended from time to time, and subject to the relative rights and preferences of
any shares of Preferred Stock authorized and issued hereunder.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject, however, to the liquidation rights of the holders of
Preferred Stock authorized and issued hereunder.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Certificate of Incorporation
or the By-Laws of the Corporation as in effect from time to time, the directors
are hereby empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the By-Laws so provide.
C. Following the closing of an initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offering and sale of Common Stock to the public (the "Initial
Public Offering"), any action required or permitted to be taken by the
stockholders of the Corporation may be effected only at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
written consent.
SEVENTH: A. Subject to the rights of the holders of any series of Preferred
Stock then outstanding to elect additional directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Board.
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B. On or prior to the date on which the Corporation first provides notice of
an annual meeting of the stockholders (or a special meeting in lieu thereof)
following the Initial Public Offering (the "Initial Public Meeting"), the Board
of Directors of the Corporation shall divide the directors nominated for
election at such meeting into three classes, as nearly equal in number as
reasonably possible, with the term of office of the first class to expire at
first annual meeting of stockholders or any special meeting in lieu thereof
following the Initial Public Meeting, the term of office of the second class to
expire at the second annual meeting of stockholders or any special meeting in
lieu thereof following the Initial Public Meeting, and the term of office of the
third class to expire at the third annual meeting of stockholders or any special
meeting in lieu thereof following the Initial Public Meeting. At each annual
meeting of stockholders or special meeting in lieu thereof following such
initial classification, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders or special meeting in lieu thereof after their
election and until their successors are duly elected and qualified.
C. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he is a member until the expiration of his current term or
his prior death, retirement, removal or resignation and (ii) the newly created
or eliminated directorships resulting from such increase or decrease shall if
reasonably possible be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent reasonably possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships shall be subtracted
from those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, although less
than a quorum. In the event of a vacancy in the Board of Directors, the
remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
D. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the By-
Laws of the Corporation.
E. Subject to the rights of the holders of any series of Preferred Stock then
outstanding, any director, or the entire Board of Directors, may be removed from
office at any time only for cause. A director may be removed for cause only
after a reasonable notice and opportunity to be heard before the body proposing
to remove him.
EIGHTH: The Board of Directors is expressly empowered to adopt, amend or
repeal By-Laws of the Corporation. Any adoption, amendment or repeal of the By-
Laws of the Corporation by the Board of Directors shall require the approval of
a majority of the Board. The stockholders shall also have power to adopt, amend
or repeal the By-Laws of the Corporation; provided, however, that, in addition
-------- -------
to any vote of the holders of any class or series of stock of the Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least seventy percent (70%) of the voting power of all of the
then outstanding shares of
20
<PAGE>
the capital stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class, shall be required for the
stockholders to adopt, amend or repeal any provision of the By-Laws of the
Corporation.
NINTH: 1. To the fullest extent permitted by the Delaware General
Corporation Law as the same now exists or may hereafter be amended, the
Corporation shall indemnify, and advance expenses to, its directors, officers
and any person who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, if such person was or is
made a party to or is threatened to be made a party to or is otherwise involved
(including, without limitation, as a witness) in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan;
provided, however, that except with respect to proceedings to enforce rights to
- -------- -------
indemnification or as is otherwise required by law, the By-Laws of the
Corporation may provide that the Corporation shall not be required to indemnify,
and advance expenses to, any director, officer or other person in connection
with a proceeding (or part thereof) initiated by such director, officer or other
person, unless such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. The Corporation, by action of its Board of
Directors, may provide indemnification or advance expenses to employees and
other agents of the Corporation or other persons only on such terms and
conditions and to the extent determined by the Board of Directors in its sole
and absolute discretion.
2. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article NINTH shall not be deemed exclusive of any other
rights to which a person seeking indemnification or advancement of expenses may
be entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
3. The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under this Article NINTH.
4. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article NINTH shall, unless otherwise specified when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such director or officer. The indemnification and rights to
advancement of expenses that may have been provided to an employee or agent of
the Corporation by action of the Board of Directors, pursuant to the last
sentence of Paragraph 1 of this Article NINTH, shall, unless otherwise specified
when authorized or ratified, continue as to a person who has ceased to be an
employee or agent of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such person, after the time such person
has ceased to be an employee or agent of the Corporation, only on such terms and
conditions and to the extent determined by the Board of Directors in its sole
discretion. No repeal or amendment of this Article NINTH shall adversely affect
any rights of any person pursuant to this Article NINTH which existed at the
time of such repeal or amendment with respect to acts or omissions occurring
prior to such repeal or amendment.
21
<PAGE>
TENTH: No director shall be personally liable to the Corporation or its
stockholders for any monetary damages for breaches of fiduciary duty as a
director, notwithstanding any provision of law imposing such liability; provided
that this provision shall not eliminate or limit the liability of a director, to
the extent that such liability is imposed by applicable law, (i) for any breach
of the director's duty of loyalty to the Corporation or its stockholders; (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) under Section 174 or successor provisions
of the General Corporation Law of the State of Delaware; or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision shall not eliminate or limit the liability of a director for any act
or omission if such elimination or limitation is prohibited by the General
Corporation Law of the State of Delaware. No amendment to or repeal of this
provision shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal. If the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
ELEVENTH: The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation; provided, however, that in addition to the
-------- -------
vote of the holders of any class or series of stock of the Corporation required
by law or by this Certificate of Incorporation, the affirmative vote of the
holders of shares of voting stock of the Corporation representing at least
seventy percent (70%) of the voting power of all of the then outstanding shares
of the capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
(i) reduce or eliminate the number of authorized shares of Common Stock or the
number of authorized shares of Preferred Stock set forth in Article FOURTH or
(ii) amend or repeal, or adopt any provision inconsistent with, Articles SIXTH,
SEVENTH, EIGHTH, NINTH, TENTH, and this Article ELEVENTH of this Amended and
Restated Certificate of Incorporation.
TWELFTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
22
<PAGE>
EXHIBIT 3.3
COMMAND SYSTEMS, INC.
BY-LAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at ten o'clock a.m. or
such other time as is determined by the Board of Directors, on such date (other
than a Saturday, Sunday or legal holiday) as is determined by the Board of
Directors, which date shall be within thirteen (13) months subsequent to the
later of the date of incorporation or the last annual meeting of stockholders,
and at such place as the Board of Directors shall each year fix.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of directors authorized. Special meetings of the
stockholders may be held at such place within or without the State of Delaware
as may be stated in such resolution.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
-1-
<PAGE>
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such class or classes present in person or represented by proxy shall constitute
a quorum entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
Section 5. Organization.
The Chairman of the Board of Directors or, in his or her absence, such
person as the Board of Directors may have designated or, in his or her absence,
the chief executive officer of the Corporation or, in his or her absence, such
person as may be chosen by the holders of a majority of the shares entitled to
vote who are present, in person or by proxy, shall call to order any meeting of
the stockholders and act as chairman of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman of the meeting appoints.
Section 6. Conduct of Business.
The Chairman of the Board of Directors or his or her designee or, if
neither the Chairman of the Board nor his or her designee is present at the
meeting, then a person appointed by a majority of the Board of Directors, shall
preside at, and act as chairman of, any meeting of the stockholders. The
chairman of any meeting of stockholders shall determine the order of business
and the procedures at the meeting, including such regulation of the manner of
voting and the conduct of discussion as he or she deems to be appropriate.
Section 7. Notice of Stockholder Business and Nominations.
A. Annual Meetings of Stockholders.
Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section.
B. Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of stockholders
as shall have been brought before the meeting pursuant to the notice of meeting
given pursuant to Section 2 above. Nominations of persons for election to the
Board of Directors may be made at a special
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<PAGE>
meeting of stockholders at which directors are to be elected (a) by or at the
direction of the Board of Directors or (b) subject to the rights of any holders
of Preferred Stock, provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section.
C. Certain Matters Pertaining to Stockholder Business and Nominations.
(1) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph A of
this Section or a special meeting pursuant to paragraph B of this Section,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice
pertaining to an annual meeting shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the sixtieth (60) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date
-------- -------
of the annual meeting is more than thirty (30) days before or more than
sixty (60) days after such an anniversary date, notice by the stockholder
to be timely must be so delivered not earlier than the close of business on
the ninetieth (90) day prior to such annual meeting and not later than the
close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following
the day on which public announcement of the date of such meeting is first
made by the Corporation. Such stockholder's notice for an annual meeting or
a special meeting shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case, pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (b) as to any other business that
the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as they
appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation that are owned
beneficially and held of record by such stockholder and such beneficial
owner. A stockholder shall also comply with all applicable requirements of
the Exchange Act (or any successor provision), and the rules and
regulations thereunder with respect to the matters set forth in these by-
laws.
(2) Notwithstanding anything in the second sentence of paragraph C
(1) of this Section to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
seventy (70) days prior to the first anniversary of the preceding year's annual
meeting (or, if the annual meeting is held more than thirty (30) days before or
sixty (60) days after such anniversary date, at least seventy (70) days prior to
such annual meeting), a stockholder's notice required by this Section shall also
be considered timely, but only with respect to nominees for any
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<PAGE>
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive office of the Corporation not later than
the close of business on the tenth (10th) day following the day on which such
public announcement is first made by the Corporation.
(3) In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Corporation's
notice of meeting, if the stockholder's notice required by paragraph C(1) of
this Section shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting nor later than the close of business on the later of the
sixtieth (60th) day prior to such special meeting, or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
D. General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Section. Except as otherwise provided by law or these by-laws, the chairman
of the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth in this Section
and, if any proposed nomination or business is not in compliance herewith to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section shall be deemed to affect any rights (i)
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect directors under specified
circumstances.
Section 8. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting.
Each stockholder shall have one (1) vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein, the certificate of incorporation,
or required by law.
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All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a vote by
ballot shall be taken.
Except as otherwise provided in the terms of any class or series of
preferred stock of the Corporation, all elections shall be determined by a
plurality of the votes cast, and except as otherwise required by law, all other
matters shall be determined by a majority of the votes cast.
Section 9. Action Without Meeting.
Any action required to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be (1) signed and dated by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and (2) delivered to the Corporation within sixty (60)
days of the earliest dated consent by delivery to its registered office in the
State of Delaware (in which case delivery shall be by hand or by certified or
registered mail, return receipt requested), its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Following the closing of an initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offering and sale of Common Stock to the public (the "Initial Public
Offering"), any action required or permitted to be taken by the stockholders of
the Corporation may be effected only at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by written consent.
Section 10. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. Such list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
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ARTICLE II - BOARD OF DIRECTORS
Section 1. Number, Election, Tenure and Qualification.
A. Subject to the rights of the holders of any series of Preferred Stock
then outstanding to elect additional directors under specified circumstances,
the number of directors shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the Board.
B. On or prior to the date on which the Corporation first provides notice of
an annual meeting of the stockholders (or a special meeting in lieu thereof)
following the Initial Public Offering (the "Initial Public Meeting"), the Board
of Directors of the Corporation shall divide the directors nominated for
election at such meeting into three classes, as nearly equal in number as
reasonably possible, with the term of office of the first class to expire at
first annual meeting of stockholders or any special meeting in lieu thereof
following the Initial Public Meeting, the term of office of the second class to
expire at the second annual meeting of stockholders or any special meeting in
lieu thereof following the Initial Public Meeting, and the term of office of the
third class to expire at the third annual meeting of stockholders or any special
meeting in lieu thereof following the Initial Public Meeting. At each annual
meeting of stockholders or special meeting in lieu thereof following such
initial classification, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders or special meeting in lieu thereof after their
election and until their successors are duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he is a member until the expiration of his current term or
his prior death, retirement, removal or resignation and (ii) the newly created
or eliminated directorships resulting from such increase or decrease shall if
reasonably possible be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent reasonably possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships shall be subtracted
from those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, although less
than a quorum. In the event of a vacancy in the Board of Directors, the
remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
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Section 2. Resignation and Removal.
Any director may resign at any time upon written notice to the Corporation
at its principal place of business or to the chief executive officer or
secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director, or the entire Board of Directors, may be removed
from office at any time only for cause. A director may be removed for cause
only after a reasonable notice and opportunity to be heard before the body
proposing to remove him.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
written notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman of
the Board of Directors, if any, the President, the Treasurer, the Secretary or
one or more of the directors then in office and shall be held at such place, on
such date, and at such time as they or he or she shall fix. Notice of the
place, date, and time of each such special meeting shall be given each director
by whom it is not waived by mailing written notice not less than three (3) days
before the meeting or orally, by telegraph, telex, cable or telecopy given not
less than twenty-four (24) hours before the meeting. Unless otherwise indicated
in the notice thereof, any and all business may be transacted at a special
meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the total number of
members of the Board of Directors shall constitute a quorum for all purposes.
If a quorum shall fail to attend any meeting, a majority of those present may
adjourn the meeting to another place, date, or time, without further notice or
waiver thereof.
Section 6. Action by Consent.
Unless otherwise restricted by the Certificate of Incorporation or these By-
Laws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 7. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
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Section 8. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.
Section 9. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, to borrow funds and
guarantee obligations, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any
officer upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and
agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it
may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with
these By-Laws, for the management of the Corporation's business
and affairs.
Section 10. Compensation of Directors.
Directors, as such, may receive, pursuant to a resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
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ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation. Any committee so designated may
exercise the power and authority of the Board of Directors to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law if the resolution which designates the committee or a supplemental
resolution of the Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and conducting
its business and shall act in accordance therewith, except as otherwise provided
herein or required by law. Adequate provision shall be made for notice to
members of all meetings; one-half (1/2) of the members shall constitute a
quorum; and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of such committee.
ARTICLE IV - OFFICERS
Section 1. Enumeration.
The officers of the Corporation shall be the President, the Treasurer, the
Secretary and such other officers as the Board of Directors or the Chairman of
the Board may determine, including, but not limited to, the Chairman of the
Board of Directors, one or more Vice Presidents, Assistant Treasurers and
Assistant Secretaries.
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Section 2. Election.
The Chairman of the Board, if any, the President, the Treasurer and the
Secretary shall be elected annually by the Board of Directors at their first
meeting following the annual meeting of the stockholders. The Board of
Directors or the Chairman of the Board, if any, may, from time to time, elect or
appoint such other officers as it or he or she may determine, including, but not
limited to, one or more Vice Presidents, Assistant Treasurers and Assistant
Secretaries.
Section 3. Qualification.
No officer need be a stockholder. The Chairman of the Board, if any, and
any Vice Chairman appointed to act in the absence of the Chairman, if any, shall
be elected by and from the Board of Directors, but no other officer need be a
director. Two or more offices may be held by any one person. If required by
vote of the Board of Directors, an officer shall give bond to the Corporation
for the faithful performance of his or her duties, in such form and amount and
with such sureties as the Board of Directors may determine. The premiums for
such bonds shall be paid by the Corporation.
Section 4. Tenure and Removal.
Each officer elected or appointed by the Board of Directors shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of the stockholders and until his or her successor is elected or
appointed and qualified, or until he or she dies, resigns, is removed or becomes
disqualified, unless a shorter term is specified in the vote electing or
appointing said officer. Each officer appointed by the Chairman of the Board,
if any, shall hold office until his or her successor is elected or appointed and
qualified, or until he or she dies, resigns, is removed or becomes disqualified,
unless a shorter term is specified by any agreement or other instrument
appointing such officer. Any officer may resign by giving written notice of his
or her resignation to the Chairman of the Board, if any, the President, or the
Secretary, or to the Board of Directors at a meeting of the Board, and such
resignation shall become effective at the time specified therein. Any officer
elected or appointed by the Board of Directors may be removed from office with
or without cause by vote of a majority of the directors. Any officer appointed
by the Chairman of the Board, if any, may be removed with or without cause by
the Chairman of the Board.
Section 5. Chairman of the Board.
The Chairman of the Board, if any, shall preside at all meetings of the
Board of Directors and stockholders at which he or she is present and shall have
such authority and perform such duties as may be prescribed by these By-Laws or
from time to time be determined by the Board of Directors. The Chairman of the
Board shall also have the power and authority to determine the compensation and
duties of all officers, employees and agents of the Corporation.
Section 6. President.
The President shall, subject to the control and direction of the Board of
Directors, have and perform such powers and duties as may be prescribed by these
By-Laws or from time to time be determined by the Board of Directors.
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Section 7. Vice Presidents.
The Vice Presidents, if any, in the order of their election, or in such
other order as the Board of Directors may determine, shall have and perform the
powers and duties of the President (or such of the powers and duties as the
Board of Directors may determine) whenever the President is absent or unable to
act. The Vice Presidents, if any, shall also have such other powers and duties
as may from time to time be determined by the Board of Directors.
Section 8. Treasurer and Assistant Treasurers.
The Treasurer shall, subject to the control and direction of the Board of
Directors, have and perform such powers and duties as may be prescribed in these
By-Laws or be determined from time to time by the Board of Directors. All
property of the Corporation in the custody of the Treasurer shall be subject at
all times to the inspection and control of the Board of Directors. Unless
otherwise voted by the Board of Directors, each Assistant Treasurer, if any,
shall have and perform the powers and duties of the Treasurer whenever the
Treasurer is absent or unable to act, and may at any time exercise such of the
powers of the Treasurer, and such other powers and duties, as may from time to
time be determined by the Board of Directors.
Section 9. Secretary and Assistant Secretaries.
The Board of Directors shall appoint a Secretary and, in his or her absence,
an Assistant Secretary. The Secretary or, in his or her absence, any Assistant
Secretary, shall attend all meetings of the directors and shall record all votes
of the Board of Directors and minutes of the proceedings at such meetings. The
Secretary or, in his or her absence, any Assistant Secretary, shall notify the
directors of their meetings, and shall have and perform such other powers and
duties as may from time to time be determined by the Board of Directors. If the
Secretary or an Assistant Secretary is elected but is absent from any meeting of
directors, a temporary secretary may be appointed by the directors at the
meeting.
Section 10. Bond.
If required by the Board of Directors, any officer shall give the
Corporation a bond in such sum and with such surety or sureties and upon such
terms and conditions as shall be satisfactory to the Board of Directors,
including without limitation a bond for the faithful performance of the duties
of his office and for the restoration to the Corporation of all books, papers,
vouchers, money and other property of whatever kind in his or her possession or
under his control and belonging to the Corporation.
Section 11. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President, the
Treasurer or any officer of the Corporation authorized by the President shall
have power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
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ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by the Chairman of the Board of Directors, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, certifying the number of shares
owned by him or her. Any or all of the signatures on the certificate may be by
facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of this Article of these By-
Laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
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Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
Section 6. Interpretation.
The Board of Directors shall have the power to interpret all of the terms
and provisions of these By-Laws, which interpretation shall be conclusive.
ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, or by sending such notice by courier service, prepaid telegram or
mailgram, or telecopy, cable, or telex. Any such notice shall be addressed to
such stockholder, director, officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through the
mail or by courier, telegram, mailgram, telecopy, cable, or telex shall be the
time of the giving of the notice.
Section 2. Waiver of Notice.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a director or stockholder at a meeting without protesting prior
thereto or at its commencement the lack of notice shall also constitute a waiver
of notice by such director or stockholder.
ARTICLE VII -INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved (including,
without limitation, as a witness) in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director or an officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held
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harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith; provided, however, that,
except as provided in Section 3 of this Article with respect to proceedings to
enforce rights to indemnification or as otherwise required by law, the
Corporation shall not be required to indemnify or advance expenses to any such
Indemnitee in connection with a proceeding (or part thereof) initiated by such
Indemnitee unless such proceeding (or part thereof) was authorized by the board
of directors of the Corporation.
Section 2. Right to Advancement of Expenses. The right to indemnification
conferred in Section 1 of this Article shall include the right to be paid by the
Corporation the expenses (including attorney's fees) incurred in defending any
such proceeding in advance of its final disposition; provided, however, that, if
the Delaware General Corporation Law requires, an advancement of expenses
incurred by an Indemnitee in his capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such Indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such Indemnitee is not entitled to be indemnified for such expenses
under this Section 2 or otherwise. The rights to indemnification and to the
advancement of expenses conferred in Sections 1 and 2 of this Article shall be
contract rights and such rights shall continue as to an Indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the Indemnitee's heirs, executors and administrators. Any repeal or
modification of any of the provisions of this Article shall not adversely affect
any right or protection of an Indemnitee existing at the time of such repeal or
modification.
Section 3. Right of Indemnitees to Bring Suit. If a claim under Section 1 or
2 of this Article is not paid in full by the Corporation within sixty (60) days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty (20) days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Indemnitee shall also be entitled to be paid the expenses of
prosecuting or defending such suit. In (i) any suit brought by the Indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the Indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
Indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such
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applicable standard of conduct, shall create a presumption that the Indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the Indemnitee, be a defense to such suit. In any suit brought by the
Indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
Indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article or otherwise shall be on the Corporation.
Section 4. Non-Exclusivity of Rights. The rights to indemnification and to
the advancement of expenses conferred in this Article shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Corporation's Certificate of Incorporation as amended from time to
time, these by-laws, any agreement, any vote of stockholders or disinterested
directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Corporation to the fullest extent of the provisions
of this Article with respect to the indemnification and advancement of expenses
of directors and officers of the Corporation.
ARTICLE VIII - CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties.
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereof which authorizes the contract or transaction or solely because
the votes of such director or officer are counted for such purpose, if:
(a) The material facts as to his or her relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
-15-
<PAGE>
(b) The material facts as to his or her relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders.
Section 2. Quorum.
Common or interested directors may be counted in determining the presence of
a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
ARTICLE IX - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-Laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
Except as otherwise determined by the Board of Directors from time to time,
the fiscal year of the Corporation shall end on the last day of December of each
year.
-16-
<PAGE>
Section 5. Time Periods.
In applying any provision of these By-Laws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE X - AMENDMENTS
These by-laws may be amended or repealed by the affirmative vote of a
majority of the Whole Board at any meeting or by the stockholders by the
affirmative vote of seventy percent (70%) of the outstanding voting power of the
then-outstanding shares of capital stock of the Corporation, entitled to vote
generally in the election of directors, at any meeting at which a proposal to
amend or repeal these by-laws is properly presented.
-17-
<PAGE>
EXHIBIT 10.1
COMMAND SYSTEMS, INC.
1997 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN
1. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this COMMAND SYSTEMS, INC. 1997 Employee, Director
and Consultant Stock Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated power to
-------------
act on its behalf to the Committee, in which case the Administrator means
the Committee.
Affiliate means a corporation which, for purposes of Section 424 of the
---------
Code, is a parent or subsidiary of the Company, direct or indirect.
Board of Directors means the Board of Directors of the Company.
----- -- ---------
Code means the United States Internal Revenue Code of 1986, as amended.
----
Committee means the committee of the Board of Directors to which the Board
---------
of Directors has delegated power to act under or pursuant to the provisions
of the Plan.
Common Stock means shares of the Company's common stock, $.01 par value
------------
per share.
Company means COMMAND SYSTEMS, INC. a Delaware corporation.
-------
Disability or Disabled means permanent and total disability as defined in
---------- --------
Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a national securities exchange or
traded in the over-the-counter market and sales prices are regularly
reported for the Common Stock, the closing or last price of the Common Stock
on the Composite Tape or other comparable reporting system for the trading
day immediately preceding the applicable date;
(2) If the Common Stock is not traded on a national securities exchange but
is traded on the over-the-counter market, if sales prices are not regularly
reported for the Common Stock for the trading day referred to in clause (1),
and if bid and asked prices for the Common Stock are regularly reported, the
mean between the bid and the asked price for the Common Stock at the close
of trading in the over-the-counter market for the trading day on which
Common Stock was traded immediately preceding the applicable date; and
<PAGE>
(3) If the Common Stock is neither listed on a national securities exchange
nor traded in the over-the-counter market, such value as the Administrator,
in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option under
---
Section 422 of the Code.
Key Employee means an employee of the Company or of an Affiliate
------------
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by the
Administrator to be eligible to be granted one or more Stock Rights under
the Plan.
Non-Qualified Option means an option which is not intended to qualify as an
--------------------
ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
------
Option Agreement means an agreement between the Company and a Participant
----------------
delivered pursuant to the Plan, in such form as the Administrator shall
approve.
Participant means a Key Employee, director or consultant to whom one or
-----------
more Stock Rights are granted under the Plan. As used herein, "Participant"
shall include "Participant's Survivors" where the context requires.
Plan means this Command Systems, Inc. 1997 Employee, Director and
----
Consultant Stock Plan.
Shares means shares of the Common Stock as to which Stock Rights have been
------
or may be granted under the Plan or any shares of capital stock into which
the Shares are changed or for which they are exchanged within the
provisions of Paragraph 3 of the Plan. The Shares issued under the Plan may
be authorized and unissued shares or shares held by the Company in its
treasury, or both.
Stock Grant means a grant by the Company of Shares under the Plan.
-----------
Stock Grant Agreement means an agreement between the Company and a
---------------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Stock Right means a right to Shares of the Company granted pursuant to the
-----------
Plan--an ISO, a Non-Qualified Option or a Stock Grant.
Survivors means a deceased Participant's legal representatives and/or any
---------
person or persons who acquired the Participant's rights to a Stock Right by
will or by the laws of descent and distribution.
2
<PAGE>
2. PURPOSES OF THE PLAN.
--------------------
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of and consultants to the Company in order to attract such people, to
induce them to work for the benefit of the Company or of an Affiliate and to
provide additional incentive for them to promote the success of the Company or
of an Affiliate. The Plan provides for the granting of ISOs, Non-Qualified
Options and Stock Grants.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
The number of Shares which may be issued from time to time pursuant to this
Plan shall be 855,000, or the equivalent of such number of Shares after the
Administrator, in its sole discretion, has interpreted the effect of any stock
split, stock dividend, combination, recapitalization or similar transaction in
accordance with Paragraph 23 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, or if the
Company shall reacquire any Shares issued pursuant to a Stock Grant, the Shares
which were subject to such Option and any Shares so reacquired by the Company
shall be available for the granting of other Stock Rights under the Plan. Any
Option shall be treated as "outstanding" until such Option is exercised in full,
or terminates or expires under the provisions of the Plan, or by agreement of
the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
--------------------------
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to the Committee, in which
case the Committee shall be the Administrator. Subject to the provisions of the
Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option or Stock Grant
and to make all rules and determinations which it deems necessary or
advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors
and consultants shall be granted Stock Rights;
c. Determine the number of Shares for which a Stock Right or Stock Rights
shall be granted, provided, however, that in no event shall Stock
Rights with an aggregate Fair Market Value of more than $250,000 be
granted to any Participant in any fiscal year; and
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted;
3
<PAGE>
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction by the
Administrator of any provisions of the Plan or of any Stock Right granted under
it shall be final, unless otherwise determined by the Board of Directors, if the
Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
The Administrator will, in its sole discretion, name the Participants in the
Plan, provided, however, that each Participant must be a Key Employee, director
or consultant of the Company or of an Affiliate at the time a Stock Right is
granted. Notwithstanding any of the foregoing provisions, the Administrator may
authorize the grant of a Stock Right to a person not then an employee, director
or consultant of the Company or of an Affiliate; provided, however, that the
actual grant of such Stock Right shall be conditioned upon such person becoming
eligible to become a Participant at or prior to the time of the delivery of the
Agreement evidencing such Stock Right. ISOs may be granted only to Key
Employees. Non-Qualified Options and Stock Grants may be granted to any Key
Employee, director or consultant of the Company or an Affiliate. The granting
of any Stock Right to any individual shall neither entitle that individual to,
nor disqualify him or her from, participation in any other grant of Stock
Rights.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such conditions as the Administrator may deem appropriate
including, without limitation, subsequent approval by the shareholders of the
Company of this Plan or any amendments thereto. The Option Agreements shall be
subject to at least the following terms and conditions:
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
---------------------
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best interest of
the Company, subject to the following minimum standards for any such
Non-Qualified Option:
a. Option Price: Each Option Agreement shall state the option price
(per share) of the Shares covered by each Option, which option
price shall be determined by the Administrator but shall not be
less than the par value per share of Common Stock.
b. Each Option Agreement shall state the number of Shares to which
it pertains;
4
<PAGE>
c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or
become exercisable in installments over a period of months or
years, or upon the occurrence of certain conditions or the
attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to
the Administrator providing for certain protections for the
Company and its other shareholders, including requirements that:
i. The Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and must
also acknowledge that the Shares will bear legends noting
any applicable restrictions.
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
----
Employee and be subject to at least the following terms and
conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with
Section 422 of the Code and relevant regulations and rulings of the
Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described in Paragraph 6(A)
above, except clause (a) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of stock of the Company or an Affiliate, the
Option price per share of the Shares covered by each Option
shall not be less than one hundred percent (100%) of the
Fair Market Value per share of the Shares on the date of the
grant of the Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred ten
percent (110%) of the said Fair Market Value on the date of
grant.
5
<PAGE>
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of stock of the Company or an Affiliate, each
Option shall terminate not more than ten (10) years from the
date of the grant or at such earlier time as the Option
Agreement may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than five
(5) years from the date of the grant or at such earlier time
as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company or
an Affiliate) so that the aggregate Fair Market Value (determined
at the time each ISO is granted) of the stock with respect to
which ISOs are exercisable for the first time by the Participant
in any calendar year does not exceed one hundred thousand dollars
($100,000), provided that this subparagraph (d) shall have no
force or effect if its inclusion in the Plan is not necessary for
Options issued as ISOs to qualify as ISOs pursuant to Section
422(d) of the Code.
7. TERMS AND CONDITIONS OF STOCK GRANTS.
------------------------------------
Each offer of a Stock Grant to a Participant shall state the date prior to
which the Stock Grant must be accepted by the Participant, and the principal
terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Grant Agreement shall be in a form
approved by the Administrator and shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
(a) Each Stock Grant Agreement shall state the purchase price (per share),
if any, of the Shares covered by each Stock Grant, which purchase
price shall be determined by the Administrator but shall not be less
than the minimum consideration required by the Delaware General
Corporation Law on the date of the grant of the Stock Grant;
(b) Each Stock Grant Agreement shall state the number of Shares to which
the Stock Grant pertains; and
(c) Each Stock Grant Agreement shall include the terms of any right of the
Company to reacquire the Shares subject to the Stock Grant, including
the time and events upon which such rights shall accrue and the
purchase price therefor, if any.
6
<PAGE>
8. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
---------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Option Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option determined in good faith by
the Administrator, or (c) at the discretion of the Administrator, having the
Company retain from the shares otherwise issuable upon exercise of the Option, a
number of shares having a Fair Market Value equal as of the date of exercise to
the exercise price of the Option, or (d) at the discretion of the Administrator,
by delivery of the grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the applicable Federal rate, as
defined in Section 1274(d) of the Code, or (e) at the discretion of the
Administrator, in accordance with a cashless exercise program established with a
securities brokerage firm, and approved by the Administrator, or (f) at the
discretion of the Administrator, by any combination of (a), (b), (c), (d) and
(e) above. Notwithstanding the foregoing, the Administrator shall accept only
such payment on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which such
Option was exercised to the Participant (or to the Participant's Survivors, as
the case may be). In determining what constitutes "reasonably promptly," it is
expressly understood that the issuance and delivery of the Shares may be delayed
by the Company in order to comply with any law or regulation (including, without
limitation, state securities or "blue sky" laws) which requires the Company to
take any action with respect to the Shares prior to their issuance. The Shares
shall, upon delivery, be evidenced by an appropriate certificate or certificates
for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise of
any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 26) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in Paragraph
6.B.d.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option or Option Agreement provided (i) such term or condition as
amended is permitted by the Plan, (ii) any such amendment shall be made only
with the consent of the Participant to whom the Option was granted, or in the
event of the death of the Participant, the Participant's Survivors, if the
amendment is adverse to the Participant, and (iii) any such amendment of any
7
<PAGE>
ISO shall be made only after the Administrator, after consulting the counsel for
the Company, determines whether such amendment would constitute a "modification"
of any Option which is an ISO (as that term is defined in Section 424(h) of the
Code) or would cause any adverse tax consequences for the holder of such ISO.
9. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES.
---------------------------------------------
A Stock Grant (or any part or installment thereof) shall be accepted by
executing the Stock Grant Agreement and delivering it to the Company at its
principal office address, together with provision for payment of the full
purchase price, if any, in accordance with this Paragraph for the Shares as to
which such Stock Grant is being accepted, and upon compliance with any other
conditions set forth in the Stock Grant Agreement. Payment of the purchase
price for the Shares as to which such Stock Grant is being accepted shall be
made (a) in United States dollars in cash or by check, or (b) at the discretion
of the Administrator, through delivery of shares of Common Stock having a fair
market value equal as of the date of acceptance of the Stock Grant to the
purchase price of the Stock Grant determined in good faith by the Administrator,
or (c) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (d) at the discretion of the Administrator, by any combination of
(a), (b) and (c) above.
The Company shall then reasonably promptly deliver the Shares as to which such
Stock Grant was accepted to the Participant (or to the Participant's Survivors,
as the case may be), subject to any escrow provision set forth in the Stock
Grant Agreement. In determining what constitutes "reasonably promptly," it is
expressly understood that the issuance and delivery of the Shares may be delayed
by the Company in order to comply with any law or regulation (including, without
limitation, state securities or "blue sky" laws) which requires the Company to
take any action with respect to the Shares prior to their issuance.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Stock Grant or Stock Grant Agreement provided (i) such term or
condition as amended is permitted by the Plan, and (ii) any such amendment shall
be made only with the consent of the Participant to whom the Stock Grant was
made, if the amendment is adverse to the Participant.
10. RIGHTS AS A SHAREHOLDER.
-----------------------
No Participant to whom a Stock Right has been granted shall have rights as a
shareholder with respect to any Shares covered by such Stock Right, except after
due exercise of the Option or acceptance of the Stock Grant and tender of the
full purchase price, if any, for the Shares being purchased pursuant to such
exercise or acceptance and registration of the Shares in the Company's share
register in the name of the Participant.
8
<PAGE>
11. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
-------------------------------------------------
By its terms, a Stock Right granted to a Participant shall not be transferable
by the Participant other than (i) by will or by the laws of descent and
distribution, or (ii) as otherwise determined by the Administrator and set forth
in the applicable Option Agreement or Stock Grant Agreement. The designation of
a beneficiary of a Stock Right by a Participant shall not be deemed a transfer
prohibited by this Paragraph. Except as provided above, a Stock Right shall
only be exercisable or may only be accepted, during the Participant's lifetime,
by such Participant (or by his or her legal representative) and shall not be
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Any attempted transfer, assignment, pledge, hypothecation or other disposition
of any Stock Right or of any rights granted thereunder contrary to the
provisions of this Plan, or the levy of any attachment or similar process upon a
Stock Right, shall be null and void.
12. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR DEATH
---------------------------------------------------------------------------
OR DISABILITY.
-------------
Except as otherwise provided in the pertinent Option Agreement in the event of
a termination of service (whether as an employee, director or consultant) with
the Company or an Affiliate before the Participant has exercised an Option, the
following rules apply:
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination
"for cause", Disability, or death for which events there are special
rules in Paragraphs 13, 14, and 15, respectively), may exercise any
Option granted to him or her to the extent that the Option is
exercisable on the date of such termination of service, but only
within such term as the Administrator has designated in the pertinent
Option Agreement.
b. Except as provided in Subparagraph (c) below or in Paragraph 14 or
15, in no event may an Option Agreement provide, if an Option is
intended to be an ISO, that the time for exercise be later than three
(3) months after the Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of Paragraph
14 or 15, shall apply to a Participant who subsequently becomes
Disabled or dies after the termination of employment, director status
or consultancy, provided, however, in the case of a Participant's
Disability or death within three (3) months after the termination of
employment, director status or consultancy, the Participant or the
Participant's Survivors may exercise the Option within one (1) year
after the date of the Participant's termination of employment, but in
no event after the date of expiration of the term of the Option.
9
<PAGE>
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director
status or termination of consultancy, but prior to the exercise of an
Option, the Board of Directors determines that, either prior or
subsequent to the Participant's termination, the Participant engaged
in conduct which would constitute "cause", then such Participant shall
forthwith cease to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have
terminated such Participant's employment, director status or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide.
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by any
change of a Participant's status within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate, provided,
however, if a Participant's employment by either the Company or an
Affiliate should cease (other than to become an employee of an
Affiliate or the Company), such termination shall be treated as a
termination of employment.
13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE "FOR CAUSE".
-------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the following
rules apply if the Participant's service (whether as an employee, director or
consultant) with the Company or an Affiliate is terminated "for cause" prior to
the time that all his or her outstanding Options have been exercised:
a. All outstanding and unexercised Options as of the time the Participant
is notified his or her service is terminated "for cause" will
immediately be forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the existence
of "cause" will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to
10
<PAGE>
a Participant's termination of service but prior to the exercise of an
Option, that either prior or subsequent to the Participant's
termination the Participant engaged in conduct which would constitute
"cause", then the right to exercise any outstanding and unexercised
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.
----------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a Participant
who ceases to be an employee, director or consultant of the Company or of an
Affiliate by reason of Disability may exercise any Option granted to such
Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability.
The proration shall be based upon the number of days of such accrual
period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date of the Participant's termination of
employment, directorship or consultancy, or the case may be notwithstanding that
the Participant might have been able to exercise the Option as to some or all of
the Shares on a later date if the Participant had not become Disabled and had
continued to be an employee, director or consultant or, if earlier, within the
originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability has
occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
15. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
--------------------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the event
of the death of a Participant while the Participant is an employee, director or
consultant of the Company or of an Affiliate, such Option may be exercised by
the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
11
<PAGE>
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration
shall be based upon the number of days of such accrual period prior to
the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take all
necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
16. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS.
------------------------------------------------
In the event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate for any reason before the
Participant has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to
whom a Stock Grant has been offered under the Plan who is absent from work with
the Company or with an Affiliate because of temporary disability (any disability
other than a permanent and total Disability as defined in Paragraph 1 hereof),
or who is on leave of absence for any purpose, shall not, during the period of
any such absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment, director status or consultancy with the Company
or with an Affiliate, except as the Administrator may otherwise expressly
provide.
In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any
change of employment or other service within or among the Company and any
Affiliates shall not be treated as a termination of employment, director status
or consultancy so long as the Participant continues to be an employee, director
or consultant of the Company or any Affiliate, provided, however, if a
Participant's employment by either the Company or an Affiliate should cease
(other than to become an employee of an Affiliate or the Company), such
termination shall be treated as a termination of employment.
17. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR
--------------------------------------------------------------------------
DEATH OR DISABILITY.
-------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, in the
event of a termination of service (whether as an employee, director or
consultant), other than termination "for cause," Disability, or death for which
events there are special rules in Paragraphs 18, 19, and 20, respectively,
before all Company rights of repurchase shall have lapsed, then the Company
shall have the right to repurchase that number of Shares subject to a Stock
Grant as to which the Company's repurchase rights have not lapsed.
12
<PAGE>
18. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE "FOR CAUSE".
------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause":
a. All Shares subject to any Stock Grant shall be immediately subject to
repurchase by the Company at the purchase price, if any, thereof.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized
disclosure of confidential information, and conduct substantially
prejudicial to the business of the Company or any Affiliate. The
determination of the Administrator as to the existence of "cause" will
be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service, that either prior or subsequent to the Participant's
termination the Participant engaged in conduct which would constitute
"cause," then the Company's right to repurchase all of such
Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.
---------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if a Participant ceases to be an employee, director or
consultant of the Company or of an Affiliate by reason of Disability: to the
extent the Company's rights of repurchase have not lapsed on the date of
Disability, they shall be exercisable; provided, however, that in the event such
rights of repurchase lapse periodically, such rights shall lapse to the extent
of a pro rata portion of the Shares subject to such Stock Grant as would have
lapsed had the Participant not become Disabled prior to the end of the vesting
period which next ends following the date of Disability. The proration shall be
based upon the number of days of such vesting period prior to the date of
Disability.
The Administrator shall make the determination both of whether Disability has
occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be
13
<PAGE>
used for such determination). If requested, the Participant shall be examined by
a physician selected or approved by the Administrator, the cost of which
examination shall be paid for by the Company.
20. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
-------------------------------------------------------------------------
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply in the event of the death of a Participant while the
Participant is an employee, director or consultant of the Company or of an
Affiliate: to the extent the Company's rights of repurchase have not lapsed on
the date of death, they shall be exercisable; provided, however, that in the
event such rights of repurchase lapse periodically, such rights shall lapse to
the extent of a pro rata portion of the Shares subject to such Stock Grant as
would have lapsed had the Participant not died prior to the end of the vesting
period which next ends following the date of death. The proration shall be
based upon the number of days of such vesting period prior to the Participant's
death.
21. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise or acceptance of a Stock Right shall have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended (the
"1933 Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:
a. The person(s) who exercise(s) or accept(s) such Stock Right shall
warrant to the Company, prior to the receipt of such Shares, that such
person(s) are acquiring such Shares for their own respective accounts,
for investment, and not with a view to, or for sale in connection
with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the provisions of
the following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or such
grant:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued upon
such particular exercise or acceptance in compliance with the 1933 Act
without registration thereunder.
14
<PAGE>
22. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
-----------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted under
this Plan which as of such date shall not have been exercised and all Stock
Grants which have not been accepted will terminate and become null and void;
provided, however, that if the rights of a Participant or a Participant's
Survivors have not otherwise terminated and expired, the Participant or the
Participant's Survivors will have the right immediately prior to such
dissolution or liquidation to exercise or accept any Stock Right to the extent
that the Stock Right is exercisable or subject to acceptance as of the date
immediately prior to such dissolution or liquidation.
23. ADJUSTMENTS.
-----------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Stock Right granted to him or her hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
pertinent Option Agreement or Stock Grant Agreement:
A. Stock Dividends and Stock Splits. If the shares of Common Stock shall be
--------------------------------
subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise or acceptance of such Stock Right shall be appropriately increased
or decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
B. Consolidations or Mergers. If the Company is to be consolidated with or
-------------------------
acquired by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the Administrator or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a cash payment equal
to the excess of the Fair Market Value of the Shares subject to such Options
over the exercise price thereof. For purposes of this Subparagraph, in the
event of an Acquisition, all Options shall be made fully exercisable.
With respect to outstanding Stock Grants, the Administrator or the Successor
Board, shall either (i) make appropriate provisions for the continuation of such
Stock Grants by substituting on an equitable basis for the Shares then subject
to such Stock Grants either the consideration payable with respect to the
outstanding Shares of Common Stock in connection with the Acquisition or
securities of any successor or acquiring entity; or (ii) upon written notice to
the Participants, provide that all Stock Grants must be accepted (to the extent
then subject to
15
<PAGE>
acceptance) within a specified number of days of the date of such notice, at
the end of which period the offer of the Stock Grants shall terminate; or (iii)
terminate all Stock Grants in exchange for a cash payment equal to the excess of
the Fair Market Value of the Shares subject to such Stock Grants over the
purchase price thereof, if any. In addition, in the event of an Acquisition, the
Administrator may waive any or all Company repurchase rights with respect to
outstanding Stock Grants.
C. Recapitalization or Reorganization. In the event of a recapitalization or
----------------------------------
reorganization of the Company (other than a transaction described in
Subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising or accepting a Stock Right shall be entitled to
receive for the purchase price, if any, paid upon such exercise or acceptance
the securities which would have been received if such Stock Right had been
exercised or accepted prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments made
--------------------
pursuant to Subparagraph A, B or C with respect to ISOs shall be made only after
the Administrator, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs (as that
term is defined in Section 424(h) of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Administrator determines that
such adjustments made with respect to ISOs would constitute a modification of
such ISOs, it may refrain from making such adjustments, unless the holder of an
ISO specifically requests in writing that such adjustment be made and such
writing indicates that the holder has full knowledge of the consequences of such
"modification" on his or her income tax treatment with respect to the ISO.
24. ISSUANCES OF SECURITIES.
-----------------------
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares subject to Stock Rights. Except as expressly
provided herein, no adjustments shall be made for dividends paid in cash or in
property (including without limitation, securities) of the Company prior to any
issuance of Shares pursuant to a Stock Right.
25. FRACTIONAL SHARES.
-----------------
No fractional shares shall be issued under the Plan and the person exercising
a Stock Right shall receive from the Company cash in lieu of such fractional
shares equal to the Fair Market Value thereof.
16
<PAGE>
26. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
------------------------------------------------------------------
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such conversion,
the Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
27. WITHHOLDING.
-----------
In the event that any federal, state, or local income taxes, employment taxes,
Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other amounts
are required by applicable law or governmental regulation to be withheld from
the Participant's salary, wages or other remuneration in connection with the
exercise or acceptance of a Stock Right or in connection with a Disqualifying
Disposition (as defined in Paragraph 28) or upon the lapsing of any right of
repurchase, the Company may withhold from the Participant's compensation, if
any, or may require that the Participant advance in cash to the Company, or to
any Affiliate of the Company which employs or employed the Participant, the
amount of such withholdings unless a different withholding arrangement,
including the use of shares of the Company's Common Stock or a promissory note,
is authorized by the Administrator (and permitted by law). For purposes hereof,
the Fair Market Value of the shares withheld for purposes of payroll withholding
shall be determined in the manner provided in Paragraph 1 above, as of the most
recent practicable date prior to the date of exercise. If the Fair Market Value
of the shares withheld is less than the amount of payroll withholdings required,
the Participant may be required to advance the difference in cash to the Company
or the Affiliate employer. The Administrator in its discretion may condition
the exercise of an Option for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
28. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO.
17
<PAGE>
If the Key Employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
29. TERMINATION OF THE PLAN.
-----------------------
The Plan will terminate on 10 years after adoption, the date which is ten (10)
years from the earlier of the date of its adoption and the date of its approval
-------
by the shareholders of the Company. The Plan may be terminated at an earlier
date by vote of the shareholders of the Company; provided, however, that any
such earlier termination shall not affect any Option Agreements or Stock Grant
Agreements executed prior to the effective date of such termination.
30. AMENDMENT OF THE PLAN AND AGREEMENTS.
------------------------------------
The Plan may be amended by the shareholders of the Company. The Plan may also
be amended by the Administrator, including, without limitation, to the extent
necessary to qualify any or all outstanding Stock Rights granted under the Plan
or Stock Rights to be granted under the Plan for favorable federal income tax
treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, and to the extent
necessary to qualify the shares issuable upon exercise or acceptance of any
outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan
for listing on any national securities exchange or quotation in any national
automated quotation system of securities dealers. Any amendment approved by the
Administrator which the Administrator determines is of a scope that requires
shareholder approval shall be subject to obtaining such shareholder approval.
Any modification or amendment of the Plan shall not, without the consent of a
Participant, adversely affect his or her rights under a Stock Right previously
granted to him or her. With the consent of the Participant affected, the
Administrator may amend outstanding Option Agreements and Stock Grant Agreements
in a manner which may be adverse to the Participant but which is not
inconsistent with the Plan. In the discretion of the Administrator, outstanding
Option Agreements and Stock Grant Agreements may be amended by the Administrator
in a manner which is not adverse to the Participant.
31. EMPLOYMENT OR OTHER RELATIONSHIP.
--------------------------------
Nothing in this Plan or any Option Agreement or Stock Grant Agreement shall be
deemed to prevent the Company or an Affiliate from terminating the employment,
consultancy or director status of a Participant, nor to prevent a Participant
from terminating his or her own employment, consultancy or director status or to
give any Participant a right to be retained in employment or other service by
the Company or any Affiliate for any period of time.
32. GOVERNING LAW.
-------------
This Plan shall be construed and enforced in accordance with the law of the
State of Delaware.
18
<PAGE>
EXHIBIT 10.2
================================================================================
COMMAND SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
AUGUST 26, 1997
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is entered into as of
August 26, 1997 by and between Command Systems, Inc., a Delaware corporation
(the "Company"), and Phoenix Home Life Mutual Insurance Company (the
"Investor").
WHEREAS, the Company is issuing up to 100 shares of Series A Convertible
Preferred Stock, $.01 par value ("Series A Preferred"), in exchange for certain
promissory notes (the "Notes") by and among the Company and its subsidiaries and
the Investor pursuant to the Exchange Agreement of even date herewith among the
Company and the Investor (the "Exchange Agreement"); and
WHEREAS, one of the conditions to the consummation of the transactions
contemplated by the Exchange Agreement is the execution and delivery of this
Agreement to provide for registration rights for the shares of Series A
Preferred exchanged for the Notes by the Investor as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and the exchange of the Series A Preferred for the Notes by the
Investor under the Exchange Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms shall
-------------------
have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission and any
----------
successor agency of the Federal government administering the Securities Act.
"Common Stock" shall mean (i) the common stock, $.01 par value per share, of
------------
the Company, (ii) any other capital stock of the Company, however designated,
authorized on or after the date hereof, which shall neither be limited to a
fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends nor entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company and (iii) any other securities into
which or for which any of the securities described in (i) or (ii) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, consolidation, sale of assets or other similar transaction.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and
------------
any similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Opportunity Date" shall have the meaning specified in Section 7.
----------------
"Preferred Shares" shall mean the shares of the Series A Preferred.
----------------
"Register," "registered" and "registration" shall refer to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act and applicable rules and regulations thereunder, and the
declaration or ordering of the effectiveness of such registration statement, or,
as the context may require, under the Exchange Act or applicable state
securities laws.
<PAGE>
"Registrable Securities" shall mean (i) the Preferred Shares, (ii) shares of
----------------------
Common Stock or other securities issued or issuable pursuant to the conversion
of the Preferred Shares and (iii) any shares of Common Stock or such other
securities issued or issuable in respect of such shares of Common Stock or such
other securities issued or issuable pursuant to the conversion of the Preferred
Shares upon any stock split, stock dividend, recapitalization, reorganization,
merger, consolidation, sale of assets or similar event, excluding in any event
securities (a) which have been registered under the Securities Act pursuant to
an effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them or (b) which may be or
have been publicly sold pursuant to Rule 144 under the Securities Act. Wherever
reference is made in this Agreement to a request or consent of holders of a
certain percentage of Registrable Securities, the determination of such
percentage shall be calculated on the basis of shares of Common Stock issued or
issuable upon conversion of the Preferred Shares even if such conversion has not
been effected.
"Registration Expenses" shall mean the expenses so described in Section 8.
---------------------
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
--------------
similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Selling Expenses" shall mean the expenses so described in Section 8.
----------------
2. Restrictive Legend. Each certificate representing Registrable Securities
------------------
shall, except as otherwise provided in this Section 2 or in Section 3, be
stamped or otherwise imprinted with a legend substantially in the following form
(in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF (1) AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAWS OR (2)
AN OPINION OF COUNSEL, WHICH MAY BE THE IN-HOUSE COUNSEL FOR PHOENIX HOME
LIFE MUTUAL INSURANCE COMPANY, REASONABLY SATISFACTORY TO THE COMPANY THAT
AN EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.
Upon request of a holder of such a certificate, the Company shall remove the
foregoing legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend, if (i) there is an effective registration
statement covering the securities represented by such certificate, or (ii) with
such request, the Company shall have received either the opinion referred to in
Section 3(i) or the "no-action" letter referred to in Section 3(ii).
3. Notice of Proposed Transfer. Prior to any proposed sale, pledge,
---------------------------
hypothecation or other transfer of any Registrable Securities (other than under
the circumstances described in Section 4, 5 or 7 or pursuant to a distribution
of the type described in the proviso to the next succeeding sentence), the
holder thereof shall give written notice to the Company of its intention to
effect such
2
<PAGE>
sale, pledge, hypothecation or other transfer. Each such notice shall describe
the manner of the proposed sale, pledge, hypothecation or other transfer and, if
requested by the Company, shall be accompanied by either (i) an opinion of
counsel (which may be the in-house counsel of the Investor) reasonably
satisfactory to the Company to the effect that the proposed sale, pledge,
hypothecation or other transfer may be effected without registration under the
Securities Act or (ii) a "no action" letter from the Commission to the effect
that the distribution of such securities without registration will not result in
a recommendation by the staff of the Commission that action be taken with
respect thereto, whereupon the holder of such stock shall be entitled to
transfer such stock in accordance with the terms of its notice, provided,
--------
however, that no such opinion of counsel shall be required for a distribution to
- -------
one or more partners of the transferor (in the case of a transferor that is a
partnership) or to a stockholder (in the case of a transferor that is a
corporation) in each case in respect of the beneficial interest of such partner
or stockholder. Each certificate for Registrable Securities transferred as above
provided shall bear the appropriate restrictive legend set forth in Section 2,
except that such certificate shall not bear such legend if (i) such transfer is
in accordance with the provisions of Rule 144 (or any other rule permitting
public sale without registration under the Securities Act), or (ii) the opinion
of counsel or "no-action" letter referred to above is to the further effect that
the transferee and any subsequent transferee (other than an affiliate of the
Company) would be entitled to transfer such securities in a public sale without
registration under the Securities Act or that such legend is not required to
establish compliance with any provisions of the Securities Act. Notwithstanding
any other provision hereof, the restrictions provided for in this Section 3
shall not apply to securities which are not required to bear the legend
prescribed by Section 2 in accordance with the provisions of that Section.
4. Incidental Registration. If the Company at any time (other than
-----------------------
pursuant to Section 5) proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to registration
statements on Forms S-4, S-8 or any successor to such forms or another form not
available for registering the Registrable Securities for sale to the public),
each such time it will promptly give written notice to all holders of the
Registrable Securities of its intention so to do. Upon the written request of
any such holder, received by the Company within twenty (20) days after the
giving of any such notice by the Company, to register any or all of its
Registrable Securities, the Company will use all reasonable efforts to cause the
Registrable Securities as to which registration shall have been so requested to
be included in the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent requisite to permit the
sale or other disposition by the holder (in accordance with its written request)
of such Registrable Securities so registered. Notwithstanding any other
provision of this Section 4, the Company shall not be obligated to register any
Preferred Shares for sale pursuant to any such registration, provided, however,
that in any underwritten public offering contemplated by this Agreement, the
holders of Preferred Shares shall be entitled to sell such Preferred Shares to
the underwriters for conversion and sale of the shares of Common Stock issued
upon conversion thereof. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the holders of Registrable Securities as a part of the written notice
given pursuant to this Section 4. In such event the right of any holder of
Registrable Securities to registration pursuant to this Section 4 shall be
conditioned upon such holder's participation in such underwriting to the extent
provided herein. All holders of Registrable Securities proposing to distribute
their securities through such underwriting shall (together with the Company and
persons who by virtue of similar agreements with the Company are entitled to
include such shares in such registration (the "Other Shareholders") are
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision
of this Section 4, if the underwriter determines that marketing factors require
a limitation on the number of shares to be underwritten, the underwriter may
(subject to the allocation priority
3
<PAGE>
set forth below) exclude from such registration and underwriting some or all of
the Registrable Securities which would otherwise be underwritten pursuant
hereto. The Company shall so advise all holders of securities requesting
registration of any limitations on the number of shares to be underwritten, and
the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner: (i) in
connection with any registration for the Company's own account, first to the
Company, provided that until the Opportunity Date the number of shares of
securities entitled to be included in the registration and underwriting shall be
shared by the Company and the Investor ratably in accordance with the number of
shares of securities of the Company and the Investor then desired to be included
therein; (ii) second to any holder who is entitled to and is exercising a demand
or required registration right, provided that, to the extent that the Company
and the Investor desire to include any shares of securities in any registration
or underwriting initiated by such holder, until the Opportunity Date, the number
of shares of securities entitled to be included in the registration and
underwriting and available to the Company and the Investor shall be shared by
the Company and the Investor ratably in accordance with the number of shares of
securities of the Company and the Investor then desired to be included therein
and, after the Opportunity Date, the Company's shares of securities shall have
priority over those of the Investor under this proviso; (iii) third, until the
Opportunity Date, to the Investor in preference to any other holders of the
Company's securities; and (iv) fourth, after the Opportunity Date, among all
holders of the Company's securities who are entitled to be included in such
registration and have elected to be included in such registration in proportion,
as nearly as practicable, to the respective amounts of securities owned by them.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 4 without thereby incurring
any liability to the holders of Registrable Securities. If any holder of
Registrable Securities disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. The
Company shall be obligated to register the Registrable Securities pursuant to
this Section 4 for so long as the Investor holds Registrable Securities.
5. Registration on Form S-3.
------------------------
(a) If, at any time following the revocation of the Shelf Registration
Statement referred to in Section 7, (i) any holder or holders of the Registrable
Securities request that the Company file a registration statement on Form S-3 or
any comparable or successor form thereto for a public offering of all or any
portion of the shares of Registrable Securities held by such requesting holder
or holders, the reasonably anticipated aggregate price to the public of which
would exceed $500,000 and (ii) the Company is a registrant entitled to use Form
S-3 or any comparable or successor form thereto to register such shares, then
the Company shall use all reasonable efforts to register under the Securities
Act on Form S-3 or any comparable or successor form thereto, for public sale in
accordance with the method of disposition specified in such notice, the number
of shares of Registrable Securities specified in such notice. Whenever the
Company is required by this Section 5 to use all reasonable efforts to effect
the registration of Registrable Securities, each of the procedures and
requirements of Section 4, including, but not limited to, the requirement that
the Company notify all holders of Registrable Securities from whom notice has
not been received and provide them with the opportunity to participate in the
offering (provided, however that holders shall have no more than twenty (20)
days to reply to the Company's notice in order to participate in the offering),
shall apply to such registration, provided, however, that no more than one
registration during any nine month period may be requested and obtained under
this Section 5. Notwithstanding any other provision of this Section 5, the
Company shall not be obligated to register any Preferred Shares for sale
pursuant to any such registration.
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(b) The Company shall use its best efforts to qualify for registration on
Form S-3 or any comparable or successor form or forms and to that end the
Company shall register (whether or not required by law to do so) the Common
Stock under the Exchange Act in accordance with the provisions of that Act
following the effective date of the first registration of any securities of the
Company on Form S-1 or any comparable or successor form.
6. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Section 4 or 5 to use all reasonable efforts to effect the
registration of any Registrable Securities under the Securities Act, the Company
will, as expeditiously as possible:
(a) Prepare and file with the Commission a registration statement (which, in
the case of an underwritten public offering pursuant to Section 4, may be on
Form S-1 or other form of general applicability satisfactory to the managing
underwriter selected as therein provided) with respect to such securities
including executing an undertaking to file post-effective amendments and use its
best efforts to cause such registration statement to become and remain effective
for the period of the distribution contemplated thereby;
(b) Prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for the period
specified herein and comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement in accordance with the sellers' intended method of
disposition set forth in such registration statement for such period;
(c) Furnish to each seller of Registrable Securities and to each underwriter
such number of copies of the registration statement and each such amendment and
supplement thereto (in each case including all exhibits) and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or other
disposition of the Registrable Securities covered by such registration
statement;
(d) Use all reasonable efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as the sellers of Registrable Securities or, in
the case of an underwritten public offering, the managing underwriter reasonably
shall request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction, unless the Company is
already subject to service in such jurisdiction;
(e) Use its best efforts to list the Registrable Securities covered by such
registration statement with any securities exchange or quotation system on which
the Common Stock of the Company is then listed;
(f) Comply with all applicable rules and regulations under the Securities
Act and Exchange Act;
(g) Immediately notify each seller of Registrable Securities and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained 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 light of the circumstances then existing, and promptly prepare
and furnish to such seller a reasonable number
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<PAGE>
of copies of a prospectus or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(h) If the offering is underwritten and at the request of any seller of
Registrable Securities, furnish on the date that Registrable Securities are
delivered to the underwriters for sale pursuant to such registration (i) an
opinion dated such date of counsel representing the Company for the purposes of
such registration, addressed to the underwriters to such effects as reasonably
may be requested by counsel for the underwriters and executed counterparts of
such opinion addressed to the sellers of Registrable Securities to the same
effect as requested by counsel for the underwriters and (ii) a letter dated such
date from the independent public accountants retained by the Company, addressed
to the underwriters stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such accountants,
the financial statements of the Company included in the registration statement
or the prospectus, or any amendment or supplement thereof, comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act and such letter shall additionally cover such other financial
matters (including information as to the period ending no more than five (5)
business days prior to the date of such letter) with respect to such
registration as such underwriters reasonably may request;
(i) Make available for inspection by each seller of Registrable Securities,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, reasonable access to all financial and other records, pertinent
corporate documents and properties of the Company, as such parties may
reasonably request, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(j) Cooperate with the selling holders of Registrable Securities and the
managing underwriter, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, such
certificates to be in such denominations and registered in such names as such
holders or the managing underwriter may request at least two business days prior
to any sale of Registrable Securities; and
(k) Permit any holder of Registrable Securities which holder, in the sole
and exclusive judgment, exercised in good faith, of such holder, might be deemed
to be a controlling person of the Company, to participate in good faith in the
preparation of such registration or comparable statement and to require the
insertion therein of material, furnished to the Company in writing, which in the
reasonable judgment of such holder and its counsel should be included provided,
however, that the Company shall not be required to amend or supplement the
prospectus in any manner that, at the advice of the Company's counsel or
independent accountants, may cause the registration statement to include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing or otherwise cause the registration
statement to not be in conformity with the Securities Act or the Exchange Act.
(l) With respect to any underwritten offering under Section 5, enter into
underwriting agreements in customary form and take such other actions as the
Investor may reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities;
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<PAGE>
(m) Make generally available to its security holders (as contemplated by
Section 11(a) under the Securities Act) an earnings statement satisfying the
provisions of Rule 158 under the Securities Act no later than ninety (90) days
after the end of the twelve (12) month period beginning with the first month of
the Company's first fiscal quarter commencing after the effective date of the
registration statement, which statement shall cover said twelve (12) month
period.
For purposes of this Agreement, the period of distribution of Registrable
Securities in a firm commitment underwritten public offering shall be deemed to
extend until each underwriter has completed the distribution of all securities
purchased by it, and the period of distribution of Registrable Securities in any
other registration shall be deemed to extend until the earlier of the sale of
all Registrable Securities covered thereby or 120 days after the effective date
thereof.
In connection with each registration hereunder, the sellers of Registrable
Securities will furnish to the Company in writing such information requested by
the Company with respect to themselves and the proposed distribution by them as
shall be necessary in order to assure compliance with Federal and applicable
state securities laws; and such sellers shall provide the Company with
appropriate representations with respect to the accuracy of such information.
7. Shelf Registration . In the event that following a "Qualified Public
-------------------
Offering" (as such term is defined in the Company's Amended and Restated
Certificate of Incorporation) the Series A Preferred has not been fully
converted into Common Stock, then:
(a) Following the effectiveness of the registration statement related to
such Qualified Public Offering, the Company shall:
(i) Within 10 business days of such effectiveness, use all reasonable
efforts to register the Registrable Securities for resale on a new
registration statement (pursuant to Rule 415 under the Securities Act or
any similar rule that may be adopted by the Commission) on Form S-1 or, if
available Form S-3 (together with any registration statement that may
replace any such Form S-1 in accordance with Section 7(e), and any
amendments and supplements thereto, the "Shelf Registration Statement") and
shall, use all reasonable efforts to keep such Shelf Registration Statement
effective (including, without limitation, supplementing or amending such
Shelf Registration Statement from time to time, as required by the
registration form utilized by the Company for the same or by the
instructions applicable to such registration form or by the Securities Act)
until the earlier of (i) the Mandatory Conversion Date, or (ii) the
Optional Withdrawal Date; and
(ii) Use its best efforts to list the Registrable Securities covered
by the Shelf Registration Statement with any securities exchange or
quotation system on which the Common Stock of the Company is then listed.
(b) Prior to the withdrawal of the Shelf Registration Statement in
accordance with the following provisions, the Company shall not be obligated to
register any Registrable Securities in accordance with Section 5 (but shall
continue to be obligated to register the Registrable Securities in accordance
with Section 4). The Shelf Registration Statement may be withdrawn: (i) by the
Company at any time after the Series A Preferred has been fully converted into
Common Stock, (ii) by the Company on the date which is 121 days after the
Opportunity Date (such date being referred to as the "Mandatory Conversion
Date"), or (iii) at the request of the holders of a majority of the Preferred
Shares (the date of such request being referred to as the "Optional Withdrawal
Date"). In the event that the Shelf Registration Statement is withdrawn by the
Company or the holders of a majority of the Preferred Shares pursuant to this
Section 7(b), then (i) the Company shall be obligated to register any remaining
Registrable Securities in accordance with both Sections 4 and 5
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<PAGE>
and (ii) the holders of the Preferred Shares shall be deemed to have had an
opportunity to sell at least 50% of the shares of Common Stock into which the
Series A Preferred is convertible for the purposes of Section 2(c)(i)(2) and
Section 4 of the Company's Amended and Restated Certificate of Incorporation.
The Company shall not be required to file a registration pursuant to this
Section 7 following the withdrawal of the Shelf Registration Statement as
provided above.
(c) For purposes of this Agreement:
(i) In the event that, following the Qualified Public Offering, the
average closing sale price of a share of Common Stock on the quotation
system or exchange upon which the Common Stock is listed for any ten
consecutive day period is equal to or in excess of $4.78 (which price,
subject to equitable adjustment in the event of any stock dividend, stock
split, combination, reorganization, recapitalization or similar event
involving a change in the Common Stock, shall be referred to as the "Base
Price"), the Company may, within three business days following the
expiration of any such 10-day period, deliver to the holders of the
Preferred Shares a written notice indicating that the Common Stock has so
traded (the "Conversion Notice"). The Conversion Notice shall be
accompanied by a copy of the Shelf Registration Statement and a copy of the
prospectus included therein;
(ii) Within ten business days of receipt of the Conversion Notice and
such accompanying materials (such ten-day period following the delivery of
the Conversion Notice being referred to as the "Review Period"), the
Investor, as representative of the holders of Preferred Shares, may (A)
request copies of the Shelf Registration Statement and related materials in
accordance with Section 7(d)(i), (B) request the insertion of material in
accordance with Section 7(d)(viii), and/or (C) notify the Company that the
holders of Preferred Shares intend to sell Registrable Securities in an
underwritten offering. If the Investor requests any reasonable changes to
the Shelf Registration Statement and the accompanying prospectus during the
Review Period in accordance with clause (B), the Company shall, as soon as
practicable, amend or supplement the Shelf Registration Statement as
requested and thereafter provide the holders of Preferred Shares copies of
the Shelf Registration Statement and related materials in accordance with
Section 7(d)(i);
(iii) If, following (1) the delivery of the requested prospectuses in
accordance with either clause (A) of Section 7(c)(ii) or the penultimate
sentence of Section 7(c)(ii) above, or (2) the expiration of the Review
Period in the event that the Investor requests an underwritten offering in
accordance with clause (C) of Section 7(c)(ii) or does not make any such
request during the Review Period, the closing sale price of a share of
Common Stock on the quotation system or exchange upon which the Common
Stock is listed is equal to or in excess of the Base Price for at least ten
of the next 20 trading days, the tenth day the Common Stock so trades equal
to or in excess of the Base Price shall be deemed the "Opportunity Date"
provided, however, that if the Investor and the Company agree that it would
not have been possible to sell Registrable Securities during the period
commencing on the first day of such 20-day trading period and ending on the
date which is 120 calendar days following the Opportunity Date (1) at a
price per share equal to or in excess of the Base Price and (2) for gross
proceeds to the holders of Preferred Shares of at least (x) $2,500,000 or
(y) in the event that at such time, upon conversion of the Series A
Preferred the holders of Preferred Shares would hold fewer than 523,012
shares of Common Stock (subject to equitable adjustment in the event of any
stock dividend, stock split, combination, reorganization, recapitalization
or similar event involving a change in the Common Stock), the amount
obtained by multiplying the Base Price by the number of shares of Common
Stock into which the Series A Preferred held by the holders of Preferred
Shares is then
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<PAGE>
convertible), then, notwithstanding the foregoing, an Opportunity Date
shall not be deemed to have occurred; provided further, that if the
Investor and the Company do not agree with respect to the foregoing
proviso, then the Investor shall select an investment bank of national
standing to determine if, in the judgment of such bank, an Opportunity Date
has occurred, whose cost shall be borne by the Investor in the event that
such investment bank determines that an Opportunity Date has occurred and
by the Company in the event that such investment bank determines that an
Opportunity date has not occurred. If hold-back provisions of Section 12
shall be applicable during the aforesaid 120 calendar days, then,
notwithstanding of the foregoing, an Opportunity Date shall not be deemed
to have occurred. For purposes of this Agreement and the Company's Amended
and Restated Certificate of Incorporation, an Opportunity Date shall also
be deemed to have occurred if and at such time as the aggregate amount of
Registrable Securities sold by the holders of Preferred Shares pursuant to
Sections 4, 5 and 7 of this Agreement have been sold with aggregate
proceeds to the holders of Preferred Shares of at least $2,500,000 and were
sold at an average price per share equal to or in excess of the Base Price.
(d) If, at any time prior to the withdrawal of the Shelf Registration
Statement (other than a withdrawal as provided in clause (e) of this Section),
any holder or holders of Preferred Shares wish to sell Registrable Securities
pursuant to the Shelf Registration Statement (in connection with the giving of
any Conversion Notice or otherwise), they shall give written notification of the
intention to do so to the Company which notice shall specify the intended method
of disposition and the number of shares the holders desire to sell (which, in
the case of an underwritten offering, must be a number for which the reasonably
anticipated aggregate price to the public would exceed $500,000 and for which,
in any other offering, must be a number for which the reasonably anticipated
aggregate price to the public would exceed $250,000). In connection with each
such request, the Company shall:
(i) Furnish to each seller of Registrable Securities and to each
underwriter, if any, such number of copies of the Shelf Registration
Statement and the prospectus included therein (including each preliminary
prospectus) as such persons reasonably may request in order to facilitate
the public sale or other disposition of the Registrable Securities covered
by such registration statement;
(ii) Use all reasonable efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as the sellers of Registrable
Securities or, in the case of an underwritten public offering, the managing
underwriter reasonably shall request, provided, however, that the Company
shall not for any such purpose be required to qualify generally to transact
business as a foreign corporation in any jurisdiction where it is not so
qualified or to consent to general service of process in any such
jurisdiction, unless the Company is already subject to service in such
jurisdiction;
(iii) Comply with all applicable rules and regulations under the
Securities Act and Exchange Act;
(iv) Immediately notify each seller of Registrable Securities and each
underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained 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 light
of the circumstances then existing, and promptly
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<PAGE>
prepare and furnish to such seller a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(v) If the offering is underwritten and at the request of any seller of
Registrable Securities, furnish on the date that Registrable Securities are
delivered to the underwriters for sale pursuant to such registration (i) an
opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters to such
effects as reasonably may be requested by counsel for the underwriters and
executed counterparts of such opinion addressed to the sellers of
Registrable Securities to the same effect as requested by counsel for the
underwriters and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters stating
that they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereof, comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act and such letter shall additionally cover such other
financial matters (including information as to the period ending no more
than five (5) business days prior to the date of such letter) with respect
to such registration as such underwriters reasonably may request;
(vi) Make available for inspection by each seller of Registrable
Securities, any underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, reasonable access to all financial
and other records, pertinent corporate documents and properties of the
Company, as such parties may reasonably request, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(vii) Cooperate with the selling holders of Registrable Securities and
the managing underwriter, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold,
such certificates to be in such denominations and registered in such names
as such holders or the managing underwriter may request at least two
business days prior to any sale of Registrable Securities; and
(viii) Permit any holder of Registrable Securities which holder, in
the sole and exclusive judgment, exercised in good faith, of such holder,
might be deemed to be a controlling person of the Company, to participate
in good faith in the preparation of such registration or comparable
statement and to require the insertion therein of material, furnished to
the Company in writing, which in the reasonable judgment of such holder and
its counsel should be included provided, however, that the Company shall
not be required to amend or supplement the prospectus in any manner that,
at the advice of the Company's counsel or independent accountants, may
cause the Shelf Registration Statement to include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing or otherwise cause the Shelf
Registration Statement to not be in conformity with the Securities Act or
the Exchange Act.
(ix) with respect to any underwritten offering under this Section 7,
enter into underwriting agreements in customary form and take such other
actions as the Investor may
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<PAGE>
reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities;
(e) In the event that the Shelf Registration Statement is filed on Form S-1,
the Company may, if and when it becomes eligible to register the Registrable
Securities on Form S-3, withdraw the Form S-1 and register the Registrable
Securities on Form S-3 (which Form S-3 shall become the Shelf Registration
Statement).
(f) In connection with any request to sell Registrable Securities pursuant
to this Section 7, the sellers of Registrable Securities will furnish to the
Company in writing such information requested by the Company with respect to
themselves and the proposed distribution by them as shall be necessary in order
to assure compliance with Federal and applicable state securities laws; and such
sellers shall provide the Company with appropriate representations with respect
to the accuracy of such information.
(g) Notwithstanding any other provision of this Section 7, the Company shall
not be obligated to register any Preferred Shares for sale pursuant to any such
registration.
8. Expenses.
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(a) All expenses incurred by the Company in complying with Sections 4, 5 and
7 including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of any insurance which might be obtained
by the Company with respect to the offering by the Company, and fees and
disbursements not to exceed $10,000 of one counsel selected by a majority in
interest of the sellers of Registrable Securities, but excluding any Selling
Expenses, are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities are called
"Selling Expenses".
(b) The Company will pay all Registration Expenses in connection with each
registration statement under Section 4, 5 or 7. All Selling Expenses in
connection with each registration statement under Section 4, 5 or 7 shall be
borne by the participating sellers in proportion to the number of shares
registered by each, or by such participating sellers other than the Company (to
the extent the Company shall be a seller) as they may agree.
9. Indemnification and Contribution.
--------------------------------
(a) In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant to Section 4, 5 or 7, the Company will
indemnify and hold harmless each holder of Registrable Securities, its officers,
directors and partners, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such holder or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such holder, officer,
director, partner, underwriter or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any prospectus, offering circular or other document incident to such
registration (including any related notification, registration statement under
which such Registrable Securities were registered under the Securities Act
pursuant to Section 4, 5 or 7, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof), (ii) any blue sky
application or other document executed by the
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Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify any or all of the Registrable Securities under the securities laws
thereof (any such application, document or information herein called a "Blue Sky
Application"), (iii) any omission or alleged omission to state in any such
registration statement, prospectus, amendment or supplement or in any Blue Sky
Applications executed or filed by the Company, a material fact required to be
stated therein or necessary to make the statements therein not misleading, (iv)
any violation by the Company or its agents of the Securities Act or any rule or
regulation promulgated under the Securities Act applicable to the Company or its
agents and relating to action or inaction required of the Company in connection
with such registration, or (v) any failure to register or qualify the
Registrable Securities in any state where the Company or its agents has
affirmatively undertaken or agreed in writing that the Company (the undertaking
of any underwriter chosen by the Company being attributed to the Company) will
undertake such registration or qualification (provided that in such instance the
Company shall not be so liable if it has used its best efforts to so register or
qualify the Registrable Securities) and will reimburse each such holder, and
such officer, director and partner, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, promptly after being so incurred, provided, however, that
the Company will not be liable in any such case if and 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 or omission or alleged omission so made in
conformity with written information furnished by any such holder, any such
underwriter or any such controlling person in writing specifically for use in
such registration statement or prospectus.
(b) In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant to Section 4, 5 or 7, each seller of such
Registrable Securities thereunder, severally and not jointly, will indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each other seller of
Registrable Securities, each underwriter and each person who controls any
underwriter within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, other seller, underwriter or controlling person may become
subject under the Securities 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 prospectus offering circular or other document incident to such
registration (including any related notification, registration statement under
which such Registrable Securities were registered under the Securities Act
pursuant to Section 4, 5 or 7, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof), or any Blue Sky
Application 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 the Company and
each such officer, director, other seller, underwriter and controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
promptly after being so incurred, provided, however, that such seller will be
liable hereunder in any such case if and only 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 or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus; and provided, further, that the liability
of each seller hereunder shall be limited to the proportion of any such loss,
claim, damage, liability or expense which is equal to the proportion that the
public offering price of the securities sold by such seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any
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<PAGE>
event to exceed the proceeds received by such seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 9 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or
that the interests of the indemnified party reasonably may be deemed to conflict
with the interests of the indemnifying party, the indemnified party shall have
the right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred. No indemnifying party,
in the defense of any such claim or action, shall, except with the consent of
each indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or action. Each indemnified party shall
furnish such information regarding itself or the claim in question as an
indemnifying party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 9 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 9 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 9, then, and in each such case, the Company and such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that such holder is responsible for the portion represented by the percentage
that the public offering price of its Registrable Securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
of Registrable Securities will be required to contribute any amount in excess of
the proceeds received from the sale of all such Registrable Securities offered
by it pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent
13
<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(e) The indemnities and obligations provided in this Section 9 shall survive
the transfer of any Registrable Securities by such holder.
(f) 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.
10. Changes in Common Stock or Preferred Shares. If, and as often as,
-------------------------------------------
there is any change in the Common Stock and/or Preferred Shares by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the Common
Stock and/or Preferred Shares as so changed.
11. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, except as
provided in paragraph (c) below, at all times after ninety (90) days after any
registration statement covering a public offering of securities of the Company
under the Securities Act shall have become effective, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act (or any successor
rule);
(b) Use its best efforts to file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) Furnish to each holder of Registrable Securities, at any time after it
has become subject to such reporting requirements of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Registrable Securities without
registration.
12. "Market Stand-Off" Agreement; Underwriters. The Investor agrees, if
------------------------------------------
requested by the Company and an underwriter of Common Stock (or other
securities) of the Company, not to sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Investor during
the one hundred and eighty (180) day period following the effective date of a
registration statement of the Company filed under the Securities Act in respect
of an underwritten offering of such Common Stock (or other securities) other
than a registration statement filed pursuant to Section 4, 5 or 7 hereof in
which the Investor is participating, provided that all holders of Registrable
Securities, Other Shareholders, all officers and directors of the Company, and
all holders of five percent (5%) or more of the outstanding shares of all
classes of capital stock of the Company (other than any holder who is entitled
to and is exercising a demand or required registration right) enter into similar
agreements.
The Company may impose stop-transfer instructions with respect to the shares
(or securities) subject to the foregoing restriction until the end of said one
hundred and eighty (180) day period.
14
<PAGE>
If Registrable Securities that the Company has been requested to register
pursuant to Section 5 or 7 are to be disposed of in an underwritten public
offering, the underwriters of such offering shall be one or more underwriting
firms of recognized standing selected by the Investor and reasonably acceptable
to the Company.
13. Assignment of Registration Rights. The rights to cause the Company to
---------------------------------
register Registrable Securities pursuant to this Agreement may be assigned by
the Investor to a transferee assignee of Registrable Securities which (i) is a
subsidiary, parent, shareholder, general partner, limited partner or retired
partner of the Investor, or (ii) acquires at least 25% of the original amount of
Registrable Securities covered by this Agreement; provided, however, (A) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (B) such transferee shall agree in writing to be subject to all
restrictions set forth in this Agreement.
14. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective heirs, successors (including, without limitation, by sale or transfer
of all or substantially all assets, merger or consolidation) and assigns of the
parties hereto (including without limitation transferees of any Registrable
Securities), whether so expressed or not.
(b) All notices, requests, consents and other communications hereunder shall
be in writing, shall be addressed to the receiving party's address set forth
below or to such other address as a party may designate by notice hereunder, and
shall be either (i) delivered by hand, (ii) made by telex, telecopy or facsimile
transmission, (iii) sent by overnight courier, or (iv) sent by registered or
certified mail, return receipt requested, postage prepaid.
If to the Company: Command Systems, Inc.
76b Batterson Park Road
Farmington, CT 06032
Attn: Edward G. Caputo
Fax No: 860-409-2099
With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Stanford N. Goldman, Esq.
Fax No: (617) 542-2241
If to the Investor: Phoenix Home Life
One American Row
P.O. Box 5956
Hartford, CT 06102-5789
Attn: John J.C. Herndon
Fax No: 860-403-5182
15
<PAGE>
With a copy to: Phoenix Home Life
One American Row
P.O. Box 5956
Hartford, CT 06102-5789
Attn: Nancy Engberg
Fax No: 860-403-5182
With a copy to: Hebb & Gitlin
One State Street
Hartford, CT 06103-3178
Attn: Jeffrey S. Kuperstock
Fax No. 860-278-8968
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the fifth business day following the day such mailing is
made.
(c) This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the law of the State of
Delaware, without giving effect to the conflict of law principles thereof.
(d) This Agreement may not be amended or modified, and no provision hereof may
be waived, without the written consent of the Company and of holders of not less
than a majority of the Registrable Securities. Any waiver or consent hereunder
shall be effective only in the specific instance and for the purpose for which
it was given, and shall not constitute a continuing waiver or consent.
(e) This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
(f) In the event that any court of competent jurisdiction shall determine that
any provision, or any portion thereof, contained in this Agreement shall be
unenforceable in any respect, then such provision shall be deemed limited to the
extent that such court deems it enforceable, and as so limited shall remain in
full force and effect. In the event that such court shall deem any such
provision, or portion thereof, wholly unenforceable, the remaining provisions of
this Agreement shall nevertheless remain in full force and effect.
(g) The Company recognizes that the rights of the Investor under this
Agreement are unique and, accordingly, the Investor shall, in addition to such
other remedies as may be available to them at law or in equity, have the right
to enforce their rights hereunder by actions for injunctive relief and specific
performance to the extent permitted by law. This Agreement is not intended to
limit or abridge any rights of the Investor which may exist apart from this
Agreement.
(h) The parties hereto acknowledge and agree that (i) each party and its
counsel, if so represented, reviewed and negotiated the terms and provisions of
this Agreement and have contributed to its revision and (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
16
<PAGE>
(i) The headings and captions of the various subdivisions of this Agreement
are for convenience of reference only and shall in no way modify or affect the
meaning or construction of any of the terms or provisions hereof.
(j) No failure or delay by a party hereto in exercising any right, power or
remedy under this Agreement, and no course of dealing between the parties
hereto, shall operate as a waiver of any such right, power or remedy of the
party. No single or partial exercise of any right, power or remedy under this
Agreement by a party hereto, nor any abandonment or discontinuance of steps to
enforce any such right, power or remedy, shall preclude such party from any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder. The election of any remedy by a party hereto shall not
constitute a waiver of the right of such party to pursue other available
remedies. No notice to or demand on a party not expressly required under this
Agreement shall entitle the party receiving such notice or demand to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the party giving such notice or demand to any other or
further action in any circumstances without such notice or demand.
(k) Wherever this Agreement refers to the neuter gender such reference shall
include the masculine and feminine genders as the context may require.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
this Agreement to be executed by their duly authorized representatives as of the
date first written above.
COMMAND SYSTEMS, INC.
By:/s/ Edward G. Caputo
-------------------------------
Edward G. Caputo, President
INVESTOR:
--------
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By:/s/ Richard H. Booth
--------------------------------
18
<PAGE>
EXHIBIT 10.3
================================================================================
COMMAND SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
December 31, 1997
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is entered into as of
December 31, 1997 by and between Command Systems, Inc., a Delaware corporation
(the "Company"), and PHL Global Holding Co. (the "Investor").
WHEREAS, the Company is issuing up to 100 shares of its voting Series B
Convertible Preferred Stock, $.01 par value ("Series B Preferred"), in exchange
for 22,67,720 equity shares of Rs.10/ (the "Minority Shares") of Command
International Software, Pvt., an Indian unlimited liability company ("Command
Software") by and among the Company and its subsidiaries and the Investor
pursuant to the Exchange Agreement of even date herewith among the Company,
Phoenix Home Life Mutual Insurance Company ("Phoenix") and the Investor (the
"Exchange Agreement"); and
WHEREAS, one of the conditions to the consummation of the transactions
contemplated by the Exchange Agreement is the execution and delivery of this
Agreement to provide for registration rights for the shares of Series B
Preferred exchanged for the Minority Shares by the Investor as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and the exchange of the Series B Preferred for the Minority
Shares by the Investor under the Exchange Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms shall
-------------------
have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission and any
----------
successor agency of the Federal government administering the Securities Act.
"Common Stock" shall mean (i) the common stock, $.01 par value per share,
------------
of the Company, (ii) any other capital stock of the Company, however designated,
authorized on or after the date hereof, which shall neither be limited to a
fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends nor entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company and (iii) any other securities into
which or for which any of the securities described in (i) or (ii) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, consolidation, sale of assets or other similar transaction.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
and any similar or successor Federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
"Opportunity Date" shall have the meaning specified in Section 7.
----------------
<PAGE>
"Preferred Shares" shall mean the shares of the Series B Preferred.
----------------
"Register," "registered" and "registration" shall refer to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act and applicable rules and regulations thereunder, and the
declaration or ordering of the effectiveness of such registration statement, or,
as the context may require, under the Exchange Act or applicable state
securities laws.
"Registrable Securities" shall mean (i) the Preferred Shares, (ii) shares
----------------------
Common Stock or other securities issued or issuable pursuant to the conversion
of the Preferred Shares and (iii) any shares of Common Stock or such other
securities issued or issuable in respect of such shares of Common Stock or such
other securities issued or issuable pursuant to the conversion of the Preferred
Shares upon any stock split, stock dividend, recapitalization, reorganization,
merger, consolidation, sale of assets or similar event, excluding in any event
securities (a) which have been registered under the Securities Act pursuant to
an effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them or (b) which may be or
have been publicly sold pursuant to Rule 144 under the Securities Act. Wherever
reference is made in this Agreement to a request or consent of holders of a
certain percentage of Registrable Securities, the determination of such
percentage shall be calculated on the basis of shares of Common Stock issued or
issuable upon conversion of the Preferred Shares even if such conversion has not
been effected.
"Registration Expenses" shall mean the expenses so described in Section 8.
---------------------
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
--------------
similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Selling Expenses" shall mean the expenses so described in Section 8.
----------------
2. Restrictive Legend. Each certificate representing Registrable Securities
------------------
shall, except as otherwise provided in this Section 2 or in Section 3, be
stamped or otherwise imprinted with a legend substantially in the following form
(in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF (1) AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAWS OR (2)
AN OPINION OF COUNSEL, WHICH MAY BE THE IN-HOUSE COUNSEL FOR PHOENIX HOME
LIFE MUTUAL
2
<PAGE>
INSURANCE COMPANY, REASONABLY SATISFACTORY TO THE COMPANY THAT AN EXEMPTION
FROM REGISTRATION THEREUNDER IS AVAILABLE.
Upon request of a holder of such a certificate, the Company shall remove
the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if (i) there is an effective
registration statement covering the securities represented by such certificate,
or (ii) with such request, the Company shall have received either the opinion
referred to in Section 3(i) or the "no-action" letter referred to in Section
3(ii).
3. Notice of Proposed Transfer. Prior to any proposed sale, pledge,
---------------------------
hypothecation or other transfer of any Registrable Securities (other than under
the circumstances described in Section 4, 5 or 7 or pursuant to a distribution
of the type described in the proviso to the next succeeding sentence), the
holder thereof shall give written notice to the Company of its intention to
effect such sale, pledge, hypothecation or other transfer. Each such notice
shall describe the manner of the proposed sale, pledge, hypothecation or other
transfer and, if requested by the Company, shall be accompanied by either (i) an
opinion of counsel (which may be the in-house counsel of the Investor)
reasonably satisfactory to the Company to the effect that the proposed sale,
pledge, hypothecation or other transfer may be effected without registration
under the Securities Act or (ii) a "no action" letter from the Commission to the
effect that the distribution of such securities without registration will not
result in a recommendation by the staff of the Commission that action be taken
with respect thereto, whereupon the holder of such stock shall be entitled to
transfer such stock in accordance with the terms of its notice, provided,
--------
however, that no such opinion of counsel shall be required for a distribution to
- -------
one or more partners of the transferor (in the case of a transferor that is a
partnership) or to a stockholder (in the case of a transferor that is a
corporation) in each case in respect of the beneficial interest of such partner
or stockholder. Each certificate for Registrable Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 2, except that such certificate shall not bear such legend if (i) such
transfer is in accordance with the provisions of Rule 144 (or any other rule
permitting public sale without registration under the Securities Act), or (ii)
the opinion of counsel or "no-action" letter referred to above is to the further
effect that the transferee and any subsequent transferee (other than an
affiliate of the Company) would be entitled to transfer such securities in a
public sale without registration under the Securities Act or that such legend is
not required to establish compliance with any provisions of the Securities Act.
Notwithstanding any other provision hereof, the restrictions provided for in
this Section 3 shall not apply to securities which are not required to bear the
legend prescribed by Section 2 in accordance with the provisions of that
Section.
4. Incidental Registration. If the Company at any time (other than
-----------------------
pursuant to Section 5) proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to registration
statements on Forms S-4, S-8 or any successor to such forms or another form not
available for registering the Registrable Securities for sale to the public),
each such time it will promptly give written notice to all holders of the
Registrable Securities of its intention so to do. Upon the written request of
any such holder, received by the Company within twenty (20) days after the
giving of any such notice by the Company, to register any or all of its
Registrable Securities, the Company will use all reasonable efforts to cause the
Registrable Securities as to
3
<PAGE>
which registration shall have been so requested to be included in the securities
to be covered by the registration statement proposed to be filed by the Company,
all to the extent requisite to permit the sale or other disposition by the
holder (in accordance with its written request) of such Registrable Securities
so registered. Notwithstanding any other provision of this Section 4, the
Company shall not be obligated to register any Preferred Shares for sale
pursuant to any such registration, provided, however, that in any underwritten
public offering contemplated by this Agreement, the holders of Preferred Shares
shall be entitled to sell such Preferred Shares to the underwriters for
conversion and sale of the shares of Common Stock issued upon conversion
thereof. If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the holders of Registrable Securities as a part of the written notice
given pursuant to this Section 4. In such event the right of any holder of
Registrable Securities to registration pursuant to this Section 4 shall be
conditioned upon such holder's participation in such underwriting to the extent
provided herein. All holders of Registrable Securities proposing to distribute
their securities through such underwriting shall (together with the Company and
persons who by virtue of similar agreements with the Company are entitled to
include such shares in such registration (the "Other Shareholders") are
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision of
this Section 4, if the underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, the underwriter may
(subject to the allocation priority set forth below) exclude from such
registration and underwriting some or all of the Registrable Securities which
would otherwise be underwritten pursuant hereto. The Company shall so advise all
holders of securities requesting registration of any limitations on the number
of shares to be underwritten, and the number of shares of securities that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner: (i) in connection with any registration for the
Company's own account, first to the Company, provided that until the Opportunity
Date the number of shares of securities entitled to be included in the
registration and underwriting shall be shared by the Company and the Investor
ratably in accordance with the number of shares of securities of the Company and
the Investor then desired to be included therein; (ii) second to any holder who
is entitled to and is exercising a demand or required registration right,
provided that, to the extent that the Company and the Investor desire to include
any shares of securities in any registration or underwriting initiated by such
holder, until the Opportunity Date, the number of shares of securities entitled
to be included in the registration and underwriting and available to the Company
and the Investor shall be shared by the Company and the Investor ratably in
accordance with the number of shares of securities of the Company and the
Investor then desired to be included therein and, after the Opportunity Date,
the Company's shares of securities shall have priority over those of the
Investor under this proviso; (iii) third, until the Opportunity Date, to the
Investor in preference to any other holders of the Company's securities; and
(iv) fourth, after the Opportunity Date, among all holders of the Company's
securities who are entitled to be included in such registration and have elected
to be included in such registration in proportion, as nearly as practicable, to
the respective amounts of securities owned by them. Notwithstanding the
foregoing provisions, the Company may withdraw any registration statement
referred to in this Section 4 without thereby incurring any liability to the
holders of Registrable Securities. If any holder of Registrable Securities
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company and the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such
4
<PAGE>
registration. The Company shall be obligated to register the Registrable
Securities pursuant to this Section 4 for so long as the Investor holds
Registrable Securities.
5. Registration on Form S-3.
------------------------
(a) If, at any time following the revocation of the Shelf Registration
Statement referred to in Section 7, (i) any holder or holders of the Registrable
Securities request that the Company file a registration statement on Form S-3 or
any comparable or successor form thereto for a public offering of all or any
portion of the shares of Registrable Securities held by such requesting holder
or holders, the reasonably anticipated aggregate price to the public of which
would exceed $500,000 and (ii) the Company is a registrant entitled to use Form
S-3 or any comparable or successor form thereto to register such shares, then
the Company shall use all reasonable efforts to register under the Securities
Act on Form S-3 or any comparable or successor form thereto, for public sale in
accordance with the method of disposition specified in such notice, the number
of shares of Registrable Securities specified in such notice. Whenever the
Company is required by this Section 5 to use all reasonable efforts to effect
the registration of Registrable Securities, each of the procedures and
requirements of Section 4, including, but not limited to, the requirement that
the Company notify all holders of Registrable Securities from whom notice has
not been received and provide them with the opportunity to participate in the
offering (provided, however that holders shall have no more than twenty (20)
days to reply to the Company's notice in order to participate in the offering),
shall apply to such registration, provided, however, that no more than one
registration during any nine month period may be requested and obtained under
this Section 5. Notwithstanding any other provision of this Section 5, the
Company shall not be obligated to register any Preferred Shares for sale
pursuant to any such registration.
(b) The Company shall use its best efforts to qualify for registration on
Form S-3 or any comparable or successor form or forms and to that end the
Company shall register (whether or not required by law to do so) the Common
Stock under the Exchange Act in accordance with the provisions of that Act
following the effective date of the first registration of any securities of the
Company on Form S-1 or any comparable or successor form.
6. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Section 4 or 5 to use all reasonable efforts to effect the
registration of any Registrable Securities under the Securities Act, the Company
will, as expeditiously as possible:
(a) Prepare and file with the Commission a registration statement (which, in
the case of an underwritten public offering pursuant to Section 4, may be on
Form S-1 or other form of general applicability satisfactory to the managing
underwriter selected as therein provided) with respect to such securities
including executing an undertaking to file post-effective amendments and use its
best efforts to cause such registration statement to become and remain effective
for the period of the distribution contemplated thereby;
(b) Prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for the period
specified herein and comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
5
<PAGE>
registration statement in accordance with the sellers' intended method of
disposition set forth in such registration statement for such period;
(c) Furnish to each seller of Registrable Securities and to each underwriter
such number of copies of the registration statement and each such amendment and
supplement thereto (in each case including all exhibits) and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or other
disposition of the Registrable Securities covered by such registration
statement;
(d) Use all reasonable efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as the sellers of Registrable Securities or, in
the case of an underwritten public offering, the managing underwriter reasonably
shall request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction, unless the Company is
already subject to service in such jurisdiction;
(e) Use its best efforts to list the Registrable Securities covered by such
registration statement with any securities exchange or quotation system on which
the Common Stock of the Company is then listed;
(f) Comply with all applicable rules and regulations under the Securities
Act and Exchange Act;
(g) Immediately notify each seller of Registrable Securities and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained 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 light of the circumstances then existing, and promptly prepare
and furnish to such seller a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(h) If the offering is underwritten and at the request of any seller of
Registrable Securities, furnish on the date that Registrable Securities are
delivered to the underwriters for sale pursuant to such registration (i) an
opinion dated such date of counsel representing the Company for the purposes of
such registration, addressed to the underwriters to such effects as reasonably
may be requested by counsel for the underwriters and executed counterparts of
such opinion addressed to the sellers of Registrable Securities to the same
effect as requested by counsel for the underwriters and (ii) a letter dated such
date from the independent public accountants retained by the Company, addressed
to the underwriters stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such accountants,
the financial statements of the Company included in the registration statement
or the prospectus, or any
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amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act and such letter
shall additionally cover such other financial matters (including information as
to the period ending no more than five (5) business days prior to the date of
such letter) with respect to such registration as such underwriters reasonably
may request;
(i) Make available for inspection by each seller of Registrable Securities,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, reasonable access to all financial and other records, pertinent
corporate documents and properties of the Company, as such parties may
reasonably request, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(j) Cooperate with the selling holders of Registrable Securities and the
managing underwriter, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, such
certificates to be in such denominations and registered in such names as such
holders or the managing underwriter may request at least two business days prior
to any sale of Registrable Securities; and
(k) Permit any holder of Registrable Securities which holder, in the sole
and exclusive judgment, exercised in good faith, of such holder, might be deemed
to be a controlling person of the Company, to participate in good faith in the
preparation of such registration or comparable statement and to require the
insertion therein of material, furnished to the Company in writing, which in the
reasonable judgment of such holder and its counsel should be included provided,
however, that the Company shall not be required to amend or supplement the
prospectus in any manner that, at the advice of the Company's counsel or
independent accountants, may cause the registration statement to include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing or otherwise cause the registration
statement to not be in conformity with the Securities Act or the Exchange Act.
(l) With respect to any underwritten offering under Section 5, enter into
underwriting agreements in customary form and take such other actions as the
Investor may reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities;
(m) Make generally available to its security holders (as contemplated by
Section 11(a) under the Securities Act) an earnings statement satisfying the
provisions of Rule 158 under the Securities Act no later than ninety (90) days
after the end of the twelve (12) month period beginning with the first month of
the Company's first fiscal quarter commencing after the effective date of the
registration statement, which statement shall cover said twelve (12) month
period.
For purposes of this Agreement, the period of distribution of Registrable
Securities in a firm commitment underwritten public offering shall be deemed to
extend until each underwriter has completed the distribution of all securities
purchased by it, and the period of distribution of
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Registrable Securities in any other registration shall be deemed to extend until
the earlier of the sale of all Registrable Securities covered thereby or 120
days after the effective date thereof.
In connection with each registration hereunder, the sellers of Registrable
Securities will furnish to the Company in writing such information requested by
the Company with respect to themselves and the proposed distribution by them as
shall be necessary in order to assure compliance with Federal and applicable
state securities laws; and such sellers shall provide the Company with
appropriate representations with respect to the accuracy of such information.
7. Shelf Registration. In the event that following a "Qualified Public
-------------------
Offering" (as such term is defined in the Company's Amended and Restated
Certificate of Incorporation) the Series B Preferred has not been fully
converted into Common Stock, then:
(a) Following the effectiveness of the registration statement related to
such Qualified Public Offering, the Company shall:
(i) Within 10 business days of such effectiveness, use all reasonable
efforts to register the Registrable Securities for resale on a new
registration statement (pursuant to Rule 415 under the Securities Act or
any similar rule that may be adopted by the Commission) on Form S-1 or, if
available Form S-3 (together with any registration statement that may
replace any such Form S-1 in accordance with Section 7(e), and any
amendments and supplements thereto, the "Shelf Registration Statement") and
shall, use all reasonable efforts to keep such Shelf Registration Statement
effective (including, without limitation, supplementing or amending such
Shelf Registration Statement from time to time, as required by the
registration form utilized by the Company for the same or by the
instructions applicable to such registration form or by the Securities Act)
until the earlier of (i) the Mandatory Conversion Date, or (ii) the
Optional Withdrawal Date; and
(ii) Use its best efforts to list the Registrable Securities covered
by the Shelf Registration Statement with any securities exchange or
quotation system on which the Common Stock of the Company is then listed.
(b) Prior to the withdrawal of the Shelf Registration Statement in
accordance with the following provisions, the Company shall not be obligated to
register any Registrable Securities in accordance with Section 5 (but shall
continue to be obligated to register the Registrable Securities in accordance
with Section 4). The Shelf Registration Statement may be withdrawn: (i) by the
Company at any time after the Series B Preferred has been fully converted into
Common Stock, (ii) by the Company on the date which is 121 days after the
Opportunity Date (such date being referred to as the "Mandatory Conversion
Date"), or (iii) at the request of the holders of a majority of the Preferred
Shares (the date of such request being referred to as the "Optional Withdrawal
Date"). In the event that the Shelf Registration Statement is withdrawn by the
Company or the holders of a majority of the Preferred Shares pursuant to this
Section 7(b), then (i) the Company shall be obligated to register any remaining
Registrable Securities in accordance with both Sections 4 and 5 and (ii) the
holders of the Preferred Shares shall be deemed to have had an opportunity to
sell at least 50% of the shares of Common Stock into which the Series B
Preferred is convertible for the purposes of Section 2(c)(i)(2) and Section 4 of
the Company's Amended and Restated Certificate
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<PAGE>
of Incorporation. The Company shall not be required to file a registration
pursuant to this Section 7 following the withdrawal of the Shelf Registration
Statement as provided above.
(c) For purposes of this Agreement:
(i) In the event that, following the Qualified Public Offering, the
average closing sale price of a share of Common Stock on the quotation
system or exchange upon which the Common Stock is listed for any ten
consecutive day period is equal to or in excess of $6.12 (which price,
subject to equitable adjustment in the event of any stock dividend, stock
split, combination, reorganization, recapitalization or similar event
involving a change in the Common Stock, shall be referred to as the "Base
Price"), the Company may, within three business days following the
expiration of any such 10-day period, deliver to the holders of the
Preferred Shares a written notice indicating that the Common Stock has so
traded (the "Conversion Notice"). The Conversion Notice shall be
accompanied by a copy of the Shelf Registration Statement and a copy of the
prospectus included therein;
(ii) Within ten business days of receipt of the Conversion Notice
and such accompanying materials (such ten-day period following the delivery
of the Conversion Notice being referred to as the "Review Period"), the
Investor, as representative of the holders of Preferred Shares, may (A)
request copies of the Shelf Registration Statement and related materials in
accordance with Section 7(d)(i), (B) request the insertion of material in
accordance with Section 7(d)(viii), and/or (C) notify the Company that the
holders of Preferred Shares intend to sell Registrable Securities in an
underwritten offering. If the Investor requests any reasonable changes to
the Shelf Registration Statement and the accompanying prospectus during the
Review Period in accordance with clause (B), the Company shall, as soon as
practicable, amend or supplement the Shelf Registration Statement as
requested and thereafter provide the holders of Preferred Shares copies of
the Shelf Registration Statement and related materials in accordance with
Section 7(d)(i);
(iii) If, following (1) the delivery of the requested prospectuses in
accordance with either clause (A) of Section 7(c)(ii) or the penultimate
sentence of Section 7(c)(ii) above, or (2) the expiration of the Review
Period in the event that the Investor requests an underwritten offering in
accordance with clause (C) of Section 7(c)(ii) or does not make any such
request during the Review Period, the closing sale price of a share of
Common Stock on the quotation system or exchange upon which the Common
Stock is listed is equal to or in excess of the Base Price for at least ten
of the next 20 trading days, the tenth day the Common Stock so trades equal
to or in excess of the Base Price shall be deemed the "Opportunity Date"
provided, however, that if the Investor and the Company agree that it would
not have been possible to sell Registrable Securities during the period
commencing on the first day of such 20-day trading period and ending on the
date which is 120 calendar days following the Opportunity Date (1) at a
price per share equal to or in excess of the Base Price and (2) for gross
proceeds to the holders of Preferred Shares of at least $8,000,000, then,
notwithstanding the foregoing, an Opportunity Date shall not be deemed to
have occurred; provided further, that if the Investor and the Company do
not agree with respect to the foregoing proviso, then the Investor shall
select an investment bank of
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<PAGE>
national standing to determine if, in the judgment of such bank, an
Opportunity Date has occurred, whose cost shall be borne by the Investor in
the event that such investment bank determines that an Opportunity Date has
occurred and by the Company in the event that such investment bank
determines that an Opportunity date has not occurred. If hold-back
provisions of Section 12 shall be applicable during the aforesaid 120
calendar days, then, notwithstanding of the foregoing, an Opportunity Date
shall not be deemed to have occurred. For purposes of this Agreement and
the Company's Amended and Restated Certificate of Incorporation, an
Opportunity Date shall also be deemed to have occurred if and at such time
as the aggregate amount of Registrable Securities sold by the holders of
Preferred Shares pursuant to Sections 4, 5 and 7 of this Agreement have
been sold with aggregate proceeds to the holders of Preferred Shares of at
least $8,000,000 and were sold at an average price per share equal to or in
excess of the Base Price.
(d) If, at any time prior to the withdrawal of the Shelf Registration
Statement (other than a withdrawal as provided in clause (e) of this Section),
any holder or holders of Preferred Shares wish to sell Registrable Securities
pursuant to the Shelf Registration Statement (in connection with the giving of
any Conversion Notice or otherwise), they shall give written notification of the
intention to do so to the Company which notice shall specify the intended method
of disposition and the number of shares the holders desire to sell (which, in
the case of an underwritten offering, must be a number for which the reasonably
anticipated aggregate price to the public would exceed $500,000 and for which,
in any other offering, must be a number for which the reasonably anticipated
aggregate price to the public would exceed $250,000). In connection with each
such request, the Company shall:
(i) Furnish to each seller of Registrable Securities and to each
underwriter, if any, such number of copies of the Shelf Registration
Statement and the prospectus included therein (including each preliminary
prospectus) as such persons reasonably may request in order to facilitate
the public sale or other disposition of the Registrable Securities covered
by such registration statement;
(ii) Use all reasonable efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the sellers of
Registrable Securities or, in the case of an underwritten public offering,
the managing underwriter reasonably shall request, provided, however, that
the Company shall not for any such purpose be required to qualify generally
to transact business as a foreign corporation in any jurisdiction where it
is not so qualified or to consent to general service of process in any such
jurisdiction, unless the Company is already subject to service in such
jurisdiction;
(iii) Comply with all applicable rules and regulations under the
Securities Act and Exchange Act;
(iv) Immediately notify each seller of Registrable Securities and
each underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such
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<PAGE>
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 light
of the circumstances then existing, and promptly prepare and furnish to
such seller a reasonable number of copies of a prospectus supplemented or
amended so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(v) If the offering is underwritten and at the request of any seller
of Registrable Securities, furnish on the date that Registrable Securities
are delivered to the underwriters for sale pursuant to such registration
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters to such
effects as reasonably may be requested by counsel for the underwriters and
executed counterparts of such opinion addressed to the sellers of
Registrable Securities to the same effect as requested by counsel for the
underwriters and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters stating
that they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereof, comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act and such letter shall additionally cover such other
financial matters (including information as to the period ending no more
than five (5) business days prior to the date of such letter) with respect
to such registration as such underwriters reasonably may request;
(vi) Make available for inspection by each seller of Registrable
Securities, any underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, reasonable access to all financial
and other records, pertinent corporate documents and properties of the
Company, as such parties may reasonably request, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(vii) Cooperate with the selling holders of Registrable Securities
and the managing underwriter, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be
sold, such certificates to be in such denominations and registered in such
names as such holders or the managing underwriter may request at least two
business days prior to any sale of Registrable Securities; and
(viii) Permit any holder of Registrable Securities which holder, in
the sole and exclusive judgment, exercised in good faith, of such holder,
might be deemed to be a controlling person of the Company, to participate
in good faith in the preparation of such registration or comparable
statement and to require the insertion therein of material, furnished
to the Company in writing, which in the reasonable judgment of such holder
and its counsel should be included provided, however, that the Company
shall not be required to
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<PAGE>
amend or supplement the prospectus in any manner that, at the advice of the
Company's counsel or independent accountants, may cause the Shelf
Registration Statement to include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances
then existing or otherwise cause the Shelf Registration Statement to not be
in conformity with the Securities Act or the Exchange Act.
(ix) with respect to any underwritten offering under this Section 7,
enter into underwriting agreements in customary form and take such other
actions as the Investor may reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(e) In the event that the Shelf Registration Statement is filed on Form
S-1, the Company may, if and when it becomes eligible to register the
Registrable Securities on Form S-3, withdraw the Form S-1 and register the
Registrable Securities on Form S-3 (which Form S-3 shall become the Shelf
Registration Statement).
(f) In connection with any request to sell Registrable Securities pursuant
to this Section 7, the sellers of Registrable Securities will furnish to the
Company in writing such information requested by the Company with respect to
themselves and the proposed distribution by them as shall be necessary in order
to assure compliance with Federal and applicable state securities laws; and such
sellers shall provide the Company with appropriate representations with respect
to the accuracy of such information.
(g) Notwithstanding any other provision of this Section 7, the Company
shall not be obligated to register any Preferred Shares for sale pursuant to any
such registration.
8. Expenses.
--------
(a) All expenses incurred by the Company in complying with Sections 4, 5
and 7 including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of any insurance which might be obtained
by the Company with respect to the offering by the Company, and fees and
disbursements not to exceed $10,000 of one counsel selected by a majority in
interest of the sellers of Registrable Securities, but excluding any Selling
Expenses, are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities are called
"Selling Expenses".
(b) The Company will pay all Registration Expenses in connection with each
registration statement under Section 4, 5 or 7. All Selling Expenses in
connection with each registration statement under Section 4, 5 or 7 shall be
borne by the participating sellers in proportion to the number of shares
registered by each, or by such participating sellers other than the Company (to
the extent the Company shall be a seller) as they may agree.
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<PAGE>
9. Indemnification and Contribution.
--------------------------------
(a) In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant to Section 4, 5 or 7, the Company will
indemnify and hold harmless each holder of Registrable Securities, its officers,
directors and partners, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such holder or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such holder, officer,
director, partner, underwriter or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any prospectus, offering circular or other document incident to such
registration (including any related notification, registration statement under
which such Registrable Securities were registered under the Securities Act
pursuant to Section 4, 5 or 7, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof), (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Registrable
Securities under the securities laws thereof (any such application, document or
information herein called a "Blue Sky Application"), (iii) any omission or
alleged omission to state in any such registration statement, prospectus,
amendment or supplement or in any Blue Sky Applications executed or filed by the
Company, a material fact required to be stated therein or necessary to make the
statements therein not misleading, (iv) any violation by the Company or its
agents of the Securities Act or any rule or regulation promulgated under the
Securities Act applicable to the Company or its agents and relating to action or
inaction required of the Company in connection with such registration, or (v)
any failure to register or qualify the Registrable Securities in any state where
the Company or its agents has affirmatively undertaken or agreed in writing that
the Company (the undertaking of any underwriter chosen by the Company being
attributed to the Company) will undertake such registration or qualification
(provided that in such instance the Company shall not be so liable if it has
used its best efforts to so register or qualify the Registrable Securities) and
will reimburse each such holder, and such officer, director and partner, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, promptly after
being so incurred, provided, however, that the Company will not be liable in any
such case if and 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
or omission or alleged omission so made in conformity with written information
furnished by any such holder, any such underwriter or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant to Section 4, 5 or 7, each seller of such
Registrable Securities thereunder, severally and not jointly, will indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each other seller of
Registrable Securities, each underwriter and each person who controls any
underwriter within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, other seller, underwriter or controlling person may become
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<PAGE>
subject under the Securities 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 prospectus offering circular or other document incident to such
registration (including any related notification, registration statement under
which such Registrable Securities were registered under the Securities Act
pursuant to Section 4, 5 or 7, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof), or any Blue Sky
Application 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 the Company and
each such officer, director, other seller, underwriter and controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
promptly after being so incurred, provided, however, that such seller will be
liable hereunder in any such case if and only 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 or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus; and provided, further, that the liability
of each seller hereunder shall be limited to the proportion of any such loss,
claim, damage, liability or expense which is equal to the proportion that the
public offering price of the securities sold by such seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the proceeds received
by such seller from the sale of Registrable Securities covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 9 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or
that the interests of the indemnified party reasonably may be deemed to conflict
with the interests of the indemnifying party, the indemnified party shall have
the right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred. No indemnifying party,
in the defense of any such claim or action, shall, except with
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the consent of each indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or action. Each indemnified party shall
furnish such information regarding itself or the claim in question as an
indemnifying party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 9 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 9 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 9, then, and in each such case, the Company and such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that such holder is responsible for the portion represented by the percentage
that the public offering price of its Registrable Securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
of Registrable Securities will be required to contribute any amount in excess of
the proceeds received from the sale of all such Registrable Securities offered
by it pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
(e) The indemnities and obligations provided in this Section 9 shall
survive the transfer of any Registrable Securities by such holder.
(f) 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.
10. Changes in Common Stock or Preferred Shares. If, and as often as,
-------------------------------------------
there is any change in the Common Stock and/or Preferred Shares by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the Common
Stock and/or Preferred Shares as so changed.
11. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, except as
provided in paragraph (c) below, at all times
15
<PAGE>
after ninety (90) days after any registration statement covering a public
offering of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act (or any successor
rule);
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(c) Furnish to each holder of Registrable Securities, at any time after it
has become subject to such reporting requirements of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Registrable Securities without
registration.
12. "Market Stand-Off" Agreement; Underwriters. The Investor agrees, if
------------------------------------------
requested by the Company and an underwriter of Common Stock (or other
securities) of the Company, not to sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Investor during
the one hundred and eighty (180) day period following the effective date of a
registration statement of the Company filed under the Securities Act in respect
of an underwritten offering of such Common Stock (or other securities) other
than a registration statement filed pursuant to Section 4, 5 or 7 hereof in
which the Investor is participating, provided that all holders of Registrable
Securities, Other Shareholders, all officers and directors of the Company, and
all holders of five percent (5%) or more of the outstanding shares of all
classes of capital stock of the Company (other than any holder who is entitled
to and is exercising a demand or required registration right) enter into similar
agreements.
The Company may impose stop-transfer instructions with respect to the
shares (or securities) subject to the foregoing restriction until the end of
said one hundred and eighty (180) day period.
If Registrable Securities that the Company has been requested to register
pursuant to Section 5 or 7 are to be disposed of in an underwritten public
offering, the underwriters of such offering shall be one or more underwriting
firms of recognized standing selected by the Investor and reasonably acceptable
to the Company.
13. Assignment of Registration Rights. The rights to cause the Company to
---------------------------------
register Registrable Securities pursuant to this Agreement may be assigned by
the Investor to a transferee assignee of Registrable Securities which (i) is a
subsidiary, parent, shareholder, general partner, limited partner or retired
partner of the Investor, or (ii) acquires at least 25% of the original amount of
Registrable Securities covered by this Agreement; provided, however, (A) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (B) such transferee shall agree in writing to be subject to all
restrictions set forth in this Agreement.
16
<PAGE>
14. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective heirs, successors (including, without limitation, by sale or transfer
of all or substantially all assets, merger or consolidation) and assigns of the
parties hereto (including without limitation transferees of any Registrable
Securities), whether so expressed or not.
(b) All notices, requests, consents and other communications hereunder
shall be in writing, shall be addressed to the receiving party's address set
forth below or to such other address as a party may designate by notice
hereunder, and shall be either (i) delivered by hand, (ii) made by telex,
telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv)
sent by registered or certified mail, return receipt requested, postage prepaid.
If to the Company: Command Systems, Inc.
76b Batterson Park Road
Farmington, CT 06032
Attn: Edward G. Caputo
Fax No: 860-409-2099
With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Stanford N. Goldman, Jr.
Fax No: (617) 542-2241
If to the Investor: Phoenix Home Life
One American Row
P.O. Box 5956
Hartford, CT 06102-5789
Attn: John J.C. Herndon
Fax No: 860-403-5182
With a copy to: Phoenix Home Life
One American Row
P.O. Box 5956
Hartford, CT 06102-5789
Attn: Nancy Engberg
Fax No: 860-403-5182
17
<PAGE>
With a copy to: Hebb & Gitlin
One State Street
Hartford, CT 06103-3178
Attn.: Jeffrey S. Kuperstock
Fax No. 860-278-8968
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the fifth business day following the day such mailing is
made.
(c) This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the law of the State of
Delaware, without giving effect to the conflict of law principles thereof.
(d) This Agreement may not be amended or modified, and no provision hereof
may be waived, without the written consent of the Company and of holders of not
less than a majority of the Registrable Securities. Any waiver or consent
hereunder shall be effective only in the specific instance and for the purpose
for which it was given, and shall not constitute a continuing waiver or consent.
(e) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) In the event that any court of competent jurisdiction shall determine
that any provision, or any portion thereof, contained in this Agreement shall be
unenforceable in any respect, then such provision shall be deemed limited to the
extent that such court deems it enforceable, and as so limited shall remain in
full force and effect. In the event that such court shall deem any such
provision, or portion thereof, wholly unenforceable, the remaining provisions of
this Agreement shall nevertheless remain in full force and effect.
(g) The Company recognizes that the rights of the Investor under this
Agreement are unique and, accordingly, the Investor shall, in addition to such
other remedies as may be available to them at law or in equity, have the right
to enforce their rights hereunder by actions for injunctive relief and specific
performance to the extent permitted by law. This Agreement is not intended to
limit or abridge any rights of the Investor which may exist apart from this
Agreement.
(h) The parties hereto acknowledge and agree that (i) each party and its
counsel, if so represented, reviewed and negotiated the terms and provisions of
this Agreement and have contributed to its revision and (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
18
<PAGE>
(i) The headings and captions of the various subdivisions of this
Agreement are for convenience of reference only and shall in no way modify or
affect the meaning or construction of any of the terms or provisions hereof.
(j) No failure or delay by a party hereto in exercising any right, power
or remedy under this Agreement, and no course of dealing between the parties
hereto, shall operate as a waiver of any such right, power or remedy of the
party. No single or partial exercise of any right, power or remedy under this
Agreement by a party hereto, nor any abandonment or discontinuance of steps to
enforce any such right, power or remedy, shall preclude such party from any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder. The election of any remedy by a party hereto shall not
constitute a waiver of the right of such party to pursue other available
remedies. No notice to or demand on a party not expressly required under this
Agreement shall entitle the party receiving such notice or demand to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the party giving such notice or demand to any other or
further action in any circumstances without such notice or demand.
(k) Wherever this Agreement refers to the neuter gender such reference
shall include the masculine and feminine genders as the context may require.
(l) Company and Investor agree to coordinate the rights provided for
herein in favor of Investor in respect of the Registrable Securities with the
rights in favor of Phoenix Home Life Mutual Insurance Company set forth in that
certain Registration Rights Agreement dated as of August 26, 1997 between
Phoenix Home Life Mutual Insurance Company and the Company so as to fully
realize the benefits provided for herein and therein in respect of the Investor
and Phoenix Home Life Mutual Insurance Company.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement by their duly authorized representatives as of the date first
written above.
COMMAND SYSTEMS, INC.
By: /s/ Edward G. Caputo, President
--------------------------------
Edward G. Caputo, President
PHL GLOBAL HOLDING CO.
By: /s/
--------------------------------
20
<PAGE>
EXHIBIT 10.4
COMMAND SYSTEMS, INC.
CO-SALE AGREEMENT
AUGUST 26, 1997
<PAGE>
COMMAND SYSTEMS, INC.
CO-SALE AGREEMENT
This Co-Sale Agreement (the "Agreement") is made as of this 26th day of
August, 1997, by and among Command Systems, Inc., a Delaware corporation (the
"Company"), Phoenix Home Life Mutual Insurance Company (hereto as "Stockholder")
and Edward G. Caputo (hereto as the "Founder").
RECITALS
WHEREAS, the Stockholder is exchanging certain notes evidencing indebtedness
of the Company's direct and indirect subsidiaries to the Stockholder (the
"Notes") for an aggregate of one hundred (100) shares (the "Shares") of the
Company's Series A Convertible Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock") subject to the terms and conditions set forth in
that certain Securities Exchange Agreement between the Company and the
stockholder dated as of the date hereof;
WHEREAS, the Stockholder was induced by the Company to exchange the Notes
for the Shares in part on the Company's and the Founder's agreement to enter
into this Agreement;
WHEREAS, the parties desire to enter into this Agreement in order to grant
rights of co-sale to each party.
NOW THEREFORE, in consideration of the mutual covenants set forth herein, the
parties agree hereto as follows:
1. DEFINITIONS.
a) "Co-Sale Stock" shall mean shares of the Company's Common Stock or
Preferred Stock now owned or subsequently acquired by the Founder. The
Founder is currently the owner of 8,550,000 of the Company's Common
Stock.
b) "Common Stock" shall mean the Company's Common Stock, $.01 par value per
share and shares of Common Stock issued or issuable upon conversion of
the Company's outstanding Preferred Stock.
2. SALES BY THE FOUNDER.
a) If the Founder proposes to sell or transfer any shares of Co-Sale Stock
then the Founder shall promptly give written notice (the "Notice")
simultaneously to the Company and to the Stockholder at least twenty (20)
days prior to the closing of such sale or transfer. The Notice shall
describe in reasonable detail the proposed sale or transfer including,
without limitation, the number of shares of Co-Sale
CO-SALE AGREEMENT
<PAGE>
Stock to be sold or transferred, the nature of such sale or transfer, the
consideration to be paid, and the name, address and relationship, if any,
to the Founder of each prospective purchaser or transferee. In the event
that the sale or transfer is being made pursuant to the provisions of
Sections 3(a), the Notice shall state under which section the sale or
transfer is being made. Upon the request of the Company or the
Stockholder, the Founder will promptly furnish to the Company and the
Stockholder such other information as may be reasonably requested to
establish that the offer and proposed transferee are bona fide.
b) The Stockholder shall have the right, exercisable upon written notice to
the Founder within fifteen (15) days after the Notice, to participate in
such sale of Co-Sale Stock on the same terms and conditions. Such notice
shall indicate the number of shares of Common Stock the Stockholder wishes
to sell under its right to participate. To the extent the Stockholder
exercises such right of participation in accordance with the terms and
conditions set forth below, the number of shares of Co-Sale Stock that the
Founder may sell in the transaction shall be correspondingly reduced.
c) The Stockholder may sell all or any part of that number of shares equal to
the product obtained by multiplying (i) the aggregate number of shares of
Co-Sale Stock covered by the Notice by (ii) a fraction the numerator of
which is the number of shares of Common Stock owned by the Stockholder at
the time of the sale or transfer and the denominator of which is the total
number of shares of Common Stock owned by the Founder and the Stockholder
at the time of the sale or transfer.
d) If the Stockholder elects to participate in the sale pursuant to this
Section 2, the Stockholder shall effect its participation in the sale by
promptly delivering to the Founder for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer, which
represent:
i) the type and number of shares of Common Stock which the Stockholder
elects to sell; or
ii) that number of shares of Series A Preferred Stock which is at such time
convertible into the number of shares of Common Stock which the
Stockholder elects to sell; provided, however, that if the prospective
purchaser objects to the delivery of Series A Preferred Stock in lieu
of Common Stock, the Stockholder shall convert such Series A Preferred
Stock into Common Stock and deliver Common Stock as provided in Section
2(d)(i) above. The Company agrees to make any such conversion
concurrent with the actual transfer to such shares to the purchaser.
e) The stock certificate or certificates that the Stockholder delivers to the
Founder pursuant to Section 2(d) shall be transferred to the prospective
purchaser in
CO-SALE AGREEMENT
<PAGE>
consummation of the sale of the Common Stock pursuant to the terms and
conditions specified in the Notice, and the Founder shall concurrently
therewith remit to the Stockholder that portion of the sale proceeds to
which the Stockholder is entitled by reason of its participation in such
sale. To the extent that any prospective purchaser or purchasers prohibits
such assignment or otherwise refuses to purchase shares or other
securities from the Stockholder exercising its rights of co-sale
hereunder, the Founder shall not sell to such prospective purchaser or
purchasers any Co-Sale Stock unless and until, simultaneously with such
sale, the Founder shall purchase such shares or other securities from the
Stockholder on the same terms and conditions specified in the Notice.
f) The exercise or non-exercise of the rights of the Stockholder hereunder to
participate in one or more sales of Co-Sale Stock made by the Founder
shall not adversely affect the Stockholder's rights to participate in
subsequent sales of Co-Sale Stock subject to Section 2(a).
g) If the Stockholder elects not to participate in the sale of the
Co-Sale Stock subject to the Notice, the Founder may, not later than sixty
(60) days following delivery to the Company of the Notice, enter into an
agreement providing for the closing of the transfer of the Co-Sale Stock
covered by the Notice within thirty (30) days of such agreement on terms
and conditions not more materially favorable to the transferor than those
described in the Notice. Any proposed transfer on terms and conditions
materially more favorable than those described in the Notice, as well as
any subsequent proposed transfer of any of the Co-Sale Stock by the
Founder, shall again be subject to the co-sale rights of the Stockholder
and shall require compliance by the Founder with the procedures described
in this Section 2.
3. EXEMPT TRANSFERS.
a) Notwithstanding the foregoing, the co-sale rights of the Stockholder shall
not apply to (i) any transfer or transfers by the Founder which in the
aggregate, over the term of this Agreement, amount to no more than fifteen
percent (15%) of the Co-Sale Stock held by the Founder as of the date
hereof, (ii) any pledge of Co-Sale Stock made pursuant to a bona fide loan
transaction with a financial institution that creates a mere security
interest to the extent permitted under the Amended and Restated Guaranty
Agreement, (iii) any transfer to the ancestors, descendants or spouse or
to trusts for the benefit of such persons or the Founder, or (iv) any bona
fide gift; provided that in the event of any transfer made pursuant to one
of the exemptions provided by clauses 3(a)(ii), (iii) and (iv), (A) the
Founder shall inform the Stockholder of such pledge, transfer or gift
prior to effecting it and (B) the pledgee, transferee or donee shall
furnish the Stockholder with a written agreement to be bound by and comply
with all provisions of Section 2. Except with respect to Co-Sale Stock
transferred under clause (i) above (which Co-Sale Stock shall no longer by
subject to the co-sale rights of the Stockholder), such transferred Co-
Sale Stock shall remain "Co-Sale Stock"
CO-SALE AGREEMENT
<PAGE>
hereunder, and such pledgee, transferee or donee shall be treated as the
"Founder" for purposes of this Agreement.
b) Notwithstanding the foregoing, the provisions of Section 2 shall
not apply to the sale of any Co-Sale Stock to the public pursuant to a
registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act").
4. PROHIBITED TRANSFERS.
a) In the event that the Founder should sell any Co-Sale Stock in
contravention of the co-sale rights of the Stockholder under this
Agreement (a "Prohibited Transfer"), and the Stockholder and the Company
are unable to void such transfer pursuant to Section 4(b)(iv) hereof, the
Stockholder (in addition to such other remedies as may be available at
law, in equity or hereunder) shall have the put option provided below, and
the Founder shall be bound by the applicable provisions of such option.
b) In the event of a Prohibited Transfer, the Stockholder shall have the
right to sell to the Founder the type and number of shares of Common Stock
equal to the number of shares the Stockholder would have been entitled to
transfer to the purchaser under Section 2(c) hereof had the Prohibited
Transfer been effected pursuant to and in compliance with the terms
hereof. Such sale shall be made on the following terms and conditions:
i) The price per share at which the shares are to be sold to the Founder
shall be equal to the price per share paid by the purchaser to the
Founder in such Prohibited Transfer. The Founder shall also reimburse
the Stockholder for any and all fees and expenses, including legal fees
and expenses, incurred pursuant to the exercise or the attempted
exercise of the Stockholder's rights under Section 2.
ii) Within ninety (90) days after the date on which the Stockholder
received notice of the Prohibited Transfer or otherwise became aware of
the Prohibited Transfer, the Stockholder shall, if exercising the
option created hereby, deliver to the Founder the certificate or
certificates representing shares to be sold, each certificate to be
properly endorsed for transfer.
iii) The Founder shall, upon receipt of the certificate or certificates for
the shares to be sold by the Stockholder, pursuant to this Section
4(b), pay the aggregate purchase price therefore and the amount of
reimbursable fees and expenses, as specified in Section 4(b)(i), in
cash or by other means acceptable to the Stockholder.
CO-SALE AGREEMENT
<PAGE>
iv) Notwithstanding the foregoing, any attempt by the Founder to transfer
Co-Sale Stock in a Prohibited Transfer shall be void, and the Company
agrees it will not effect such a transfer nor will it treat any alleged
transferee as the holder of such shares without the Stockholder's prior
written consent.
5. LEGEND.
a) Each certificate representing shares of Co-Sale Stock now or hereafter
owned by the Founder or issued to any person in connection with a
transfer pursuant to Section 3(a) hereof shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN EDWARD G. CAPUTO AND THE
COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST
TO THE SECRETARY OF THE COMPANY."
b) The Founder agrees that the Company may instruct its transfer agent to
impose transfer restrictions on the shares represented by certificates
bearing the legend referred to in Section 5(a) above to enforce the
provisions of this Agreement and the Company agrees to promptly do so.
The legend shall be removed upon termination of this Agreement.
6. MISCELLANEOUS.
a) Conditions to Exercise of Rights. Exercise of the Stockholder's rights
under this Agreement shall be subject to and conditioned upon, and the
Founder and the Company shall use their best efforts to assist Phoenix in
compliance with applicable laws.
b) Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Delaware as applied to agreements among
Delaware residents entered into and to be performed entirely within
Delaware.
c) Amendment. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only by the written
consent of (i) as to any obligation of the Company, only by the Company
and the Stockholder, (ii) as to any obligation of the Stockholder, only
by the Stockholder, the Founder and the Company and (iii) as to any
obligation of the Founder, only by the Founder and the Stockholder. Any
amendment or waiver effected in accordance with clauses (i), (ii), and
(iii) of this Section 6(c) shall be binding upon the Stockholder, its
successors
CO-SALE AGREEMENT
<PAGE>
and assignees, the Company and the Founder.
d) Assignment of Rights. This Agreement constitutes the entire agreement
between the parties relative to the specific subject matter hereof. Any
previous agreement among the parties relative to the specific subject matter
hereof is superseded by this Agreement. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal
representatives.
e) Term. This Agreement shall terminate upon the earlier of (i) ten years after
the date hereof and (ii) closing of a firm commitment underwritten public
offering of the Company's Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended or upon any merger,
consolidation or other acquisition of the Company.
f) Ownership. The Founder represents and warrants that he is the sole legal and
beneficial owner of those shares of Co-Sale Stock he currently holds subject
to the Agreement and that no other person has any interest (other than a
community property interest) in such shares.
g) Notices. All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (i) upon personal delivery to the party
to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the party to be notified at the address as set forth on the
signature page hereof or at such other address as such party may designate
by ten (10) days advance written notice to the other parties hereto.
h) Severability. In the event one or more of the provisions of this Agreement
should, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not
affect any other provisions of this Agreement, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
i) Attorneys' Fees. In the event that any dispute among the parties to this
Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with
CO-SALE AGREEMENT
<PAGE>
respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
j) 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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
CO-SALE AGREEMENT
<PAGE>
The foregoing Co-Sale Agreement is hereby executed as of the date first above
written.
COMMAND SYSTEMS, INC.
By: /s/ Edward G. Caputo
-------------------------------------
Edward G. Caputo,
President
ADDRESS:
THE FOUNDER:
/s/ Edward G. Caputo
---------------------------------------
Edward G. Caputo
ADDRESS:
THE STOCKHOLDER:
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
By: /s/ Richard H. Booth
-----------------------------------
Name: Richard H. Booth
Title: Executive Vice President
ADDRESS: One American Row
Hartford, CT 06102
CO-SALE AGREEMENT
<PAGE>
EXHIBIT 10.6
COMMAND SYSTEMS, INC.
CO-SALE AGREEMENT
DECEMBER 31, 1997
<PAGE>
COMMAND SYSTEMS, INC.
CO-SALE AGREEMENT
This Co-Sale Agreement (the "Agreement") is made as of this 31st day of
December, 1997, by and among Command Systems, Inc., a Delaware corporation (the
"Company"), PHL Global Holding Co. (the "Stockholder") and Edward G. Caputo (the
"Founder").
RECITALS
WHEREAS, the Stockholder is exchanging 22,67,720 equity shares Rs.10/ (the
"Minority Shares") of Command International Software, Pvt., an Indian unlimited
liability company ("Command Software"), for an aggregate of one hundred (100)
shares (the "Shares") of the Company's voting Series B Convertible Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock"), subject to the
terms and conditions set forth in that certain Stock Exchange Agreement by and
among the Company, the Stockholder and Phoenix Home Life Mutual Insurance
Company ("Phoenix") and dated as of the date hereof;
WHEREAS, the Stockholder was induced by the Company to exchange the
Minority Shares for the Shares in part on the Company's and the Founder's
agreement to enter into this Agreement;
WHEREAS, the parties desire to enter into this Agreement in order to grant
rights of co-sale to each party.
NOW THEREFORE, in consideration of the mutual covenants set forth herein,
the parties agree hereto as follows:
1. DEFINITIONS.
a) "Co-Sale Stock" shall mean shares of the Company's Common Stock or
Preferred Stock now owned or subsequently acquired by the Founder. The
Founder is currently the owner of not less than a majority of the
Company's issued and outstanding shares of Common Stock.
b) "Common Stock" shall mean the Company's Common Stock, $.01 par value
per share and shares of Common Stock issued or issuable upon conversion
of the Company's outstanding Series B Preferred Stock.
2. SALES BY THE FOUNDER.
a) If the Founder proposes to sell or transfer any shares of Co-Sale
Stock then the Founder shall promptly give written notice (the
"Notice") simultaneously to the Company and to the Stockholder at least
twenty (20) days prior to the closing of
CO-SALE AGREEMENT
<PAGE>
such sale or transfer. The Notice shall describe in reasonable detail
the proposed sale or transfer including, without limitation, the number
of shares of Co-Sale Stock to be sold or transferred, the nature of
such sale or transfer, the consideration to be paid, and the name,
address and relationship, if any, to the Founder of each prospective
purchaser or transferee. In the event that the sale or transfer is
being made pursuant to the provisions of Sections 3(a), the Notice
shall state under which section the sale or transfer is being made.
Upon the request of the Company or the Stockholder, the Founder will
promptly furnish to the Company and the Stockholder such other
information as may be reasonably requested to establish that the offer
and proposed transferee are bona fide.
b) The Stockholder shall have the right, exercisable upon written notice
to the Founder within fifteen (15) days after the Notice, to
participate in such sale of Co-Sale Stock on the same terms and
conditions. Such notice shall indicate the number of shares of Common
Stock the Stockholder wishes to sell under its right to participate. To
the extent the Stockholder exercises such right of participation in
accordance with the terms and conditions set forth below, the number of
shares of Co-Sale Stock that the Founder may sell in the transaction
shall be correspondingly reduced.
c) The Stockholder may sell all or any part of that number of shares equal
to the product obtained by multiplying (i) the aggregate number of
shares of Co-Sale Stock covered by the Notice by (ii) a fraction the
numerator of which is the number of shares of Common Stock owned by the
Stockholder at the time of the sale or transfer and the denominator of
which is the total number of shares of Common Stock owned by the
Founder and the Stockholder at the time of the sale or transfer.
d) If the Stockholder elects to participate in the sale pursuant to this
Section 2, the Stockholder shall effect its participation in the sale
by promptly delivering to the Founder for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer,
which represent:
i) the type and number of shares of Common Stock which the
Stockholder elects to sell; or
ii) that number of shares of Series B Preferred Stock which is at
such time convertible into the number of shares of Common Stock
which the Stockholder elects to sell; provided, however, that
if the prospective purchaser objects to the delivery of Series
B Preferred Stock in lieu of Common Stock, the Stockholder
shall convert such Series A Preferred Stock into Common Stock
and deliver Common Stock as provided in Section 2(d)(i) above.
The Company agrees to make any such conversion concurrent with
the actual transfer to such shares to the purchaser.
2
CO-SALE AGREEMENT
<PAGE>
e) The stock certificate or certificates that the Stockholder delivers to
the Founder pursuant to Section 2(d) shall be transferred to the
prospective purchaser in consummation of the sale of the Common Stock
pursuant to the terms and conditions specified in the Notice, and the
Founder shall concurrently therewith remit to the Stockholder that
portion of the sale proceeds to which the Stockholder is entitled by
reason of its participation in such sale. To the extent that any
prospective purchaser or purchasers prohibits such assignment or
otherwise refuses to purchase shares or other securities from the
Stockholder exercising its rights of co-sale hereunder, the Founder
shall not sell to such prospective purchaser or purchasers any Co-Sale
Stock unless and until, simultaneously with such sale, the Founder
shall purchase such shares or other securities from the Stockholder on
the same terms and conditions specified in the Notice.
f) The exercise or non-exercise of the rights of the Stockholder hereunder
to participate in one or more sales of Co-Sale Stock made by the
Founder shall not adversely affect the Stockholder's rights to
participate in subsequent sales of Co-Sale Stock subject to Section
2(a).
g) If the Stockholder elects not to participate in the sale of the Co-Sale
Stock subject to the Notice, the Founder may, not later than sixty (60)
days following delivery to the Company of the Notice, enter into an
agreement providing for the closing of the transfer of the Co-Sale
Stock covered by the Notice within thirty (30) days of such agreement
on terms and conditions not more materially favorable to the transferor
than those described in the Notice. Any proposed transfer on terms and
conditions materially more favorable than those described in the
Notice, as well as any subsequent proposed transfer of any of the Co-
Sale Stock by the Founder, shall again be subject to the co-sale rights
of the Stockholder and shall require compliance by the Founder with the
procedures described in this Section 2.
3. EXEMPT TRANSFERS.
a) Notwithstanding the foregoing, the co-sale rights of the Stockholder
shall not apply to (i) any transfer or transfers by the Founder which
in the aggregate, over the term of this Agreement, amount to no more
than fifteen percent (15%) of the Co-Sale Stock held by the Founder as
of the date hereof, (ii) any pledge of Co-Sale Stock made pursuant to a
bona fide loan transaction with a financial institution that creates a
mere security interest to the extent permitted under the Amended and
Restated Guaranty Agreement of the Founder dated August 26, 1997, (iii)
any transfer to the ancestors, descendants or spouse or to trusts for
the benefit of such persons or the Founder, or (iv) any bona fide gift;
provided that in the event of any transfer made pursuant to one of the
exemptions provided by clauses 3(a)(ii), (iii) and (iv), (A) the
Founder shall inform the Stockholder of such pledge, transfer or gift
prior to effecting it and (B) the pledgee, transferee or donee shall
furnish the Stockholder with a written agreement to be bound by and
comply with all provisions of Section 2. Except with respect to Co-Sale
Stock
3
CO-SALE AGREEMENT
<PAGE>
transferred under clause (i) above (which Co-Sale Stock shall no longer
by subject to the co-sale rights of the Stockholder), such transferred
Co-Sale Stock shall remain "Co-Sale Stock" hereunder, and such pledgee,
transferee or donee shall be treated as the "Founder" for purposes of
this Agreement.
b) Notwithstanding the foregoing, the provisions of Section 2 shall not
apply to the sale of any Co-Sale Stock to the public pursuant to a
registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act").
4. PROHIBITED TRANSFERS.
a) In the event that the Founder should sell any Co-Sale Stock in
contravention of the co-sale rights of the Stockholder under this
Agreement (a "Prohibited Transfer"), and the Stockholder and the
Company are unable to void such transfer pursuant to Section 4(b)(iv)
hereof, the Stockholder (in addition to such other remedies as may be
available at law, in equity or hereunder) shall have the put option
provided below, and the Founder shall be bound by the applicable
provisions of such option.
b) In the event of a Prohibited Transfer, the Stockholder shall have the
right to sell to the Founder the type and number of shares of Common
Stock equal to the number of shares the Stockholder would have been
entitled to transfer to the purchaser under Section 2(c) hereof had the
Prohibited Transfer been effected pursuant to and in compliance with
the terms hereof. Such sale shall be made on the following terms and
conditions:
i) The price per share at which the shares are to be sold to the
Founder shall be equal to the price per share paid by the
purchaser to the Founder in such Prohibited Transfer. The
Founder shall also reimburse the Stockholder for any and all
fees and expenses, including legal fees and expenses, incurred
pursuant to the exercise or the attempted exercise of the
Stockholder's rights under Section 2.
ii) Within ninety (90) days after the date on which the Stockholder
received notice of the Prohibited Transfer or otherwise became
aware of the Prohibited Transfer, the Stockholder shall, if
exercising the option created hereby, deliver to the Founder
the certificate or certificates representing shares to be sold,
each certificate to be properly endorsed for transfer.
iii) The Founder shall, upon receipt of the certificate or
certificates for the shares to be sold by the Stockholder,
pursuant to this Section 4(b), pay the aggregate purchase price
therefore and the amount of reimbursable fees and expenses, as
specified in Section 4(b)(i), in cash or by other means
4
CO-SALE AGREEMENT
<PAGE>
acceptable to the Stockholder.
iv) Notwithstanding the foregoing, any attempt by the Founder to
transfer Co-Sale Stock in a Prohibited Transfer shall be void,
and the Company agrees it will not effect such a transfer nor
will it treat any alleged transferee as the holder of such
shares without the Stockholder's prior written consent.
5. LEGEND.
a) Each certificate representing shares of Co-Sale Stock now or hereafter
owned by the Founder or issued to any person in connection with a
transfer pursuant to Section 3(a) hereof shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN EDWARD G. CAPUTO AND THE
COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST
TO THE SECRETARY OF THE COMPANY."
b) The Founder agrees that the Company may instruct its transfer agent to
impose transfer restrictions on the shares represented by certificates
bearing the legend referred to in Section 5(a) above to enforce the
provisions of this Agreement and the Company agrees to promptly do so.
The legend shall be removed upon termination of this Agreement.
6. MISCELLANEOUS.
a) Conditions to Exercise of Rights. Exercise of the Stockholder's rights
under this Agreement shall be subject to and conditioned upon, and the
Founder and the Company shall use their best efforts to assist Phoenix
in compliance with applicable laws.
b) Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Delaware as applied to agreements among
Delaware residents entered into and to be performed entirely within
Delaware.
c) Amendment. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only by the
written consent of (i) as to any obligation of the Company, only by the
Company and the Stockholder, (ii) as to any obligation of the
Stockholder, only by the Stockholder, the Founder and the Company and
(iii) as to any obligation of the Founder, only by the Founder and the
Stockholder. Any
5
CO-SALE AGREEMENT
<PAGE>
amendment or waiver effected in accordance with clauses (i), (ii), and
(iii) of this Section 6(c) shall be binding upon the Stockholder, its
successors and assignees, the Company and the Founder.
d) Assignment of Rights. This Agreement constitutes the entire agreement
between the parties relative to the specific subject matter hereof. Any
previous agreement among the parties relative to the specific subject
matter hereof is superseded by this Agreement. This Agreement and the
rights and obligations of the parties hereunder shall inure to the
benefit of, and be binding upon, their respective successors, assigns
and legal representatives.
e) Term. This Agreement shall terminate upon the earliest to occur of (i)
ten years after the date hereof, (ii) the date that the Founder ceases
to own shares of Co-Sale Stock constituting at least twenty-five
percent (25%) the Company's issued and outstanding Common Stock on a
fully-diluted basis and (iii) the date that the Stockholder, together
with its affiliates (as defined in Rule 405 under the Securities Act),
ceases to own shares of Common Stock constituting at least five percent
(5%) of the Company's issued and outstanding Common Stock on a
fully-diluted basis.
f) Ownership. The Founder represents and warrants that he is the sole
legal and beneficial owner of those shares of Co-Sale Stock he
currently holds subject to the Agreement and that no other person has
any interest (other than a community property interest) in such shares.
g) Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if
not, then on the next business day, (iii) five (5) days after having
been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to
the party to be notified at the address as set forth on the signature
page hereof or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.
h) Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provisions of this
Agreement, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never
6
CO-SALE AGREEMENT
<PAGE>
been contained herein.
i) Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement, including without
limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs
and expenses of appeals.
j) 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.
k) Coordination. Stockholder and Founder agree to coordinate the rights
provided for herein in favor of Stockholder in respect of the sale of
any Co-Sale Stock with the rights in favor of Phoenix set forth in that
certain Co-Sale Agreement dated as of August 26, 1997 by and among
Phoenix, the Company and the Founder, so as to fully realize the
benefits provided for herein and therein in respect of the Stockholder
and Phoenix.
[THIS SPACE INTENTIONALLY LEFT BLANK]
7
CO-SALE AGREEMENT
<PAGE>
The foregoing Co-Sale Agreement is hereby executed as of the date first
above written.
COMMAND SYSTEMS, INC.
By: /s/ Edward G. Caputo
------------------------------------
Edward G. Caputo,
President
ADDRESS: 76 Batterson Park Road
Pond View Corporate Center
Farmington, Connecticut 06032
THE FOUNDER:
/s/ Edward G. Caputo
------------------------------------
Edward G. Caputo
ADDRESS: 6 Morgan Place
Avon, Connecticut 06001
THE STOCKHOLDER:
PHL GLOBAL HOLDING CO.
By: /s/
------------------------------------
Name:
Title:
ADDRESS: One American Row, P.O. Box 5056
Hartford, Connecticut 06102-5056
8
CO-SALE AGREEMENT
<PAGE>
EXHIBIT 10.8
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT made this 30th day of November, 1993, by and between
COMMAND SYSTEMS INCORPORATED, a Connecticut corporation having its chief
executive office at One Corporate Center, Hartford, Connecticut 06103
("Debtor"), and PEOPLE'S BANK, a Connecticut banking corporation having its
chief executive office at 850 Main Street, Bridgeport, Connecticut 06604-4913
("Secured Party"),
W I T N E S S E T H:
WHEREAS, Debtor has requested Secured Party to make available to it loans
from time to time (collectively, "Loans," and individually, the "Loan") pursuant
to the provisions of Paragraph 4, Paragraph 5 and Paragraph 6 of this Agreement
and Secured Party is willing to make the Loans to Debtor on the terms and
conditions and in reliance upon the representations and warranties of Debtor
hereinafter set forth:
NOW, THEREFORE, in consideration of the foregoing and in further
consideration of the mutual covenants herein contained, the parties hereto agree
as follows:
1. Security Interest. Debtor hereby assigns and grants to Secured
-----------------
Party a security interest in all Debtor's tangible and intangible personal
properties (excluding Motor Vehicles) whether now owned or hereafter acquired by
it, including, without limitation, Equipment, Accounts, Inventory, Chattel
Paper, General Intangibles and Instruments, together with the products and
proceeds thereof (sometimes collectively call the "Collateral") to secure
payment to Secured Party of the Obligations.
2. Definitions. As used herein the following terms shall have the
-----------
following meanings:
(a) "Accounts" shall mean any right to payment held by Debtor,
whether in the form of accounts receivable, notes, drafts, acceptances or other
forms of obligations and receivables now or hereafter received by or belonging
to Debtor for Inventory sold or leased by it or for services rendered by it
whether or not earned by performance, together with all guarantees and security
therefor and all proceeds thereof, whether cash proceeds or otherwise,
including, but not limited to, all right, title and interest of Debtor in the
Inventory which gave rise to any such Accounts, including, but not limited to,
the right of stoppage in transit and all returned, rejected, rerouted or
repossessed Inventory;
(b) "Affiliate" shall mean any Person, directly or indirectly,
controlling, controlled by, or under common control with Debtor. A Person shall
be conclusively deemed to be in control of or to be controlled by another Person
if it holds thirty percent (30%) or more of the outstanding equity interest in
such other person or such other person holds thirty percent (30%) or more of its
outstanding equity interest. As used herein the term "equity interest" in the
case of a corporation shall mean the outstanding shares of such corporation
having voting power to elect a majority of its Board of Directors, whether or
not at the time the holders of any other class or classes
<PAGE>
of securities of such corporation shall or might have such voting power by
reason of the happening of any contingency;
(c) "Chattel Paper" shall mean a writing or writings which evidence
both a monetary obligation and a security interest in or a lease of specific
goods, whether now or hereafter held by Debtor;
(d) "Equipment" shall mean all the machinery, equipment, furniture,
tools, goods and other tangible personal property, excluding Motor Vehicles, now
owned or hereafter acquired by Debtor, including, but not limited to, the
Equipment referred to in Exhibit A annexed hereto and made a part hereof;
---------
(e) "Event of Default" shall mean the existence of a state of facts
which constitute a default under the provisions of Paragraph 13 of this
Agreement or which after the passage of time, the giving of notice, or both,
would constitute such a default under said Paragraph 13;
(f) "General Intangibles" shall mean any intangible personal
property (including, but not limited to, things in action) now or hereafter held
by Debtor, other than Accounts, Chattel Paper and Instruments;
(g) "Instruments" shall mean a negotiable instrument or a security,
as defined in the Uniform Commercial Code of Connecticut, or any other writing
which evidences a right to the payment of money and is not itself a security
agreement or lease and is of a type which, in the ordinary course of business,
is transferred by delivery with any necessary endorsement or assignment, whether
now or hereafter held by Debtor;
(h) "Inventory" shall mean all goods, merchandise, raw materials,
work in process, finished goods and products and other tangible personal
property now owned or hereafter acquired by Debtor and held for sale or lease or
furnished or to be furnished under contracts of service or used or consumed in
Debtor's business;
(i) "Line of Credit Loans" shall mean the loans referenced in
Paragraph 5 herewith;
(j) "Loans" shall mean the Term Loan, the Line of Credit Loans and
the Revolver/Term Loans from time to time outstanding;
(k) "Motor Vehicles" shall have the same meaning as that contained
in Section 14-1(30) of the General Statutes of Connecticut, as revised to 1993;
(l) "Obligations" shall mean the Loans and any and all other
advances made hereunder, together with interest thereon, and any and all other
liabilities and obligations of whatever nature of Debtor to Secured Party, no
matter how or when arising and whether under this Agreement, the agreements,
instruments and documents required to be executed and delivered by Debtor to
Secured Party pursuant to the terms hereof, or under any other agreements,
guarantees, instruments or documents, past, present or future, and the amount
due on any notes, or other obligations of Debtor given to, received by or held
by Secured Party (including, but not limited to, overdrafts or any debt,
liability or obligation of Debtor to others which Secured Party may obtain by
assignment or
2
<PAGE>
otherwise) for or on account of any of the foregoing, whether, in each case,
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising;
(m) "Person" shall mean a natural person, a corporation, a
partnership, or any other entity;
(n) "Prime rate" shall men the index Secured Party used to set
interest rates on certain types of loans, and is not necessarily the lowest rate
Secured Party charges its customers. Secured Party increases or decreases its
Prime rate from time to time in response to changes in money market conditions;
(o) "Qualified Accounts" shall mean all Accounts of Debtor which are
from time to time deemed by Secured Party, in its sole discretion, to be
eligible in computing the amount of Line of Credit Loans and Revolver/Term Loans
which Secured Party, in its sole discretion, may make to Debtor pursuant to
Paragraph 5 and Paragraph 6 hereof. In determining whether or not any Accounts
of Debtor shall be deemed to be qualified Accounts Secured Party may consider
whether or not;
(i) Such Accounts are subject to offsets, contraclaims,
counterclaims, deductions, disputes, or discounts of any nature whatsoever
claims or which, under the terms of any agreement or otherwise, may be
claimed by the account debtor or account debtors which respect thereto;
(ii) Such Accounts represent undisputed, bona fide indebtedness
to Debtor of account debtors (who are not Affiliates of Debtor) which are
incorporated, qualified to do business or reside in any state of the United
States of America, or the District of Columbia, for Inventory sold and
shipped or leased by Debtor or for services rendered by Debtor to or for
such account debtor or account debtors in jurisdictions in which Debtor is
qualified to do business, or, if it is not qualified to do business in such
a jurisdiction, such sale or lease rendering of services or other activities
of Debtor therein would not subject Debtor to qualify to do business
therein;
(iii) The assignment of such Accounts will violate the purchase
orders or contracts which gave rise thereto, and Secured Party's security
interest therein is perfected under applicable law;
(iv) Debtor is the lawful owner and has a good right to pledge,
sell, assign, transfer and to grant a security interest in the Accounts;
(v) The Accounts have been pledged, sold, assigned, transferred
or encumbered to any Person other than Secured Party;
(vi) The Inventory sold or leased to the account debtor or
account debtors or the service rendered to the account debtor or accounts
debtors which gave rise to the Accounts has actually been shipped and/or
conforms to the contract and has not been rejected;
(vii) The Accounts are owing by an accounting debtor who, since
the date of billing such Account, has died, dissolved, terminated its
existence, become insolvent (which term shall include both a negative
tangible net worth and an inability to pay its debts as they
3
<PAGE>
mature), suffered a business failure, been subjected either voluntarily
or involuntarily to the appointment of a receiver of any part of his or
its property, made an assignment for the benefit of his or its creditors,
requested creditors to standby, or has filed or had filed against him or
it a petition in bankruptcy or any other proceeding under any bankruptcy
or insolvency laws; and
(viii) The Accounts have been outstanding for a period in excess
of ninety (90) days (or such shorter or longer period as Secured Party
may determine) from the date of the sale of goods or the issuance of an
invoice for rendering of services in accordance with the contract or
purchase order relating thereto or the due date of the rental payment for
the lease of Inventory in accordance with the terms of such lease.
In the event an account debtor owes Accounts to Debtor some of which
are Qualified Accounts (but for this provision) and some of which would not be
Qualified Accounts because of the foregoing provisions of this subparagraph (o),
Secured Party may classify all such Accounts owed by such account debtor as not
being Qualified Accounts. In the event of any dispute as to whether or not any
Accounts are Qualified Accounts, the determination of Secured Party shall at all
times control;
(p) "Revolver/Term Loans" shall mean the loans referenced in
Paragraph 6 herein;
(q) "Subsidiary" shall mean a corporation (with respect to another
corporation) of which more than thirty percent (30%) of the outstanding stock
having voting power to elect a majority of its Board of Directors (whether or
not at the time the holders of any other class or classes of securities of such
corporation shall or might have such voting power by reason of the happening of
any contingency) is at any time directly or indirectly owned by another
corporation or an Affiliate of any such other corporation;
(r) "Term Loan" shall mean the loan referenced in Paragraph 4 herein.
3. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
------------------------------
Secured Party that:
(a) The review level financial statement of Debtor, as of January 27,
1993, prepared by KPMG Peat Marwick previously furnished to Secured Party, is
correct in every material respect, there has not been any material adverse
change in the financial condition of Debtor since the date thereof, and Debtor
has no liabilities, fixed or contingent, which are not fully shown or provided
for in said financial statement as at the date thereof except (i) as otherwise
set forth in Exhibit B annexed hereto and made a part hereof and (ii)
---------
obligations to perform after such date under contracts, purchase orders and
other commitments incurred in the ordinary course of business;
(b) Except as otherwise set forth in Exhibit C annexed hereto and
---------
made a part hereof, Debtor has, or will have, when acquired by it, good and
marketable title to the Collateral free from any adverse liens, security
interests or encumbrances, and no financing statements covering all or any part
of the Collateral are on file are on file in the office of the Secretary of the
State of Connecticut, Secretary of the State of Massachusetts, the Town Clerk of
Hartford, Connecticut, the Town Clerk of Stamford, Connecticut, or the Town
Clerk of Natick, Massachusetts, or in any other governmental office, whether or
not property filed under applicable law, and there are no liens or encumbrances
on any of the other properties of Debtor, except as set forth in said Exhibit C;
---------
4
<PAGE>
(c) Debtor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Connecticut with all the requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted and is duly qualified and in good
standing in every jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary;
(d) There is no judgment, decree or order outstanding or litigation
or governmental proceeding or investigation pending, or to the knowledge of the
officers of Debtor threatened against it which might have a material adverse
effect upon its position, financial, operating or otherwise, except as disclosed
on Exhibit D annexed hereto and made a part hereof, and Debtor has filed all tax
---------
returns and reports required to be filed by it with the United States Government
and all state and local governments and has paid in full or made adequate
provision for the payment of all taxes, interest, penalties, assessments or
deficiencies shown to be due or claimed to be due on or in respect of such tax
returns and reports;
(e) The execution and delivery of this Agreement and each and every
other agreement, instrument or document required to be executed and delivered to
Secured Party by Debtor pursuant to the terms hereof, have been duly authorized,
are each valid, legal and binding upon it and enforceable in accordance with
their respective terms;
(f) The execution and delivery of this Agreement and each and every
other agreement, instrument or document required to be executed and delivered to
Secured Party by Debtor pursuant to the terms hereof, the consummation of the
transactions herein contemplated, the fulfillment of or compliance with the
terms and provisions hereof and of each and every other instrument, agreement or
document required to be executed and delivered to Secured Party by Debtor
pursuant to the terms hereof, are within its powers, are not in contravention of
any provisions of its Certificate of Incorporation or any amendments thereto, or
of its By-Laws, and will not conflict with or result in a breach of any of the
terms, conditions or provisions of any agreement, instrument or other
undertaking to which it is a party or by which it is bound, do not constitute a
default thereunder or under any of them, and will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of its property or assets pursuant to the terms of any such agreement,
instrument or other undertaking, do not require the consent or approval of any
governmental body, agency or authority and will not violate the provisions of
any laws or regulations of any governmental instrumentality applicable to
Debtor. Debtor is not in default under any agreement, indenture, mortgage, deed
of trust, or any other agreement or any court order or other order issued by any
governmental regulatory authority to which it is a party or by which it may be
bound;
(g) The Collateral, the records relating thereto and the place of
business and chief executive office of Debtor are all at the address of Debtor
first hereinabove set forth and at Debtor's Stamford, Connecticut and Natick,
Massachusetts locations;
(h) Subject to any limitations stated therein or in connection
therewith, all information furnished or to be furnished by Debtor pursuant to
the terms hereof will not, at the time the same is furnished, contain any untrue
statement of a material fact and will not omit to state a material fact
necessary in order to make the information so furnished, in the light of the
circumstances under which such information is furnished, not misleading;
5
<PAGE>
(i) The indebtedness of Debtor for money borrowed by it, as of the
date hereof, is as shown on Exhibit E annexed hereto and made a part hereof, and
---------
there does not exist any default with respect thereto, or an event which by the
passage of time, the giving of notice, or both, would constitute such a default,
and which would give rise to a right to accelerate such indebtedness;
(j) To the best of its knowledge, Debtor is in compliance with all
laws, ordinances, rules or regulations, applicable to it, of all federal, state
or local governments or any instrumentality or agency thereof, including, but
not limited to, the Employee Retirement Income Security Act ("ERISA"), the
United States Occupational Safety and Health Act ("OSHA") and all federal, state
and municipal laws, ordinances, rules and regulations relating to the
environment;
(k) The holders of all outstanding stock of Debtor are as shown on
Exhibit F annexed hereto and made a part hereof; Debtor has no Subsidiaries and
- ---------
has not invested in the stock, common or preferred, of any other corporation,
other than as shown on said Exhibit F, and there are no fixed, contingent or
---------
other obligations on the part of Debtor to issue any additional shares of its
capital stock, other than as described in said Exhibit F;
---------
(l) Exhibit G annexed hereto and made a part hereof sets forth all
---------
leases pursuant to which Debtor leases real or personal property of every nature
or description, the amount of rent payable under each such lease and the terms
thereof;
(m) Debtor is not a party to any agreement or instrument or subject
to any corporate restriction (including any restriction set forth in its
Certificate of Incorporation) materially and adversely affecting its operations,
business, properties or financial condition;
(n) Debtor possesses all the trademarks, trade names, copyrights,
patents, licenses and governmental permits, licenses, orders and approvals, or
rights in any thereof, adequate for the conduct of its business as now conducted
and presently proposed to be conducted, without conflict of the rights or
claimed rights of others, and no action or filing with or consent by, any Person
or any governmental or public body or authority, is required to authorize or is
otherwise required in connection with the conduct of Debtor's business as now
and presently proposed to be conducted; and
(o) Debtor conducts its business solely in its own name without the
use of a trade name or the intervention of or through any other entity of any
kind, except as disclosed on Exhibit H annexed hereto and made a part hereof.
---------
4. AMOUNT AND TERMS OF TERM LOAN. Pursuant to the terms of this
-----------------------------
Agreement, and upon the satisfaction of the conditions precedent referred to in
Paragraph 14 hereof, and so long as Debtor is in compliance with the Collateral
Coverage Ratio outlined in Paragraph 7(a)(vi) herein, Secured Party will make
the Term Loan to Debtor upon the following terms and conditions:
(a) The Term Loan shall be in the amount of Five Hundred Twenty
Thousand and 00/100 Dollars ($520,000.00), and shall be evidenced by a
promissory note (herein referred to as the "Term Loan Note") in the form annexed
hereto as Exhibit I-I and made a part hereof, with appropriate insertions of
-----------
names, dates and amounts, which shall be unconditionally guaranteed by Edward G.
Caputo (hereinafter sometimes referred to as "Guarantor"). The Term Loan shall
bear interest at a rate per annum equal to one (1%) percentage point above the
Prime Rate which, at the date hereof is six percent (6.00%), so that the initial
rate of interest shall be seven percent (7.00%); provided that the rate of
interest charged hereunder shall never exceed the maximum amount, if any,
6
<PAGE>
allowable by law. In the event the Prime Rate is either increased or decreased,
the rate of interest on the Term Loan shall be adjusted on the day that the
Prime Rate is so changed so as to reflect such increase or decrease in the Prime
Rate. Interest shall be charged on the principal balance from time to time
outstanding on the basis of the actual number of days elapsed computed on the
basis of a three hundred sixty (360) day year;
(b) Principal shall be paid in equal monthly installments of Eight
Thousand Five Hundred and 00/100 Dollars ($8,500.00) each, commencing on the
fifteenth day of December, 1993, and on the fifteenth day of each and every
month thereafter until November 15, 1998, at which time the then outstanding
principal amount, together with interest accrue thereon, shall be paid in full.
Each such payment of principal shall be accompanied by the payment of interest
accrued on the from time to time outstanding principal amount. All such
payments shall be first applied to outstanding interest and then to outstanding
principal. Debtor hereby authorizes Secured Party to debit Debtor's operating
account with Secured Party for each monthly payment of principal and interest
owed; and
(c) Debtor shall have the right, on any principal payment date, to
prepay the Term Loan in whole or in part in multiples of ten Thousand and 00/100
Dollars ($10,000.00) each (if accompanied by interest accrued on the amount of
any such prepayment) provided that (i) Debtor gives the holder of the Note not
less than ten (10) days prior written notice of Debtor's intention to make such
prepayment; and (ii) if any such prepayment, in whole or in part, is made,
directly or indirectly from funds borrowed by Debtor from a third Person, such
prepayment shall be accompanied by a premium which shall be equal to three
percent (3%) of the amount of such prepayments. Any such partial prepayments
shall be applied to the principal payments most remotely becoming due under the
Note.
5. AMOUNT AND TERMS OF LINE OF CREDIT LOANS. Pursuant to the terms of
-----------------------------------------
this Agreement, and upon the satisfaction of the conditions precedent referred
to in Paragraph 14 hereof, and as long as Debtor is in compliance with the
Collateral Coverage Ratio outlined in Paragraph 7(a)(vi) herein, Secured Party
may, in the exercise of its sole discretion, make Line of Credit Loans to
Debtor, upon its request, which in the aggregate do not exceed the lesser of Two
Hundred Thousand and 00/100 dollars ($200,000.00) or eighty percent (80%) (or
such greater or lesser percentage as Secured Party may from time to time
determine) of Qualified Accounts. The Line of Credit Loans and each of them
shall be made on the following terms and conditions:
(a) The principal amount of the Line of Credit Loans, or such part
thereof as may be from time to time outstanding, shall be evidenced by Debtor's
promissory note, in the form of Exhibit I-II annexed hereto and made a part
------------
hereof (hereinafter referred to as the "Line of Credit Note"), with appropriate
insertions of names, dates and amounts, which shall be guaranteed by Guarantor.
The Line of Credit Note shall be in the maximum aggregate principal amount which
Secured Party from time to time intends to lend to Debtor, notwithstanding
availability for Line of Credit Loans which might otherwise exist because of the
amount of the then Qualified Accounts. The Line of Credit Note shall e in the
amount of Two Hundred Thousand and 00/100 dollars ($200.000.00). Nothing
contained in this subparagraph (a) shall be deemed to prohibit Secured Party
from lending in excess of the principal amount of the outstanding Line of Credit
Note, to delimit the definition of "Obligations" contained herein or to
constitute a waiver, release or subordination by Secured Party of the security
interest in the Collateral herein granted by Debtor to Secured Party as security
for the Obligations;
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(b) In the event Debtor desires a Line of Credit Loan it may
request the same by delivering to Secured Party a request for advance, in the
form of Exhibit J and a Borrowing Base Certificate in the form of Exhibit K,
--------- ---------
each annexed hereto and made a part hereof. The Line of Credit Loans shall be
made by Secured Party depositing the proceeds thereof in Debtor's demand deposit
account maintained by it with Secured Party;
(c) The aggregate principal amount of the Line of Credit Loans from
time to time outstanding shall bear interest at a rate per annum equal to two
(2) percentage points above the Prime Rate which at the date hereof is six
percent (6.00%), so that the initial rate of interest payable hereunder shall be
eight percent (8.00%); provided, however, that the rate of interest charged
hereunder shall never exceed the maximum amount, if any, allowable by law. In
the event the Prime Rate is either increased or decreased, the rate of interest
on the Line of Credit Loans then outstanding shall be adjusted on the day the
Prime Rate is so changed so as to reflect such increase or decrease in the Prime
Rate. Interest shall be payable monthly on the fifteenth day of each month and
shall be charged on the daily principal balance of the Line of Credit Loans from
time to time outstanding on the basis of a three hundred sixty (360) day year,
and the outstanding principal amount owed on the Line of Credit Loan, together
with all interest accrued thereon, shall be due and payable in full on November
15, 1994 unless the Line of Credit is extended pursuant to subparagraph (e)
herein. Debtor hereby authorizes Secured Party to debit Debtor's operating
account with Secured Party for each monthly interest payment owed;
(d) The Line of Credit Loans made by Secured Party to Debtor pursuant
to this Paragraph 5 shall be recorded in an account on the books of Secured
Party bearing Debtor's name (Debtor's Account"). There shall also be recorded in
Debtor's Account all payments made by Debtor on the Line of Credit Loans,
proceeds of the Collateral received by Secured Party which are, in the exercise
of Secured Party's sole discretion, applied by Secured Party to the Additional
Loans, interest and expenses and other appropriate debits and credits as herein
provided. Secured Party shall from time to time render and send to Debtor a
statement of Debtor's Account showing the outstanding aggregate principal
balance of the Line of Credit Loans, together with interest and other
appropriate debits and credits as of the date of the statement. The statement of
Debtor's Account shall be considered correct in all respects and accepted by and
be conclusively binding upon Debtor unless Debtor makes specific written
objections thereto within fifteen (15) days after the date the statement of
Debtor's Account is sent;
(e) The provisions of this paragraph 5 shall continue in effect for
one year after the date hereof, and from year to year thereafter, unless
terminated as to future transactions by either party hereto giving not less than
thirty (30) days written notice of termination prior to the end of any such one
year period to the other party hereto, provided, however, that Secured Party may
terminate the provisions of this Paragraph 5 at any time upon the happening of
an Event of Default. No such termination shall (i) in any way affect or impair
the security interest granted to Secured Party hereunder or any other rights of
Secured Party hereunder or under any other agreements, instruments or documents
required to be executed and delivered to Secured Party pursuant to the terms of
this Agreement, arising prior to any such termination or by reason thereof, (ii)
relieve Debtor of any obligation to Secured Party under this Agreement, any such
other agreement, instrument or document, or otherwise, until all the Obligations
are fully paid and performed, or (iii) affect any right or remedy of Secured
Party hereunder or under any such other agreement, instrument or document.
6. AMOUNT AND TERMS OF REVOLVER/TERM LOANS. Pursuant to the terms of
---------------------------------------
this Agreement, and upon the satisfaction of the conditions precedent referred
to in Paragraph 14 hereof
8
<PAGE>
and provided Debtor is in compliance with the Collateral Coverage Ratio outlined
in Paragraph 7(a)(vi) herein, Secured Party may, in the exercise of its sole
discretion, make Revolver/Term Loans to Debtor, upon its request, which in the
aggregate do not exceed the lesser of Eighty Thousand and 00/100 Dollars
($80,000.00) or eighty percent (80%) (or such greater or lesser percentage as
Secured Party may from time to time determine) of Qualified Accounts. The
Revolver/Term Loans and each of them shall be made on the following terms and
conditions:
(a) The principal amount of the Revolver/Term Loans, or such part
thereof as may be from time to time outstanding, shall be evidenced by Debtor's
promissory note, in the form of Exhibit I-III annexed hereto and made a part
-------------
hereof (hereinafter referred to as the "Revolver/Term Note"), with appropriate
insertions of names, dates and amounts, which shall be guaranteed by Guarantor.
The Revolver/Term Note shall be in the maximum aggregate principal amount which
Secured Party from time to time intends to lend to Debtor, notwithstanding
availability for Revolver/Term Loans which might otherwise exist because of the
amount of the then Qualified Accounts. The Revolver/Term Note shall be in the
amount of Eighty Thousand and 00/100 Dollars ($80,000.00). During the period
commencing with the date hereof and continuing through and including twelve (12)
months from the date hereof (the "Advance Period"), Debtor may borrow and repay
up to the lesser of Eighty Thousand and 00/100 Dollars ($80,000.00) or eighty
percent (80%) of Qualified Accounts. At the expiration of the Advance Period, no
further advances will be available on the Revolver/Term Loan and all sums
outstanding each shall be converted to a term loan payable in monthly payments
of principal of $1,400.00 with interest thereon, commencing December 15, 1994
and continuing on the fifteenth day of every month thereafter until November 15,
1999, when all sums remaining outstanding hereunder shall be due and payable in
full. Debtor hereby authorizes Secured Party to debit Debtor's operating account
with Secured Party for each monthly payment of principal and interest owed.
Nothing contained in this subparagraph (a) shall be deemed to prohibit Secured
Party from lending in excess of the principal amount of the outstanding
Revolver/Term Note, to delimit the definition of "Obligations" contained herein
or to constitute a waiver, release or subordination by the Secured Party of the
security interest in the Collateral herein granted by Debtor to Secured Party as
security for the Obligations;
(b) In the event Debtor desires a Revolver/Term Loan it may request
the same by delivering to Secured Party a request for advance, in the form of
Exhibit J and a Borrowing Base Certificate in the form of Exhibit K, each
- --------- ---------
annexed hereto and made a part hereof. The Revolver/Term Loans shall be made by
Secured Party depositing the proceeds thereof in Debtor's demand deposit account
maintained by it with Secured Party;
(c) The aggregate principal amount of the Revolver/Term Loans from
time to time outstanding shall bear interest at a rate per annum equal to one
(1) percentage points above the Prime Rate which at the date hereof is six
percent (6.00%), so that the initial rate of interest payable hereunder shall
be seven percent (7.00%); provided, however, that the rate of interest charged
hereunder shall never exceed the maximum amount, if any, allowable by law. In
the event the Prime Rate is either increased or decreased, the rate of interest
on the Revolver/Term Loans then outstanding shall be adjusted on the day the
Prime Rate is so changed so as to reflect such increase or decrease in the Prime
Rate. Interest shall be payable monthly on the fifteenth day of each month and
shall be charged on the daily principal balance of the Revolver/Term Loans from
time to time outstanding on the basis of a three hundred sixty (360) day year.
Debtor hereby authorizes Secured Party to debit Debtor's operating account with
Secured Party for each monthly payment of interest owed;
9
<PAGE>
(d) The Revolver/Term Loans made by Secured Party to Debtor pursuant
to this Paragraph 6 shall be recorded in an account on the books of Secured
Party bearing Debtor's name ("Debtor's Account"). There shall also be recorded
in Debtor's Account all payments made by Debtor on the Revolver/Term Loans,
proceeds of the Collateral received by Secured Party which are, in the exercise
of Secured Party's sole discretion, applied by Secured Party to the
Revolver/Term Loans, interest and expenses and other appropriate debits and
credits as herein provided. Secured Party shall from time to time render and
send to Debtor a statement of Debtor's Account showing the outstanding aggregate
principal balance of the Revolver/Term Loans, together with interest and other
appropriate debits and credits as of the date of the statement. The statement of
Debtor's Account shall be considered correct in all respects and accepted by and
be conclusively binding upon Debtor unless Debtor makes specific written
objections thereto within fifteen (15) days after the date the statement of
Debtor's Account is sent;
(e) Notwithstanding the foregoing, Secured Party may terminate the
provisions of this Paragraph 6 at any time upon the happening of an Event of
Default. No such termination shall (i) in any way affect or impair the security
interest granted to Secured Party hereunder or any other rights of Secured Party
hereunder or under any other agreements, instruments or documents required to be
executed and delivered to Secured Party pursuant to the terms of this Agreement,
arising prior to any such termination or by reason thereof, (ii) relive Debtor
of any obligation to Secured Party under this Agreement, any such other
agreement, instrument or document, or otherwise, until all the Obligations are
fully paid and performed, or (iii) affect any right or remedy of Secured Party
hereunder or under any such other agreement, instrument or document.
7. AFFIRMATIVE COVENANTS. Debtor covenants and agrees that, from the
---------------------
date hereof until full payment of the Obligations, unless Secured Party
otherwise agrees in writing, Debtor shall:
(a) Maintain (i) a debt to tangible net worth ratio of 3.50 to 1.00;
(ii) a Minimum Cash Flow Coverage Ratio of 1.20 to 1.00; and (iii) a Collateral
Coverage Ratio of 1.20 to 1.00, as determined in each instance, by generally
accepted accounting principles consistently applied from year to year. Minimum
Cash Flow Coverage Ratio shall mean net profit, after taxes and before
extraordinary gains, plus interest and depreciation, less nonfinanced capital
expenditures, divided by Debtor's total debt service (principal and interest).
Collateral Coverage Ratio shall mean eighty percent (80%) of Qualified Accounts
plus Fifty Two Thousand and 00/100 Dollars ($52,000.00) (which amount represents
what Secured Party would lend against 6 Moorehead Place, Avon, Connecticut)
divided by the outstanding amount owed by Debtor to Secured Party. The
Collateral Coverage Ratio shall be tested each time Debtor seeks an advance
under the Line of Credit Loan or the Revolver/Term Loan and no less than monthly
based on Debtor's Borrowing Certificate. In the event Debtor is not in
compliance with the Collateral Coverage Ratio, Debtor shall, within ten (10)
days of notification by Secured Party of noncompliance with the Collateral
Coverage Ratio, paydown the Term Loan in an amount which brings Debtor in
compliance with the Collateral Coverage Ratio. Debtor hereby authorizes Secured
Party to debit Debtor's operating account with Secured Party for any paydown
required because of noncompliance with the Collateral Coverage Ratio.
(b) Pay and discharge all taxes, general and special, charges and
assessments, and other governmental obligations, which may have been or shall be
levied, charged or assessed on or against it, its property, or its income or
profits before they become delinquent and pay and discharge on or before their
due date any and all other lawful claims and demands whatsoever, including, but
not limited to, trade obligations, provided, however, that the payment of any
such taxes, assessments, governmental obligations or other claims and demands
may be postponed so long as they or any of
10
<PAGE>
them are being diligently contested in good faith and by appropriate
proceedings, appropriate reserves have been provided therefor by Debtor and no
lien is placed on any assets of Debtor in connection with such taxes,
assessments, governmental obligations or other claims or demands so contested by
Debtor;
(c) Maintain, at all times:
(i) Insurance on its properties against loss by fire and all
available extended coverage risks in such amounts and with such insurers as
may be satisfactory to Secured Party, which insurance shall by the terms of
the policy provide that (x) in the event of loss or damage, if any, the
proceeds thereof shall be payable to Secured Party, as the holder of a
security interest, mortgage or other lien or interest in the personal or
real property of Debtor insured under the policy as Secured Party's
interest may appear; (y) the insurance, as to the interest of Secured
Party, shall not be invalidated by any act or neglect of Debtor, its
directors, officers, agents or employees, by any foreclosure, or other
proceeding, or notice of sale relating to said property or any of it; by
any change in the title or ownership of the property, or any of it; or by
the occupation of the premises where the property, or any of it, is located
for purposes more hazardous than are permitted by the policy; and (z) if
the policy is cancelled, for whatever reason, the insurance shall continue
in full force and effect for the benefit of Secured Party for not less than
thirty (30) days after written notice of cancellation to Secured Party from
the insurer which notice the insurer shall agree to give to Secured Party.
Debtor shall cause the insurer to supply to Secured Party certificates, or
other evidence of insurance satisfactory to Secured Party, indicating
compliance with the foregoing, including evidence of continuation thereof
no later than thirty (30) days prior to the expiration of any policy of
insurance. Secured Party shall have the right to apply the proceeds of any
such insurance in reduction of the Obligations, whether or not then due and
payable, in such manner as Secured Party in its sole discretion may
determine or to pay over, at such times and in such amounts, such proceeds
or part thereof, as Secured Party in its sole discretion may determine, to
Debtor for the purpose of replacing the Collateral affected by any loss
relating thereto; and
(ii) General public liability insurance against claims for
personal injury, death or property damage in such amounts as are
satisfactory to Secured Party and Workmen's Compensation insurance in
statutory amounts with companies licensed to do business in the State of
Connecticut;
(d) Maintain and preserve the Collateral in good order and condition
and not permit or suffer the Collateral to be wasted or destroyed;
(e) Furnish to Secured Party:
(i) Within ninety (90) days after the end of each of Debtor's
fiscal years following the date hereof, its review level financial
statement including Debtor's balance sheet, statement of income, surplus
reconciliation statement and statement of changes in financial position.
Each such financial statement shall set forth in each case in comparative
form the corresponding figures for the preceding fiscal year, all in
reasonable detail, including all supporting schedules, comments and notes,
shall be prepared by independent certified public accountants of recognized
standing selected by Debtor and satisfactory to Secured Party, and shall be
prepared in accordance with generally accepted accounting principles
11
<PAGE>
consistently applied from year to year, including the fiscal year
preceding that for which such statement is being furnished;
(ii) Simultaneously with the delivery of the financial
statement required in (i) above, a written statement, addressed to
Secured Party, by an authorized officer of Debtor indicating that the
preparation of the review level financial statement has not revealed any
default, whether or not cured at the time of such examination, in the
performance of any obligation of Debtor under this Agreement, or any
other agreement, instrument or document executed and delivered to Secured
Party by Debtor pursuant to the terms of this Agreement, or disclosing
all such defaults of which Debtor has obtained knowledge;
(iii) Within thirty (30) days after the end of each calendar
quarter following the date hereof, the unaudited balance sheet as at the
end of such calendar quarter and the end of the corresponding calendar
quarter of the preceding fiscal year, and a statement of income and
surplus reconciliation statement of Debtor for the period between the end
of the last fiscal year and the end of such calendar quarter and for the
corresponding period of the preceding fiscal year, prepared by an
independent certified public accountant of recognized standing selected
by Debtor and satisfactory to Secured Party, and certified by the
President or Treasurer of Debtor as presenting fairly the financial
position of Debtor, the results of its operations and the changes in its
financial position as at the end of each such calendar quarter, subject
only to normal recurring year-end adjustments which will not, either
singly or in the aggregate, have a material adverse effect on Debtor's
financial condition;
(iv) Concurrently with the delivery of any and all financial
statements required by this Agreement, a certificate by the President or
Treasurer of Debtor stating that to the best of his knowledge and belief
all taxes, assessments and charges levied upon Debtor which have become
due have been paid, or specifying any such taxes, assessments or charges
which have not been paid and stating why they remain unpaid and that he
has reviewed each and every obligation of Debtor hereunder, and under
each and every other agreement, instrument and document executed and
delivered to Secured Party by Debtor pursuant to the terms hereof, that
Debtor is not in default in the performance of any such obligations, or
specifying each default of which the signer has knowledge and setting
forth what action has been taken to cure any such default;
(v) On or before the tenth (10th) day of each month, a detailed
written report, in form satisfactory to Secured Party, showing as of the
end of the immediately preceding month, all the Accounts of Debtor,
including the name and address of each account debtor and an aging of
such Accounts, and, when requested by Secured Party, a copy of each and
every invoice of Debtor giving rise to an Account; and, from time to time
as required by Secured Party, such other reports or other information
relating to the Accounts as Secured Party may request in writing;
(vi) On or before the tenth (10th) day of each month, a
detailed written report as of the end of the immediately preceding month,
setting forth an aged listing of all accounts payable of Debtor,
including the name of each person to whom the same are owed and, from
time to time, as required by Secured Party, the addresses of each such
person and such other reports or other information concerning the
accounts payable of Debtor as Secured Party may request in writing;
12
<PAGE>
(vii) Promptly, upon Secured Party's request, a copy of each
and every report required to be filed by it with the Internal Revenue
Service or any other governmental unit with respect to income taxes,
F.I.C.A., and other payroll taxes withheld from or required to be paid on
account of its employees' pay and a copy of every depository receipt
evidencing the deposit of the same;
(viii) Promptly upon the issuance thereof, a copy of all orders
issued by any Federal, state or municipal regulatory authority under any
laws or regulations adopted thereby, which, if enforced, would have a
material adverse effect upon the condition of Debtor, whether financial,
operating, or otherwise, all reports or other materials filed with or
issued by the Securities and Exchange Commission, and all reports,
notices or statements sent to Debtor's stockholders by Debtor;
(ix) Promptly upon the filing, issuance or receipt thereof,
copies of (A) all annual reports with respect to all pension or other
employee benefit plans (collectively referred to as the "Plans" and
individually as the "Plan") of Debtor, subject to ERISA, filed by or on
behalf of Debtor with the Secretary of Labor, the Internal Revenue
Service, or the Pension Benefit Guaranty Corporation (the "PBGC") subject
to ERISA, (B) all notices, reports, determinations or statements to or
from the PBGC with respect to the occurrence of a reportable event, as
determined in subsections (1), (2), (3), (4), (5), (6), (7), (8), or (9)
of section 4043(b) of ERISA and regulations issued thereunder, (C) all
reports submitted to Debtor and/or the Internal Revenue Service by any
actuary with respect to any of the Plans, (D) all notices of Plan
termination or requests for determination letters in connection therewith
filed by Debtor, any Plan Administrator (as such terms are defined in
ERISA) or trustee or custodian of any accounts of any Plan with the PBGC
and/or Internal Revenue Service, and (E) all requests to waive the
minimum funding standard or extension of amortization periods submitted
to the Secretary of the Treasury;
(x) Promptly upon Secured Party's request therefor, such
other information relating to Debtor and its affairs as Secured Party may
from time to time request;
(f) Maintain its properties in working order and good condition and
make all needed and proper repairs, renewals, replacements, additions or
improvements thereto and immediately notify Secured Party of any event causing a
material loss or depreciation in the value of the Collateral and the amount of
such loss or depreciation;
(g) Allow Secured Party by or through any of its officers, agents,
attorneys, or accountants designated by it, for the purpose of ascertaining
whether or not each and every provision hereof and of any related agreement,
instrument and document is being performed and for the purpose of examining the
Collateral and the records relating thereto, and after notice to Debtor and
without disruption of Debtor's business, to enter the offices and plants of
Debtor to examine or inspect any of the properties, books and financial records
of Debtor, to make copies of such books and records or extracts therefrom, and
to discuss the affairs, finances and accounts of Debtor with Debtor all at such
reasonable times and as often as Secured Party may reasonably request;
(h) Defend the Collateral against all claims and demands of all
persons at any time claiming the same or any interest therein and, in the event
Secured Party's security interest in the Collateral, or part thereof, would be
impaired by an adverse decision, allow Secured Party to contest or defend any
such claim or demand in Debtor's name and pay, upon demand, Secured
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<PAGE>
(j) From time to time, at the request of Secured Party, execute,
deliver and file one or more financing statements on Form UCC-1 and other
agreements, instruments or documents, and do all other acts as Secured Party
deems necessary or desirable to perfect fully its security interest in the
Collateral and pay, upon demand, all reasonable expenses, including, but not
limited to, attorneys' fees, incurred by Secured Party in connection therewith;
(k) Keep complete and accurate books and records reflecting all
facts concerning the Collateral, and pertaining to the Obligations and Debtor's
covenants under this Agreement;
(l) Comply with all laws, ordinances and rules and regulations
applicable to Debtor of any Federal, state or local government or any
instrumentality or agency thereof, including, but not limited to, ERISA, OSHA,
and Federal, state and municipal laws, ordinances, rules and regulations
concerning the environment except to the extent any such law, ordinance, rule or
regulation, is being contested in good faith by appropriate proceedings provided
that said contest or an adverse decision therein will not have a material
adverse effect on the condition, financial, operating or otherwise, of Debtor;
(m) Maintain all deposit accounts with Secured Party; and
(n) Promptly advise Secured Party of the happening of an Event of
Default or the existence of a state of facts which by the passage of time, the
giving of notice, or both, would constitute an Event of Default.
8. NEGATIVE COVENANTS. Debtor covenants and agrees that, from the date
------------------
hereof until full payment of the Obligations, unless Secured Party shall
otherwise consent in writing, Debtor shall not:
(a) Sell, lease, mortgage, pledge or otherwise dispose of or
encumber its Collateral or any of its other properties (other than the
disposition of Inventory permitted by Paragraph 10 hereof and except for liens
or encumbrances required or permitted hereby) except
14
<PAGE>
(i) liens for taxes not delinquent; and (ii) attachments or other liens in
connection with litigation provided the same are removed within forty-five (45)
days;
(b) Declare or pay any dividends or make any other distributions on
any shares of its capital stock (other than dividends payable solely in such
shares), or purchase, redeem, retire or otherwise acquire, directly or
indirectly, any such shares;
(c) Create or assume any obligations for money borrowed from any
Person other than Secured Party;
(d) Endorse, guaranty, or become surety for the obligations of any
third Person, except for the endorsement of checks in the ordinary course of
business;
(e) Purchase or otherwise acquire any securities except obligations
of the United States Government or certificates of deposit issued by a
commercial bank having total assets of not less than Fifty Million and 00/100
Dollars ($50,000,000.00), and an office in the State of Connecticut, provided
that the same are pledged to and deposited with Secured Party simultaneously
with their purchase;
(f) Enter into any transactions of any kind with any of its
Affiliates;
(g) Enter into any merger or consolidation, or sell all or
substantially all of Debtor's assets, or liquidate, dissolve or otherwise
terminate or alter Debtor's existence, form or method of conducting Debtor's
business;
(h) Change its corporate name, adopt any trade names, or conduct
its business under any trade name or style other than as hereinabove set forth,
or change its chief executive office, places of business or the present
locations of the collateral or the records relating to the Collateral;
(i) Acquire, form or dispose of any Subsidiaries or acquire all or
substantially all of the assets of any other Person or any portion of the assets
of any other Person which constitutes a division, product line or line of
business; and
9. PAYMENTS BY SECURED PARTY. At its option, Secured Party may pay for
-------------------------
insurance on the Collateral and taxes, assessments or other charges which Debtor
fails to pay in accordance with the provisions hereof, or of any related
agreement, instrument or document, and may discharge any security interest in or
lien upon the Collateral. No such payment or discharge of any such security
interest or lien shall be deemed to constitute a waiver by Secured Party of the
violation of any covenant by Debtor as a result of Debtor's failure to make any
such payment or Debtor's suffering of any such security interest or lien. Any
payment made or expense incurred by Secured Party pursuant to this or any other
provision of this Agreement shall be added to and become a part of the
Obligations of Debtor to Secured Party, shall bear interest at the rate per
annum charged pursuant to Paragraph 5 hereof and shall be payable on demand.
10. USE OF INVENTORY. Until the happening of an Event of Default,
----------------
Debtor may use the Inventory in any lawful manner not inconsistent with this
Agreement or with the terms or conditions of any policy of insurance thereon and
may also sell, lease or consume the Inventory in the ordinary course of
business. A sale in the ordinary course of business does not include a bulk
transfer or a transfer as security for on in partial or total satisfaction of a
debt.
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11. RIGHTS OF SECURED PARTY; NOTICES. When the Obligations, or any of
--------------------------------
them, become immediately due and payable, whether by reason of default or upon
demand of Secured Party, Secured Party may, pursue any legal remedy available to
it to collect the Obligations outstanding at said time, to enforce its rights
hereunder, and to enforce any and all other rights or remedies available to it
both under the Uniform Commercial Code and otherwise, including, but not limited
to, the right to take possession of the Collateral and dispose of the same on
Debtor's premises, all without judicial process, Debtor hereby waiving any right
Debtor might otherwise have to require Secured Party to resort to judicial
process and further waiving Debtor's right to notice and hearing under the
Constitution of the United States or any state or under any Federal or state
law, and no such action shall operate as a waiver of any other right or remedy
of Secured Party under the terms hereof, any other agreement, instrument or
document executed and delivered to Secured Party pursuant to the terms hereof,
or the law, all rights and remedies of Secured Party being cumulative and not
alternative. In addition, Secured Party may require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties. In the event
reasonable notice is required to be given by Secured Party to Debtor under the
provisions of the Uniform Commercial Code of the General Statutes of
Connecticut, such notice shall be deemed to have been given if mailed, postage
prepaid, certified mail, return receipt requested, at least seven (7) days prior
to the happening of the event for which such notice is being given, to Debtor
at Debtor's address first hereinabove written. Any notice required to be given
by Secured Party to Debtor or by Debtor to Secured Party, pursuant to the terms
hereof, shall be deemed to have been given (except as otherwise specifically
provided in this Agreement) upon mailing the same, postage prepaid, certified
mail, return receipt requested, to Debtor or Secured Party, as the case may be,
at its address first hereinabove written. Either of the parties hereto may
notify the other that any such notice shall be given to such other address as
such party may so instruct by written notice similarly given.
12. COLLECTION OF ACCOUNTS. Debtor shall, when requested by Secured
----------------------
Party and after the happening of an Event of Default:
(a) Assign or endorse the Accounts to Secured Party, and notify
account debtors that the Accounts have been assigned and should be paid directly
to Secured Party;
(b) Turn over to Secured Party all Inventory returned in connection
with any of the Accounts;
(c) Mark or stamp each of its individual ledger sheets or cards
pertaining to its Accounts with the legend "Assigned to PEOPLE'S BANK:" and
stamp or otherwise mark and keep its books, records, documents and instruments
relating to the Accounts in such manner as Secured Party may require;
(d) Mark or stamp all invoices with a legend satisfactory to Secured
Party so as to indicate that the same should be paid directly to Secured Party.
Notwithstanding the foregoing, Secured Party shall have the right, at
any time, whether before or after the happening of an Event of Default, to
itself so notify such account debtors to make such payments of the Accounts
directly to Secured Party and Secured Party shall have the further right to
notify the post office authorities to change the address for delivery of mail of
Debtor to an address designated by Secured Party and to receive, open and
dispose of all mail addressed to Debtor.
16
<PAGE>
For the purposes of this Paragraph 12, Debtor hereby irrevocably
constitutes Secured Party as Debtor's attorney-in-fact to issue in the name and
execute or endorse on behalf of Debtor each and every notice, instrument and
document necessary to carry out the purposes of the provisions of this Paragraph
12, and to take such action in connection with the collection of the Accounts,
including, but not limited to, suing thereon, compromising or adjusting the
same, as Secured Party, in its sole discretion, deems necessary. The power of
attorney granted hereby shall be self-executing, but Debtor shall promptly
execute and deliver to Secured Party, upon written request of Secured Party such
additional separate powers of attorney, as Secured Party may from time to time
reasonably request.
13. DEFAULT PROVISIONS.
------------------
(a) The Term Loan Note, the Line of Credit Note and the
Revolver/Term Note shall forthwith become due and payable, without presentment,
protest, demand or notice of any kind, if Debtor becomes insolvent (including in
said term an inability to pay its debts as they mature) or bankrupt, or makes an
assignment for the benefit of its creditors, or consents to the appointment of a
trustee or receiver of all or a substantial part of its properties or such
appointment is made without its consent, of if bankruptcy, reorganization,
arrangement, receivership or liquidation proceedings are instituted by or
against Debtor;
(b) Secured Party may at its option declare the Term Loan Note, the
Line of Credit Note and the Revolver/Term Note due and payable whereupon the
same shall become due and payable forthwith, without presentment, protest,
demand or notice of any kind in any of the following cases:
(i) If any payment of principal or interest or any other
payment required by the terms hereof or by the Term Loan Note, the Line of
Credit Note, the Revolver/Term Note, or by any other instrument, agreement
or document executed and delivered to Secured Party pursuant to terms
hereof shall not be fully paid when demand (to the extent the same is
payable on demand) is made for the payment of the same or within ten (10)
days after the same shall fall due if payable other than on demand;
(ii) If any payment of principal or interest or any other
payment required by any of the obligations of Debtor for money borrowed by
it from any third Person shall not be fully paid when demand is made for
the payment of the same (to the extent payable on demand) or when the same
shall fall due, or if any of said obligations shall become or be declared
in default;
(iii) If any warranty or representation by Debtor contained
herein or in any related agreement, instrument or document, or in any
statement furnished by Debtor to Secured Party proves incorrect in any
respect;
(iv) If default exists in the due observance of any of the
covenants or agreements of Debtor set forth in this Agreement, or in any
other agreement, instrument or document executed and delivered to Secured
Party pursuant to the terms of this Agreement;
(v) If a judgment is entered against Debtor and remains
unsatisfied for a period of (30) days.
17
<PAGE>
14. CONDITIONS PRECEDENT TO MAKING LOAN.
-----------------------------------
(a) On or prior to the first borrowing hereunder, Secured Party
shall have actually received from the party or parties designated below in form
and content satisfactory to Secured Party:
(i) A currently dated certified copy of the resolutions of
the Board of Directors of Debtor authorizing Edward G. Caputo, the
President of Debtor to execute and deliver this Agreement and all other
agreements, instruments and documents required to be executed and
delivered by it to Secured Party by the terms hereof;
(ii) The Term Loan Note, the Line of Credit Note, and the
Revolver/Term Note, each executed by Debtor;
(iii) A Guaranty Agreement executed by Guarantor;
(iv) Reimbursement of all of Secured Party's expenses;
(v) A certificate or other proof of insurance satisfactory to
Secured Party evidencing compliance with the provisions of subparagraph 6
of Paragraph 7 of this Agreement;
(vi) A certificate of the Secretary of Debtor which shall
certify the names of its officers authorized to sign and deliver to
Secured Party requests for advances, together with the true signature of
each such officer. Secured Party may conclusively rely on such certificate
until it shall receive a further certificate of such Secretary canceling
or amending the prior certificate and submitting the name and signature of
each officer named in such further certificate as being authorized to so
sign and deliver such requests on behalf of Debtor;
(vii) Such financing statements executed by Debtor as Secured
Party requests;
(viii) A waiver executed by Debtor and Guarantor with respect
to any rights under Federal or state law which it or they might otherwise
have to any hearing prior to the exercise by Secured Party of its rights
against it, any of them, or their respective properties;
(ix) An Agreement by each director, officer, and shareholder
of Debtor subordinating Debtor's indebtedness to them, whether now
existing or hereafter arising, to the repayment of the Obligations;
(x) A mortgage deed to the real property described in
Exhibit L annexed hereto and made a part hereof, subject only to the liens and
- ---------
encumbrances shown on said Exhibit L, together with a Title Insurance Policy in
---------
the amount of One Hundred Thousand and 00/100 Dollars ($100,000.00) showing such
mortgage to be a valid lien on such real property subject only to such liens and
encumbrances;
18
<PAGE>
(xi) A Real Estate Consent from the owner and mortgages of the
real property where Debtor leases of office space, with respect to Secured
Party's rights in the Collateral and to maintain the Collateral on such real
property after default, if at all, by Secured Party;
(xii) Notification letters to Account Debtors:
(xiii) An opinion letter addressed to Secured Party from counsel
satisfactory to Secured Party stating that:
(A) Debtor is a corporation duly organized and existing,
with perpetual corporate existence, and in good standing under the laws of
the State of Connecticut, has the corporate power to own its properties, to
carry on the business in which it is engaged and is in good standing in
each state or other jurisdiction in which the conduct of its business or
the ownership or lease of its properties requires qualification, licensing
or registration.
(B) The authorized Capital Stock of Debtor consists of five
thousand (5,000) shares of common stock, without par value, of which all
shares are duly authorized, validly issued and outstanding, fully paid and
non-assessable, and subject to no pre-emptive rights.
(C) The execution and delivery of this Agreement, and each
and every other agreement, instrument and document required to be executed
and delivered to Secured Party by Debtor and Guarantor pursuant to the
terms hereof have been duly authorized, are valid, legal and binding upon
Debtor and enforceable in accordance with their respective terms, subject,
as to enforcement of remedies, to applicable bankruptcy, reorganization,
moratorium and other laws affecting the rights of creditors and third
parties generally, and further subject to the fact that Secured Party may
not be entitled to specific performance of some of the provisions in the
Loan and Security Agreement or such other agreements, documents or
instruments.
(D) The execution and delivery of this Agreement, and each
and every other agreement, instrument or document required to be executed
and delivered to Secured Party by Debtor and Guarantor pursuant to the
terms hereof, the consummation of the transactions herein and therein
contemplated, the fulfillment of or compliance with the terms and
provisions hereof and thereof, are within the corporate powers of Debtor
and Guarantor, are not in contravention on any provisions of its
Certificate of Incorporation or any amendments thereto, or of its by-laws,
and will not conflict with or result in a breach of any of the terms,
conditions or provisions of any agreement, instrument or other
understanding to which Debtor or Guarantor is a party or by which Debtor or
Guarantor is bound, or constitute a default thereunder, or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of its properties or assets pursuant to the terms of
any such agreement, instrument or understanding; do not violate any
Federal, state or
19
<PAGE>
local statutes, ordinances, rules or regulations, and do not require the
consent or approval of any governmental body, agency or authority.
(E) There is no judgment, decree or order outstanding or
litigation or governmental proceeding or investigation pending, or to the
knowledge of such counsel threatened against Debtor or Guarantor which
might materially and adversely affect Debtor's or Guarantor's position,
financial, operating or otherwise; Debtor and Guarantor has filed all tax
returns and reports required to be filed with the United States
Government and with all other state and local governments requiring the
same to be filed and has paid in full or made adequate provision for the
payment of all taxes, interest, penalties, assessments or deficiencies
shown to be due or claimed to be due on or in respect of such tax returns
and reports.
(F) The shareholders, referred to in subparagraph (xi) of this
Paragraph 14, and each of them, has full legal capacity to pledge the
shares of stock of Debtor being pledged by each of them to Secured Party
and upon the pledge of such shares Secured Party shall have a valid first
security interest therein free and clear of any other lien, claim or
encumbrance.
(G) Secured Party shall have, upon the execution and delivery of
this Agreement and the financing statements referred to in subparagraph
(vii) of this Paragraph 14 and the filing of such financing statement of
Debtor in the offices of Secretary of State of Connecticut, Secretary of
State of Massachusetts, Town Clerk of Stamford, Connecticut and Town
Clerk of Natick, Massachusetts, a valid perfected first security
interest in the Collateral subject only to liens and encumbrances
referred to in Exhibit C herein.
---------
(b) At the time of each borrowing hereunder:
(i) The representations and warranties set forth in Paragraph 3
of this Agreement shall be true and correct on and as of such time to the same
effect as though such representations and warranties had been made on and as of
such time;
(ii) Debtor shall be in compliance with all the terms and
provisions set forth in this Agreement and in any other agreement, instrument or
document required or contemplated to be executed and delivered by it pursuant to
the terms hereof and no Event of Default shall be in existence at such time; and
(iii) Debtor shall have actually made a request for such
borrowing by written or telefax notice as provided herein or shall have actually
delivered to Secured Party a written request for advance. Any such request for a
Loan shall constitute an affirmation by Debtor as to the matters set forth in
(i) and (ii) above.
15. SET-OFF. Debtor hereby grants to Secured Party a lien on and a right
-------
of set-off against all monies, deposits and securities and the proceeds thereof,
now or hereafter held or received by, or in transit to, Secured Party from or
for Debtor, whether for safekeeping, pledge, custody, transmission, collection
or otherwise, and all deposits (general or special), balances, sums and credits
with all claims of Debtor against Secured Party at any time existing. Secured
Party may at any
20
<PAGE>
time apply the same or any part thereof to the Obligations, or any part thereof,
whether or not matured at the time of such application.
16. GENERAL PROVISIONS.
-------------------
(a) No delay or failure of Secured Party in exercising any right,
power or privilege hereunder shall affect such right, power or privilege, nor
shall any single or partial exercise preclude any further exercise thereof or
the exercise of any other rights, powers or privileges;
(b) This Agreement, the security interest hereby granted to Secured
Party by Debtor and every representation, warranty, covenant, promise and other
term herein contained shall survive until the Obligations have been paid in
full;
(c) This Agreement is an integrated document and all terms and
provisions are embodied herein and shall not be varied by parol;
(d) This Agreement is made, executed and delivered in the State of
Connecticut, and it is the specific desire and intention of the parties that it
shall in all respects be construed under the laws of the State of Connecticut;
(e) The captions for the paragraphs contained in this Agreement have
been inserted for convenience only and form no part of this Agreement and shall
not be deemed to affect the meaning or construction of any of the covenants,
agreements, conditions or terms hereof;
(f) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, provided,
however, that Debtor shall not assign, voluntarily, by operation of law or
otherwise, any of its rights hereunder without the prior written consent of
Secured Party and any such attempted assignment without such consent shall be
null and void.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals, and to a duplicate instrument of the same tenor at Hartford, Connecticut,
the day and year first above written.
SIGNED, SEALED, AND DELIVERED
IN THE PRESENCE OF: COMMAND SYSTEMS INCORPORATED
/s/ By: /s/ Edward G. Caputo
- ----------------------------------- -------------------------------
Edward G. Caputo
Its President
/s/
- -----------------------------------
(signatures continued next page)
21
<PAGE>
PEOPLE'S BANK
/s/ By: /s/ Domenic A. Cessario
- ------------------------------ --------------------------------
Domenic A. Cessario
Its Commercial Banking Officer
/s/
- ------------------------------
STATE OF CONNECTICUT )
) ss. Hartford
COUNTY OF HARTFORD )
On this 30th day of November, 1993, personally appeared Edward G. Caputo,
as President of COMMAND SYSTEMS INCORPORATED, signer and sealer of the foregoing
instrument, and acknowledged the same to be his free act and deed and the free
act and deed of said corporation, before me.
/s/
----------------------------------
Commissioner of the Superior Court
STATE OF CONNECTICUT )
) ss. Hartford
COUNTY OF HARTFORD )
On this 30th day of November, 1993, personally appeared Domenic A.
Cessario, as Commercial Banking Officer of PEOPLE'S BANK, signer and sealer of
the foregoing instrument, and acknowledged the same to be his free act and deed
and the free act and deed of said corporation, before me.
/s/
----------------------------------
Commissioner of the Superior Court
22
<PAGE>
Exhibit 10.9
AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS AGREEMENT made as of the 21st day of December, 1994 by and between
----
COMMAND SYSTEMS INCORPORATED, a Connecticut corporation having its chief
executive office at One Corporate Center, Hartford, Connecticut 06103
("Debtor"), and PEOPLE'S BANK, a Connecticut banking corporation having an
office at 850 Main Street, Bridgeport, Connecticut 06604-4913 ("Secured Party").
W I T N E S S E T H:
WHEREAS, Debtor and Secured party are parties to a Loan and Security
Agreement dated November 30, 1993 (the "Loan Agreement") pursuant to which
Secured Party provided Debtor with a term loan in the amount of Five Hundred
Twenty Thousand and 00/100 Dollars ($520,000.00) (the "Term Loan") evidenced by
a Term Loan Promissory Note dated November 30, 1993, a revolver/term loan in the
amount of Eighty Thousand and 00/100 Dollars ($80,000.00) (the "Revolver/Term
Loan") evidenced by a Revolver/Term Loan Promissory Note dated November 30, 1993
and Secured Party also agreed, from time to time, in its sole discretion, to
extend commercial revolving loans in the maximum aggregate principal amount of
up to Two Hundred Thousand and 00/100 Dollars ($200,000.00) to Debtor (the "Line
of Credit Loans") evidenced by a Line of Credit Promissory Note dated November
30, 1993 (the Term Loan, the Revolver/Term Loan, and the Line of Credit Loan are
hereinafter sometimes collectively referred to as the "Loans"); and
WHEREAS, Debtor has requested that Secured Party modify the terms of the
Loan and Security Agreement to provide for Line of Credit Loans in an amount not
to exceed One Million and 00/100 Dollars ($1,000,000.00) with a committed term
of April 15, 1996, and to eliminate the Term Loan and the Revolver/Term Loan.
NOW THEREFORE, in consideration of the foregoing and in further
consideration of the mutual covenants herein contained, the parties hereto agree
as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Paragraph 2(p) is hereby deleted in its entirety;
(b) Paragraph 2(r) is hereby deleted in its entirety;
(c) Paragraph 4 of the Loan Agreement is hereby deleted in its
entirety;
(d) Paragraph 5 of the Loan Agreement is hereby deleted in its
entirety and the following substituted in lieu therefore:
"5. AMOUNT IN TERMS OF THE LINE OF CREDIT LOANS. Pursuant to the
-------------------------------------------
terms of this Agreement and upon the satisfaction of the conditions
precedent referred to in Paragraph 14 hereof, Secured Party may, in the
exercise of its sole discretion, make Line of Credit Loans to Debtor
upon its request, which in the
<PAGE>
aggregate do not exceed the lesser of One Million and 00/100 Dollars
($1,000,000.00) or fifty percent (50%)(or such greater or lesser percentage as
Secured Party may, from time to time, determine) of Qualified Accounts plus One
Hundred Fourteen Thousand and 00/100 Dollars ($114,000.00), which amount
represents real estate equity value accepted by Secured Party in connection with
6 Morgan Way, Avon, Connecticut and 22 Cobtail Way, Simsbury, Connecticut (the
"Real Estate Equity"). The Line of Credit Loans and each of them shall be made
on the following terms and conditions:
(a) The principal amount of the Line of Credit Loans, or such part
thereof as may be from time to time outstanding, shall be evidenced by Debtor's
Promissory Note, in the form of Exhibit I-2 annexed hereto and made a part
-----------
hereof (hereinafter referred to as the "Line of Credit Note"), with appropriate
insertions of names, dates, and amounts, which shall be guaranteed by Guarantor.
The Line of Credit Note shall be in the maximum aggregate principal amount
which Secured Party, from time to time, intends to lend to Debtor,
notwithstanding availability of the Line of Credit Loans which might otherwise
exist because of the amount of then Qualified Accounts and Real Estate Equity.
The Line of Credit Note shall be in the amount of One Million and 00/100 Dollars
($1,000,000.00). Nothing contained in this subparagraph (a) shall be deemed to
prohibit Secured Party from lending in excess of the principal amount of the
outstanding Line of Credit Note, to delimit the definition of "Obligations"
contained herein or to constitute a waiver, release or subordination by Secured
Party of the security interest in the Collateral herein granted by Debtor and
Secured Party as security for the Obligations;
(b) In the event Debtor desires a Line of Credit Loan it may request the
same by delivering to Secured Party a request for advance, in the form of
Exhibit J and a Borrowing Base Certificate in the form of Exhibit K, each
- --------- ---------
annexed hereto and made a part hereof. The Line of Credit Loans shall be made by
Secured Party depositing the proceeds thereof in Debtor's demand deposit account
maintained by it with Secured Party;
(c) The aggregate principal amount of the Line of Credit Loans from time
to time outstanding shall bear interest at a rate per annum equal to one and
one-half (1.5) percentage points above the Prime Rate which at the date hereof
is eight and one-half percent (8.5%), so that the initial rate of interest
payable hereunder shall be ten percent (10.0%); provided, however, that the rate
of interest charged hereunder shall never exceed the maximum amount, if any,
allowable by law. In the event the Prime Rate is either increased or decreased,
the rate of interest on the Line of Credit Loans then outstanding shall be
adjusted on the day the Prime Rate is so changed so as to reflect such increase
or decrease in the Prime Rate. Interest shall be payable monthly on the
fifteenth day of each month and shall be charged on the daily principal balance
of the Line of Credit Loans from time to time outstanding on the basis of a
three hundred sixty (360) day year, and the outstanding principal amount owed
on the Line of Credit Loans, together with all interest accrued thereon, shall
be due and payable in full on April 15, 1996 unless the Line of Credit is
extended pursuant to subparagraph (e) herein. Debtor hereby authorizes Secured
Party to debit Debtor's operating account with Secured Party for each monthly
interest payment owed;
2
<PAGE>
(d) The Line of Credit Loans made by Secured Party to Debtor
pursuant to this Paragraph 5 shall be recorded in an account on the books
of Secured Party bearing Debtor's name ("Debtor's Account"). There shall
also be recorded in Debtor's Account all payments made by Debtor on the
Line of Credit Loans, proceeds of the Collateral received by Secured Party
which are, in the exercise of Secured Party's sole discretion, applied by
Secured Party to the Line of Credit Loans, interest and expenses and other
appropriate debits and credits as herein provided. Secured Party shall
from time to time render and send to Debtor a statement of Debtor's
Account showing the outstanding aggregate principal balance of the Line of
Credit Loans, together with interest and other appropriate debits and
credits as of the date of the statement. The statement of Debtor's account
shall be considered correct in all respects and accepted by and be
conclusively binding upon Debtor unless Debtor makes specific written
objection thereto within fifteen (15) days after the date the statement of
Debtor's Account is sent;
(e) In the event Debtor requests and Secured Party agrees at
any time to release all or any portion of the Collateral in consideration
for a prepayment from any Person other than Secured Party, Debtor agrees
to pay to Secured Party a collateral release fee in the amount of two
percent (2%) of the committed original principal balance of the Line of
Credit Loans.
(f) The provisions of this Paragraph 5 shall continue in
effect until April 15, 1996, and from year to year thereafter, unless
terminated as to future transactions by Secured Party giving not less than
thirty (30) days written notice of termination prior to April 15, 1996 or
prior to the end of any such one (1) year period to Debtor, provided,
however, that Secured Party may also terminate the provisions of this
Paragraph 5 at any time upon the happening of an Event of Default. No such
termination shall (i) in any way affect or impair the security interest
granted to Secured Party hereunder or any other rights of the Secured
Party hereunder or under any other agreements, instruments or documents
required to be executed and delivered to Secured Party pursuant to the
terms of this Agreement, arising prior to any such termination or by
reason thereof, (ii) relieve Debtor of any obligation to Secured Party
under this Agreement, any such other agreement, instrument or document, or
otherwise, until all the Obligations are fully paid and performed, or
(iii) affect any right or remedy of Secured Party hereunder or under any
such other agreement, instrument or document."
(e) Paragraph 6 of the Loan Agreement is hereby deleted in its entirety.
(f) Paragraph 7(a) of the Loan Agreement is hereby deleted in its
entirety and the following substituted in lieu therefore:
"(a) Maintain (i) a debt to tangible net worth plus
subordinated debt ratio of 3.50 to 1.00; (ii) a current ratio of no less
than 1.25 to 1.00; and (iii) a minimum net profit before taxes of Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) for fiscal year
1994 and Three Hundred-Thousand and 00/100 Dollars ($300,000.00) for
fiscal year 1995, as determined in each instance by generally accepted
accounting principles consistently applied from year to year."
3
<PAGE>
(g) Subparagraph (j) of Paragraph 8 is hereby added to the Loan
Agreement as follows:
"(j) Debtor shall maintain a certified public accountant
satisfactory to Secured Party and shall not change such certified
public accountants without prior notice to and consent from Secured
Party."
(h) Paragraph 13 of the Loan Agreement is hereby deleted in its
entirety and the following substituted in lieu therefore:
"13. Default Provisions.
------------------
(a) The Line of Credit Note shall forthwith become due
and payable, without presentment, protest, demand, or notice of any
kind, if Debtor becomes insolvent (including in said term an
inability to pay its debts as they mature) or bankrupt, or makes an
assignment for the benefit of its creditors, or consents to the
appointment of a trustee or receiver of all or a substantial part of
its properties or such appointment is made without its consent, or if
bankruptcy, reorganization, arrangement, receivership, or liquidation
proceedings are instituted by or against Debtor,
(b) Secured Party may at its option declare the Line of
Credit Note due and payable whereupon the same shall become due and
payable forthwith, without presentment, protest, demand, or notice of
any kind in any of the following cases:
(i) If any payment of principal or interest or
any other payment required by the terms hereof or by the Line
of Credit Note or by any other instrument, agreement or
document executed and delivered to Secured Party pursuant to
the terms hereof shall not be fully paid when demand (to the
extent the same is payable on demand) is made for the payment
of the same or within ten (10) days after the same shall fall
due if payable other than on demand;
(ii) If any payment of principal or interest or
any other payment required by any of the obligations of Debtor
for money borrowed by it from any third Person shall not be
fully paid when demand is made for the payment of the same (to
the extent payable on demand) or when the same shall fall due,
or if any of said obligations shall become or be declared in
default;
(iii) If any warranty or representation by Debtor
contained herein or in any related agreement, instrument or
document, or in any statement furnished by Debtor to Secured
Party proves incorrect in any respect;
(iv) If default exists in the due observance of
any of the covenants or agreements of Debtor set forth in this
Agreement, or in any other agreement, instrument or document
executed and delivered to Secured Party pursuant to the terms
of this Agreement, or
4
<PAGE>
(v) If a judgment is entered against Debtor and remains
unsatisfied for a period of thirty (30) days."
2. Debtor represents and warrants to Secured Party that all of the
representations and warranties Debtor has set forth in the Loan Agreement, as
amended hereby, are true and correct and are hereby remade.
3. Except as modified herein, all other items, provisions, and
conditions of the Loan Agreement remain unmodified and are in full force and
effect.
4. DEBTOR ACKNOWLEDGES THAT THE TRANSACTIONS DESCRIBED HEREIN ARE
COMMERICAL TRANSACTIONS AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY
ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH SECURED
PARTY MAY DESIRE TO USE, AND FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR
PAYMENT, NOTICE OF NONPAYMENT, PROTEST, AND NOTICE OF PROTEST, AND NOTICE OF ANY
RENEWALS OR EXTENSIONS OF THE NOTE, AND ALL RIGHTS UNDER ANY STATUTE OF
LIMITATIONS.
5. DEBTOR HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT,
ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY
RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR
THE ENFORCEMENT OF ANY OF SECURED PARTY'S RIGHTS AND REMEDIES. DEBTOR
ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, AND ONLY AFTER
EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement this 21st day of December, 1994.
Signed, Sealed, and Delivered
in the Presence of: COMMAND SYSTEMS INCORPORATED
/s/ [SIGNATURE APPEARS HERE] By: /s/ Edward G. Caputo
- ---------------------------------- ------------------------------
Secretary Edward G. Caputo
Its
/s/ [SIGNATURE APPEARS HERE]
- ----------------------------------
PEOPLE'S BANK
/s/ [SIGNATURE APPEARS HERE] By: /s/ [SIGNATURE APPEARS HERE]
- ---------------------------------- ------------------------------
Its Commercial Banking Officer
/s/ Maura A. Lindsay
- ----------------------------------
5
<PAGE>
STATE OF CONNECTICUT
ss. Hartford
COUNTY OF HARTFORD
On this 21st day of December, 1994, personally appeared Edward G. Caputo,
as President of COMMAND SYSTEMS INCORPORATED, signer and sealer of the foregoing
instrument, and acknowledged the same to be his/her free act and deed and the
free act and deed of said corporation, before me.
[SIGNATURE APPEARS HERE]
-----------------------------------
Commissioner of the Superior Court
STATE OF CONNECTICUT
ss. Hartford
COUNTY OF HARTFORD
On this 23rd day of December, 1994, personally appeared Domenic A.
Cessario, as Commercial Banking Officer of PEOPLE'S BANK, signer and sealer of
the foregoing instrument, and acknowledged the same to be his/her free act and
deed and the free act and deed of said banking corporation, before me.
/s/ Donna L. Murzzo
------------------------------
Notary Public
My Commission Expires March 31, 1998
6
<PAGE>
EXHIBIT 10.10
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS AGREEMENT made as of the 28th day of May, 1996, by and between
COMMAND SYSTEMS INCORPORATED, a Connecticut corporation having its chief
executive office at Park View Corporate Center, 76 Batterson Park Road,
Farmington, Connecticut 06702 ("Debtor") and PEOPLE'S BANK, a Connecticut
banking corporation having an office at 850 Main Street, Bridgeport,
Connecticut 06604-4913 ("Secured Party").
WITNESSETH:
WHEREAS, Debtor and Secured Party are parties to a Loan And Security
Agreement dated November 30, 1993 (the "Loan Agreement") pursuant to which
Secured Party provided Debtor with a term loan in the amount of Five Hundred
Twenty Thousand and 00/100 Dollars ($520,000.00) (the "Term Loan") evidenced by
a Term Loan Promissory Note dated November 30, 1993, a revolver/term loan in the
amount of Eighty Thousand and 00/100 Dollars ($80,000.00)(the "Revolver/Term
Loan") evidenced by a Revolver/Term Loan Promissory Note dated November 30, 1993
and Secured Party also agreed, from time to time, in its sole discretion, to
extend commercial revolving loans in the maximum aggregate principal amount of
up to Two Hundred Thousand and 00/100 Dollars ($200,000.00) to Debtor (the "Line
of Credit Loans") evidenced by a Line of Credit Promissory Note dated November
30, 1993; and
WHEREAS, on December 21, 1994, Secured Party and Debtor modified the
terms of the Loan Agreement to provide for Line of Credit Loans in an amount not
to exceed One Million and 00/100 Dollars ($1,000,000.00) with a committed term
of April 15, 1996, and to eliminate the Term Loan and the Revolver/Term Loan.
WHEREAS, Command acknowledges and agrees that it has requested that
People's again modify the terms of the Loan Agreement to increase the
availability for Line of Credit Loans to an amount not to exceed Two Million
Five Hundred Thousand ($2,500,000.00) with a committed term of May 15, 1997.
NOW, THEREFORE, in consideration of the foregoing and in further
consideration of the mutual covenants herein contained, the parties hereto agree
as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Paragraph 5 of the Loan Agreement is hereby deleted in its
entirety and the following substituted in lieu therefore:
"5. AMOUNT AND TERMS OF THE LINE OF CREDIT LOANS.
---------------------------------------------
Pursuant to the terms of this Agreement and upon the satisfaction of
the conditions precedent referred to in Paragraph 14 hereof, Secured
Party may, in the exercise of its sole discretion, make Line of
Credit Loans to Debtor upon its request, which in the aggregate do
not exceed the lesser of Two Million Five Hundred Thousand and 00/100
Dollars ($2,500,000.00) or sixty-five percent (65%) (or such greater
or lesser percentage as Secured Party may, from time to time,
determine) of Qualified Accounts less the full amount of any and all
letter of credit commitments issued by Secured Party to Debtor. The
Line of Credit Loans and each of them shall be made on the following
terms and conditions:
<PAGE>
(a) The principal amount of the Line of Credit Loans, or such
part thereof as may be from time to time outsanding, shall be evidenced
by Debtor's Promissory Note, in the form of Exhibit 1-2 annexed hereto
-----------
and made a part hereof (hereinafter referred to as the "Line of Credit
Note"), with appropriate insertions of names, dates and amounts, which
shall be guaranteed by Guarantor. The Line of Credit Note shall be in the
maximum aggregate principal amount which Secured Party, from time to
time, intends to lend to Debtor, notwithstanding availability of the Line
of Credit Loans which might otherwise exist because of the amount of then
Qualified Accounts. The Line of Credit Note shall be in the amount of Two
Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00). Nothing
contained in this subparagraph (a) shall be deemed to prohibit Secured
Party from lending in excess of the principal amount of the outstanding
Line of Credit Note, to delimit the definition of "Obligations" contained
herein or to consitutue a waiver, release or subordination by Secured
Party of the security interest in the Collateral herein granted by Debtor
to Secured Party as security for the Obligations.
(b) In the event Debtor desires a Line of Credit Loan it may
request the same by delivering to Secured Party a request for advance, in
the form of Exhibit J and a Borrowing Base Certificate in the form of
---------
Exhibit K, each annexed hereto and made a part hereof. The Line of Credit
---------
Loans shall be made by Secured Party depositing the proceeds thereof in
Debtor's demand deposit account maintained by it with Secured Party;
(c) The aggregate principal amount of the Line of Credit
Loans from time to time outstanding shall bear interest at a rate per
annum equal equal to one-half of one(.50) percentage point above the
Prime Rate which at the date hereof is eight and one quarter percent
(8.25%), so that the initial rate of interest payable hereunder shall be
eight and three quarters percent (8.75%); provided however, that the rate
of interest charged hereunder shall never exceed the maximum amount, if
any, allowable by law. In the event the Prime Rate is either increased or
decreased, the rate of interest on the Line of Credit Loans then
outstanding shall be adjusted on the day the Prime Rate is so changes so
as to reflect such increase or decrease in the Prime Rate. Interest shall
be payale monthly on the fifteenth day of each month and shall be charged
on the daily principal balance of the Line of Credit Loans from time to
time outstanding on the basis of a three hundred sixty (360) day year,
and the outstanding principal amount owed on the Line of Credit Loans,
together with all interest accrued thereon, shall be due and payable in
full on May 15, 1997 unless the Line of Credit is extended pursuant to
subparagraph (e) herein. Debtor hereby authorizes Secured Party to debit
Debtor's operating account with Secured Party for each monthly interest
payment owed;
(d) The Line of Credit Loans made by Secured Party to Debtor
pursuant to this Paragraph 5 shall be recorded in an account on the books
of Secured Party bearing Debtor's name ("Debtor's Account"). There shall
also be recorded in Debtor's account all payments made by Debtor on the
Line of Credit Loans, proceeds of the Collateral received by Secured
Party which are, in the exercise of Secured Party's sole discretion,
applied by Secured Party to the Line of Credit Loans, interest and
expenses and other appropriate debits and credits as heein provided.
Secured Party shall from time to time render and send to Debtor a
statement of Debtor's Account showing the outstanding aggregate principal
balance of the Line of Credit Loans, together with interest and other
appropriate debits and credits as of the date of the statement. The
statement of Debtor's Account shall be considered correct in all
2
<PAGE>
respects and accepted by and be conclusively binding upon Debtor unless
Debtor makes specific written objections thereto within fifteen (15) days
after the statement of Debtor's Account is sent;
(e) The provisions of this Paragraph 5 shall continue in
effect until May 15, 1997, and from year to year thereafter, unless
terminated as to future transactions by Secured Party giving not less
than thirty (30) days written notice of termination prior to May 15, 1997
or prior to the end of any such one (1) year period to Debtor, provided,
however, that Secured Party may also terminate the provisions of this
Paragraph 5 at any time upon the happening of any Event of Default. No
such termination shall (i) in any way affect or impair the security
interest granted to Secured Party hereunder or any other rights of
Secured party hereunder or under any other agreements, instruments or
documents required to be executed and delivered to Secured Party pursuant
to the terms of this Agreement, arising prior to any such termination or
by reason thereof, (ii) relieve Debtor of any obligation to Secured Party
under the Agreement, any such other agreement, instrument or document, or
otherwise, until all the Obligations are fully paid and performed, or
(iii) affect any right or remedy of Secured Party hereunder or under any
such other agreement, instrument or document."
(b) Paragraph 7(a) of the Loan Agreement is hereby deleted in its
entirety and the following substituted in lieu therefore:
"(a) Maintain (i) a Tangible New Worth of $1,404,000 as of
December 31, 1996 which amount shall increase by $600,000 as of the end
of Debtor's fiscal years; (ii) a Current Ratio of no less than 1.25 to
1.00; and (iii) a Debt Service Coverage Ratio of 2.00 to 1.00; (iv) a
ratio of Maximum Total Liabilities to Tangible Net Worth of 2.00 to 1.00;
and (v) Debtor's Capital Expenditures are not to exceed $300,000, and
Debtor may make Capital Expenditures of up to $300,000 only so long as
Debtor is in compliance with the Debt Service Coverage Ratio.
Tangible Net Worth shall mean total stockholder's equity less
any intangible assets, which Tangible Net Worth covenant shall be tested
annually based on the Debtor's fiscal year-end financial statements.
Current Ratio shall mean current assets divided by current liabilities,
which Current Ratio covenant shall be tested quarterly based on Debtor's
quarterly and fiscal year-end financial statements. Debt Service Coverage
shall mean Debtor's net profits after taxes plus depreciation and
interest expenses minus internally funded capital expenditures (not to
exceed $300,000 for 1996) divided by current maturities of long term debt
plus capital lease expenses and interest payments, which Debt Service
Coverage covenant shall be tested annually based on Debtor's fiscal year-
end financial statements. Maximum Total Liabilities to Tangible New Worth
shall mean Debtor's total liabilities divided by the sum of the total of
Debtor's stockholders equity less any intangible assets plus subordinated
debt, which Total Liabilities to Tangible New Worth covenant will be
tested quarterly based on Debtor's quarterly and fiscal year-end
financial statements. Capital Expenditures shall mean total capital
purchases of property, equipment and leasehold improvements. Unless
otherwise stated above compliance with each of the above referenced:
financial covenants shall be determined by generally accepted accounting
principals consistently applied from year to year."
(c) Subparagraph (e) of Paragraph 7 is hereby amended to reflect that
Debtor's annual financial statements shall be delivered to Secured Party one
hundred and twenty (120) days
3
<PAGE>
after the close of Debtor's fiscal year-end, and that the requirement for
monthly financial statements has been changed to a quarterly requirement forty
five (45) days after the close of Debtor's fiscal quarter. All other terms and
conditions of subparagraph (e) of Paragraph 7 remain unchanged.
2. Debtor represents and warrants to Secured Party that all of the
representations and warranties Debtor has set forth in the Loan Agreement, as
amended hereby, are true and correct and are hereby amended and restated.
3. Except as modified herein, all other terms, provisions, and
conditions of the Loan Agreement remain unmodified and are in full force and
effect.
4. DEBTOR ACKNOWLEDGES THAT THE TRANSACTIONS DESCRIBED HEREIN ARE
COMMERCIAL TRANSACTIONS AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY
STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGEMENT REMEDY WHICH SECURED PARTY
MAY DESIRE TO USE, AND FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR
PAYMENT, NOTICE OF NONPAYMENT, PROTEST, AND NOTICE OF PROTEST, AND NOTICE OF ANY
RENEWALS OR EXTENSIONS OF THE NOTE, AND ALL RIGHTS UNDER ANY STATUTE OF
LIMITATIONS.
5. DEBTOR HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT,
ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY
RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR
ENFORCEMENT OF ANY SECURED PARTY'S RIGHTS AND REMEDIES. DEBTOR ACKNOWLEDGES
THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement this 28th day of May, 1996.
Signed, Sealed and
Delivered in the
Presence of: COMMAND SYSTEMS INCORPORATED
- -------------------------- By: /s/ Edward G. Caputo
-------------------------
Edward G. Caputo
- -------------------------- Its President
PEOPLE'S BANK
By: /s/ Domenic A. Cessario
---------------------------
Domenic A. Cessario
Its Commercial Loan Officer
- --------------------------
- --------------------------
4
<PAGE>
STATE OF CONNECTICUT )
)ss. Hartford
COUNTY OF HARTFORD )
On this 28th day of May, 1996, personally appeared Edward G. Caputo, as
President of COMMAND SYSTEMS INCORPORATED, signer and sealer of the foregoing
instrument, and acknowledges the same to be her free act and deed and the free
act and deed of said corporation, before me.
/s/
----------------------------------
Commissioner of the Superior Court
STATE OF CONNECTICUT )
)ss. Hartford
COUNTY OF HARTFORD )
On this 28th day of May, 1996, personally appeared Domenic A. Cessario as
Commercial Loan Officer of PEOPLE'S BANK, signer and sealer of the foregoing
instrument, and acknowledged the same to be his free act and deed and the free
act and deed of said banking corporation, before me.
/s/
----------------------------------
Commissioner of the Superior Court
<PAGE>
SECOND AMENDED AND RESTATED LINE OF CREDIT PROMISSORY NOTE
$2,500,000.00 Hartford, Connecticut May 28, 1996
- --------------------------------------------------------------------------------
WHEREAS, COMMAND SYSTEMS INCORPORATED, a Connecticut corporation
("Maker"), executed a Line of Credit Promissory Note dated November 30, 1993 in
the maximum aggregate principal amount of up to Two Hundred Thousand and 00/100
Dollars ($200,000.00) (the "Note") pursuant to the terms and conditions of a
Loan and Security Agreement also dated November 30, 1993 between Maker and
People's Bank ("Holder") (as amended from time to time, the "Loan and Security
Agreement"); and
WHEREAS, Maker executed and delivered an Amended and Restated Line of
Credit Promissory Note dated December 21, 1994 (the "Amended and Restated Note")
in the maximum aggregate principal amount of $1,000,000;
WHEREAS, Maker has requested that Holder modify certain terms and
conditions of the Loan and Security Agreement, including, but not limited to,
increasing the availability of Line of Credit Loans under the Loan and Security
Agreement; and
WHEREAS, Holder has agreed to so modify the Loan and Security Agreement
on the condition, among other things, that Maker execute and deliver to Holder
this Second Amended and Restated Line of Credit Promissory Note.
NOW, THEREFORE, the Line of Credit Promissory Note dated November 30,
1993 and the Amended and Restated Line of Credit Promissory Note dated December
21, 1994 each from Maker to Holder is hereby amended and restated in its
entirety as follows:
FOR VALUE RECEIVED, MAKER promises to pay to the order of Holder at its
chief executive office at 850 Main Street, Bridgeport, Connecticut 06604-4913,
or at such other place as may be designated in writing from time to time by
Holder, the maximum aggregate principal sum of up to Two Million Five Hundred
Thousand and 00/100 Dollars ($2,500,000.00), together with interest accruing on
the unpaid balance of this Note, at a floating rate per annum equal to one-half
of one, (.50) percentage point above the Prime Rate from time to time charged by
Holder, its successors or assigns, adjusted as set forth herein. The Prime Rate
referred to herein is the index Holder uses to set interest rates on certain
types of loans, is not necessarily the lowest rate Holder charges its customers
and is increased or decreased in response to changes in money market conditions.
The Prime Rate at the date hereof is eight and a quarter percent (8.25%), so
that the initial rate of interest charged hereunder shall be eight and three
quarters percent (8.75%). In the event that the Prime Rate is increased or
decreased, the interest rate hereunder shall be adjusted accordingly on the day
of said increase or decrease. Interest shall be charged on the principal balance
from time to time outstanding on the basis of the actual number of days elapsed
computed on the basis of a three hundred sixty (360) day year. Upon the
occurrence of an Event of Default under the Loan Agreement (as hereinafter
defined), all sums outstanding hereunder shall bear interest at a rate which is
two (2) percentage points above the otherwise applicable rate hereunder.
Interest only shall be due and payable, in arrears, on the fifteenth day
of each and every month commencing June 15, 1996. The principal amount of this
Note shall be advanced pursuant to Requests for Advances and Borrowing Base
Certificates submitted by Maker pursuant to the Loan and Security Agreement, and
this Note is subject in all respects to the terms and conditions of the Loan
and Security Agreement. The outstanding principal amount owed hereunder,
together with all interest accrued thereon, shall be due and payable in full on
May 15, 1997. Advances and payments on this Note may be evidenced
EXHIBIT I-2
<PAGE>
by an internal ledge account of Holder which shall set forth, among other
things, the principal amount of any advances and payments therefor. Maker hereby
authorizes Holder to debit Maker's operating account for each monthly payment of
principal and interest owed.
Maker further promises to pay, on demand, in addition to said principal
sum and interest, all taxes assessed upon this Note or on any collateral
securing the same, all taxes, assessments and insurance premiums upon all
property securing the payment of this Note, and all reasonable costs and
expenses, including, without limitation, attorney's fees, incurred in the
collection of this Note or in foreclosing any security interest securing the
same or in sustaining the lien of any such security interest.
In the event any installment of interest owed hereunder is paid more than
ten (10) days after its due date, without in any way affecting Holder's right,
if any, to accelerate this Note, a late charge equal to five percent (5%) of the
late installment shall be assessed against Maker.
Notwithstanding any provisions of this Note, it is the understanding and
agreement of Maker and Holder that the rate of interest to be paid by Maker to
Holder shall not exceed the highest or maximum rate of interest permissible to
be charged by a lender such as Holder to a commercial borrower such as Maker
under the laws of the State of Connecticut. Any amount paid in excess of such
rate shall be considered to have been payments in reduction of principal.
Maker hereby grants to Holder or any holder hereof a lien and right of
set-off for all of Maker's liabilities hereunder, upon and against all of
Maker's deposits, credits and other property now or hereafter in the possession
or control of Holder or any holder or in transit to it.
MAKER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR
PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE
FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART AND/OR THE ENFORCEMENT OF
ANY OF HOLDER'S RIGHTS AND REMEDIES. MAKER ACKNOWLEDGES THAT IT MAKES THIS
WAIVER KNOWINGLY, VOLUNTARILY AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
MAKER AND EACH AND ALL ENDORSERS, GUARANTORS, AND SURETIES OF THIS NOTE
ACKNOWLEDGE THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL TRANSACTION AND
WAIVE THEIR RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT
GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO USE, and further,
waive diligence, demand, presentment for payment, notice of nonpayment, protest
and notice of protest, and notice of any renewals or extensions of this Note,
and all rights under any statute of limitations, and all endorsers, guarantors
and sureties agree that the time for payment of this Note may be extended at
Holder's sole discretion, without impairing their liability thereon, and further
consent to the release of all or any part of the security for the payment
hereof, at the discretion of Holder, or the release of any party liable for
this obligation without affecting the liability of the other parties hereto.
This Note shall be governed by and construed in accordance with the laws
of the State of Connecticut.
COMMAND SYSTEMS INCORPORATED
By: /s/
-------------------------
Edward G. Caputo
Its President
<PAGE>
EXHIBIT 10.11
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS AGREEMENT made as of the 30th day of June, 1997, by and between
COMMAND SYSTEMS INCORPORATED, a Connecticut corporation having its chief
executive office at Pond View Corporate Center, 76 Batterson Park Road,
Farmington, Connecticut 06702 ("Debtor") and PEOPLE'S BANK, a Connecticut
banking corporation having an office at 850 Main Street, Bridgeport, Connecticut
06604-4913 ("Secured Party").
W I T N E S S E T H:
WHEREAS, Debtor and Secured Party are parties to a Loan and Security
Agreement dated November 30, 1993 (the "Loan Agreement") pursuant to which
Secured Party provided Debtor with a term loan in the amount of Five Hundred
Twenty Thousand and 00/100 Dollars ($520,000.00) (the "Term Loan") evidenced by
a Term Loan Promissory Note dated November 30, 1993, a revolver/term loan in the
amount of Eighty Thousand and 00/100 Dollars ($80,000.00) (the "Revolver/Term
Loan") evidenced by a Revolver/Term Loan Promissory Note dated November 30, 1993
and Secured Party also agreed, from time to time, in its sole discretion, to
extend commercial revolving loans in the maximum aggregate principal amount of
up to Two Hundred Thousand and 00/100 Dollars ($200,000.00) to Debtor (the "Line
of Credit Loans") evidenced by a line of Credit Promissory Note dated November
30, 1993; and
WHEREAS, on December 21, 1994, Secured Party and Debtor modified the
terms of the Loan Agreement to provide for Line of Credit Loans in an amount
not to exceed One Million and 00/100 Dollars ($1,000,000.00) with a committed
term of April 15, 1996, and to eliminate the Term Loan and the Revolver/Term
Loan.
WHEREAS, on May 28, 1996, People's modified the terms of the Loan
Agreement to increase the availability of the Line of Credit Loans to Two
Million Five Hundred Thousands and 00/100 Dollars ($2,500,000.00) with a
committed term of June 30, 1997.
WHEREAS, Command acknowledges and agrees that it has requested that
People's again modify the terms of the Loan Agreement to extend the committed
term of the Line of Credit Loans to August 15, 1998 and to increase the
availability of the Line of Credit Loans to the lesser of Two Million Five
Hundred Thousand and 00/100 Dollars ($2,500,000.00) or seventy-five percent
(75%) of Qualified Accounts.
NOW, THEREFORE, in consideration of the foregoing and in further
consideration of the mutual covenants herein contained, the parties hereto agree
as follows:
<PAGE>
1. The Loan Agreement is hereby amended as follows:
(a) The first sentence of Paragraph 5 of the Loan Agreement is hereby
deleted in its entirety and the following substituted in lieu therefore:
"5. AMOUNT AND TERMS OF THE LINE OF CREDIT LOANS.
---------------------------------------------
Pursuant to the terms of this Agreement and upon the satisfaction of the
conditions precedent referred to in Paragraph 14 hereof, Secured Party
may, in the exercise of its sole discretion, make Line of Credit Loans to
Debtor upon its request, which in the aggregate do not exceed the lesser
of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00)
or seventy-five percent (75%) (or such greater or lesser percentage as
Secured Party may, from time to time, determine) or Qualified Accounts."
(b) The first sentence of subparagraph (e) of Paragraph 5 hereby
deleted in its entirety and the following substituted in lieu therefore:
(e) The provisions of this Paragraph 5 shall continue in
effect until August 15, 1998, provided, however, that Secured Party may
also terminate the provisions of this Paragraph 5 at any time upon the
happening of any Event of Default.
(c) Paragraph 7(a) of the Loan Agreement is hereby deleted in its
entirety and the following substituted in lieu therefore:
"(a) Maintain (i) a Tangible Net Worth of $1,750,000 as of
December 31, 1997; (ii) a Current Ratio of no less than 1.00 to 1.00 as
of December 31, 1997; and (iii) a Debt Service Coverage Ratio of 1.25 to
1.00 as of December 31, 1997.
Tangible Net Worth shall mean total stockholder's equity less
any intangible assets, which Tangible Net Worth covenant shall be tested
annually and quarterly commencing December 31, 1997 based on the
quarterly and fiscal year-end consolidated financial statements of Debtor
and Command Systems, Inc. a Delaware corporation. Current Ratio shall
mean current assets divided by current liabilities, which Current Ratio
covenant shall be tested annually and quarterly commencing December 31,
1997 based on the quarterly and fiscal year-end consolidated financial
statements of Debtor and Command Systems, Inc. Debt Service Coverage
shall mean Debtor's net profits after taxes plus depreciation and
interest expenses minus internally funded capital expenditures and
dividend payments divided by current maturities of long term debt plus
capital lease expenses and interest payments, which Debt Service
2
<PAGE>
Coverage covenant shall be tested annually based on the
consolidated fiscal year-end financial statements of Debtor and
Command Systems, Inc. Unless otherwise stated above compliance with
each of the above referenced financial covenants shall be
determined by generally accepted accounting principals consistently
applied from year to year."
(d) Subparagraph (e)(i), (ii) and (iii) of Paragraph 7 are hereby
amended to reflect that the audited annual financial statements of Debtor,
Command Systems, Inc. and the review level financial statements for each
subsidiary shall be delivered to Secured Party one hundred and twenty (120) days
after the close of Debtor's fiscal year-end, both on a consolidated and an
individual basis, and Debtor and Command Systems, Inc. shall each deliver
management prepared quarterly financial statements on a consolidated and
individual basis to Secured Party sixty (60) days after the close of Debtor's
fiscal quarter.
(e) Subparagraph (e)(v) of Paragraph 7 is hereby deleted in its
entirety and the following substituted in lieu therefor:
"(v) On or before the tenth day of each month, a detailed written
report, in form satisfactory to Secured Party, showing as of the
end of the immediately preceding month, all Accounts of Debtor
including the name of each Account debtor, the balance on the
Account and an aging of such Accounts."
(f) Subparagraphs (e)(vi), (vii), (viii) and (ix) of Paragraph 7
of the Loan Agreement are hereby deleted in their entirety. All other terms and
conditions of subparagraph (e) of Paragraph 7 remain unchanged except as
provided for herein.
(g) Paragraph 8(b) of the Loan Agreement is hereby deleted in its
entirety and the following substituted in lieu therefor:
"(b) Declare or pay any dividends or make any distributions
on any shares of its capital stock (other than dividends
payable solely in such shares), or purchase, redeem, retire
or otherwise acquire, directly or indirectly, any such
shares, other than payment of dividends to Phoenix Home Life
so long as no Event of Default exists hereunder;"
2. Debtor represents and warrants to Secured Party that all of the
representations and warranties Debtor has set forth in the Loan Agreement, as
amended hereby, are true and correct and are hereby remade and restated.
3
<PAGE>
3. Except as modified herein, all other terms, provisions, and conditions
of the Loan Agreement remain unmodified and are in full force and effect.
4. DEBTOR AND COMMAND SYSTEMS, INC. ACKNOWLEDGE THAT THE TRANSACTIONS
DESCRIBED HEREIN ARE COMMERCIAL TRANSACTIONS AND WAIVE ITS RIGHTS TO NOTICE AND
HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE
ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY
WHICH SECURED PARTY MAY DESIRE TO USE, AND FURTHER WAIVE DILIGENCE, DEMAND,
PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST, AND NOTICE OF PROTEST,
AND NOTICE OF ANY RENEWALS OR EXTENSIONS OF THE NOTE, AND ALL RIGHTS UNDER ANY
STATUTE OF LIMITATIONS.
5. DEBTOR AND COMMAND SYSTEMS, INC. HEREBY WAIVE TRIAL BY JURY IN ANY
COURT AND IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION
WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT
IS A PART AND/OR THE ENFORCEMENT OF ANY OF SECURED PARTY'S RIGHTS AND REMEDIES.
DEBTOR AND COMMAND SYSTEMS, INC. ACKNOWLEDGE THAT IT MAKES THIS WAIVER
KNOWINGLY, VOLUNTARILY, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of this 30th day of June, 1997.
Signed, Sealed and Delivered
in the Presence of: COMMAND SYSTEMS
INCORPORATED
By:
- ---------------------------- ----------------------------
Edward G. Caputo
Its President
- ----------------------------
PEOPLE'S BANK
By:
- ---------------------------- ----------------------------
Domenic A. Cessario
Its Commercial Loan Officer
- ----------------------------
4
<PAGE>
STATE OF CONNECTICUT )
) ss. Hartford
COUNTY OF HARTFORD )
On this 30th day of June, 1997, personally appeared Edward G. Caputo, as
President of COMMAND SYSTEMS INCORPORATED, signer and sealer of the foregoing
instrument, and acknowledged the same to be his free act and deed and the free
act and deed of said corporation, before me.
------------------------------
Notary Public/
Commissioner of the Superior Court
STATE OF CONNECTICUT )
) ss. Hartford
COUNTY OF HARTFORD )
On this 30th day of June, 1997, personally appeared Domenic A. Cessario
as Commercial Loan Officer of PEOPLE'S BANK, signer and sealer of the foregoing
instrument, and acknowledged the same to be his free act and deed and the free
act and deed of said banking corporation, before me.
------------------------------
Notary Public/
Commissioner of the Superior Court
5
<PAGE>
EXHIBIT 10.12
ASSUMPTION AGREEMENT
--------------------
This Assumption Agreement is made as of the _____ day of December, 1997,
by and between COMMAND SYSTEMS, INC., a Delaware corporation with an address of
76 Batterson Park Road, Farmington, CT 06032 ("CSI-Delaware"), and PEOPLE'S
BANK, a Connecticut banking corporation with an address of One Financial Plaza,
Hartford, CT 06103 ("Lender").
RECITALS
--------
WHEREAS, Command Systems Incorporated, a Connecticut corporation
("CSI-Connecticut") entered into certain loan transactions with Lender on or
about November 30, 1993 pursuant to which the Lender extended a term loan in the
amount of $520,000, a revolver/term loan in the amount of $80,000, and a line of
credit in the maximum amount of $200,000; which loans were consolidated into
line of credit loans with a maximum principal amount of $1,000,000 on or about
--
December 21, 1994; which loans were further modified to increase the maximum
principal amount to $2,500,000 on or about May 28, 1996; which loans were
further modified on or about June 30, 1997 by, inter alia, adding the guaranty
----- ----
of CSI-Delaware (as so modified, the "Loan"); and
WHEREAS, the Loan is secured by a first priority security interest in favor
of Lender on all of the personal property owned by CSI-Connecticut; and
WHEREAS, CSI-Connecticut has been merged with and into CSI-Delaware under
the laws of the States of Connecticut and Delaware; and
WHEREAS, such a merger would constitute an event of default under the
documentation executed in connection with the Loan (the "Loan Documents"),
absent the consent of the Lender, and
WHEREAS, the Lender has agreed to allow the merger of CSI-Connecticut into
CSI-Delaware pursuant to the terms hereof, including without limitation, the
ratification of the obligations of CSI-Connecticut to Lender under the Loan
Documents, all as more particularly set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
herein contained, CSI-Delaware and Lender agree as follows:
1. CSI-Delaware hereby represents and warrants to Lender that it has
succeeded in all respects under the laws of the United States and the States of
Delaware and Connecticut to all of the rights, title and interest of
CSI-Connecticut in and to any and all property, real and personal, wherever
located and of whatever kind and nature.
<PAGE>
2. CSI-Delaware hereby unconditionally assumes all of the duties,
obligations and liabilities of CSI-Connecticut under the Loan Documents,
including without limitation all of those documents identified on Schedule A
attached hereto. In connection therewith, without the generality of the
foregoing. CSI-Delaware agrees to pay all sums due Lender at the time, in the
manner and in all other respects as provided in the Loan Documents, and to
perform all of the duties, covenants and obligations provided in the Loan
Documents to be performed by CSI-Connecticut thereunder at the time, in the
manner and in all other respects as provided by the Loan Documents, and to be
bound by all of the terms of the Loan Documents as fully and to the same extent
as if the Loan Documents were originally made, executed and delivered to Lender
by CSI-Delaware.
3. Lender hereby consents to the merger of CSI-Connecticut into
CSI-Delaware as the conversion on those terms as shall have been disclosed to
Lender in writing.
4. CSI-Delaware hereby represents to Lender that no event of default or
event which, with the giving of notice or the passage of time, or both, would
become an event of default under the Loan Documents has occurred.
5. CSI-Delaware hereby represents to Lender that the execution of this
Assumption Agreement and the performance by CSI-Delaware of its obligations
hereunder (i) has been validly and duly authorized by all necessary actions,
(ii) will not violate or breach any contractual covenants or restrictions
binding upon CSI-Delaware, and (iii) does not require the consent of any third
party.
6. CSI-Delaware hereby agrees, at its sole cost and expense, to execute
and deliver any documentation requested by Lender to effectuate the provisions
of this Assumption Agreement, including without limitation, amendments to
security agreements or financing statements.
7. Other than as expressly modified herein, the terms and provisions of
the Loan Documents shall remain in full force and effect as the binding
obligations of the parties hereto.
IN WITNESS WHEREOF, the parties have set their hands and seals as of the
date and year first above written.
COMMAND SYSTEMS, INC.
[ILLEGIBLE SIGNATURE APPEARS HERE]
- ----------------------------------
By [ILLEGIBLE SIGNATURE APPEARS HERE]
--------------------------------------
[ILLEGIBLE SIGNATURE APPEARS HERE] its
- ---------------------------------- Duly Authorized
<PAGE>
/s/ D. S. Blitz
- ------------------------ PEOPLE'S BANK
David S. Blitz
By /s/ [SIGNATURE APPEARS HERE]
- ------------------------ ----------------------------
Its AVP
Duly Authorized
<PAGE>
SCHEDULE A
----------
$520,000.00 TERM LOAN
$200,000.00 LINE OF CREDIT
AND
$80,000.00 REVOLVER/TERM LOAN
FROM
PEOPLE'S BANK
TO
COMMAND SYSTEMS INCORPORATED
CLOSING DATE: NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
INDEX
1. Certified copy of Certificates of Incorporation and Bylaws of Command
Systems, Incorporated (post closing)
2. Good-standing Certificate for Command Systems, Incorporated
3. Tax Clearance Letter for Command Systems, Incorporated
4. Authorizing Resolution of Command Systems, Incorporated
5. Loan and Security Agreement
a. Exhibit A - Equipment
b. Exhibit B - List of Debtors' Liabilities (not shown on financial
statements)
c. Exhibit C - List of Liens on Company Assets and Properties
d. Exhibit D - Litigation
e. Exhibit E - List of All Outstanding Debt From Money Borrowed
f. Exhibit F - List of Holders of All Outstanding Stock of Debtor
g. Exhibit G - List of Leases to which Company is a Party
h. Exhibit H - Trade names
i. Exhibit I-1 - Term Loan Note
j. Exhibit I-2 - Line of Credit Note
k. Exhibit I-3 - Revolver/Term Loan Note
l. Exhibit J - Request for Advance
m. Exhibit K - Borrowing Base Certificate
n. Exhibit L - Real Estate
6. Promissory Notes
a. Term Loan
b. Line of Credit
c. Revolver/Term Loan
7. Guaranty Agreement of Edward G. Caputo
<PAGE>
8. UCC-11 Searches
a. Connecticut
b. Massachusetts
9. UCC-1 Financing Statements
a. Secretary of State of Connecticut
b. Town Clerk of Hartford
c. Town Clerk of Stamford
d. Secretary of State of Massachusetts
e. Town Clerk of Natick, Massachusetts
10. UCC-3 Termination Statements (post closing)
11. Open-End Mortgage and Security Agreement for 6 Morgan Place, Avon,
Connecticut
12. Title Insurance Policy
13. Evidence That Real Estate Taxes Current
14. Subordination Agreement for Officers, Shareholders and Directors
15. 1991 and 1992 personal tax returns for Edward J. Caputo and IRS W-9 Form
for Command Systems, Incorporated and for Edward J. Caputo.
16. Evidence that Fleet Loan and Depository Accounts Satisfactorily Handled.
17. PIR and Jury Trial Waivers.
18. Hazard and Liability and Workers Compensation Insurance with People's Bank
named as loss payee
19. Notification Letters to Account Debtors
20. Opinion of Counsel
21. Request for Advance
22. Borrowing Base Certificate
23. Commitment Letter
2
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION
OF
PER SHARE EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income (loss)
available to common
stockholders............ $193,102 $221,437 $(423,006) $226,464 $(682,654)
========= ========= ========= ========= =========
Weighted average shares
outstanding............. 4,275,000 4,275,000 4,275,000 4,275,000 4,275,000
Assumed issuance of
shares using the
treasury stock method to
recognize securities
issuable at prices below
the assumed public
offering price:
Options................ 47,091 47,091 47,091 47,091 47,091
Series A convertible
preferred stock....... 323,760 323,760 323,760 323,760 323,760
--------- --------- --------- --------- ---------
Shares used in per share
calculation............. 4,645,851 4,645,851 4,645,851 4,645,851 4,645,851
========= ========= ========= ========= =========
Net income (loss) per
common share............ $0.04 $0.05 $(0.09) $(0.05) $(0.15)
========= ========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 21.1
As of December 31, 1997, the subsidiaries of the Registrant are as follows:
1. Command International Software Pvt., an Indian company.
2. Command International Holdings, a Mauritius company.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated September 22, 1997 except for Note 9, as to which
the date is December 31, 1997 and Note 10 as to which the date is January ,
1998, in the Registration Statement (Form S-1 No. 333- ) and related
Prospectus of Command Systems, Inc. for the registration of 2,400,000 shares
of its common stock.
Hartford, Connecticut
January , 1998
The foregoing consent is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 10 to the
consolidated financial statements.
/s/ Ernst & Young LLP
Hartford, Connecticut
January 8, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 673,262
<SECURITIES> 0
<RECEIVABLES> 4,623,982
<ALLOWANCES> 229,259
<INVENTORY> 0
<CURRENT-ASSETS> 5,302,595
<PP&E> 2,923,270
<DEPRECIATION> 687,305
<TOTAL-ASSETS> 8,120,955
<CURRENT-LIABILITIES> 5,207,333
<BONDS> 0
0
2,163,428
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,120,955
<SALES> 17,741,755
<TOTAL-REVENUES> 17,741,755
<CGS> 11,988,686
<TOTAL-COSTS> 5,283,863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (262,287)
<INCOME-PRETAX> 228,160
<INCOME-TAX> (705,996)
<INCOME-CONTINUING> (477,836)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (662,290)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 12,562,791
<TOTAL-REVENUES> 12,562,791
<CGS> 8,841,908
<TOTAL-COSTS> 3,461,131
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (67,216)
<INCOME-PRETAX> 233,045
<INCOME-TAX> (6,581)
<INCOME-CONTINUING> 226,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226,464
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 443,505
<SECURITIES> 0
<RECEIVABLES> 2,399,564
<ALLOWANCES> 24,500
<INVENTORY> 0
<CURRENT-ASSETS> 3,234,685
<PP&E> 1,469,325
<DEPRECIATION> 396,785
<TOTAL-ASSETS> 4,816,265
<CURRENT-LIABILITIES> 3,333,706
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,816,265
<SALES> 17,069,417
<TOTAL-REVENUES> 17,069,417
<CGS> 12,494,448
<TOTAL-COSTS> 5,171,912
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (132,482)
<INCOME-PRETAX> (672,501)
<INCOME-TAX> 8,056
<INCOME-CONTINUING> (664,445)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (423,006)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 222,940
<SECURITIES> 0
<RECEIVABLES> 1,762,067
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,014,837
<PP&E> 478,969
<DEPRECIATION> 219,462
<TOTAL-ASSETS> 2,294,126
<CURRENT-LIABILITIES> 1,929,585
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,294,126
<SALES> 12,436,529
<TOTAL-REVENUES> 12,436,529
<CGS> 9,108,436
<TOTAL-COSTS> 3,012,869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,405
<INCOME-PRETAX> 265,014
<INCOME-TAX> 43,577
<INCOME-CONTINUING> 221,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221,437
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> JAN-01-1994
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 9,272,376
<TOTAL-REVENUES> 9,272,376
<CGS> 6,889,883
<TOTAL-COSTS> 2,102,143
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,118
<INCOME-PRETAX> 225,233
<INCOME-TAX> 32,131
<INCOME-CONTINUING> 193,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 193,102
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0
</TABLE>
