<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1998
REGISTRATION NO. 333-43877
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
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. [_]
--------------
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 SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Dated February 13, 1998
2,400,000 SHARES
[LOGO OF COMMAND SYSTEMS APPEARS HERE]
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."
The Company's Common Stock has been approved for quotation, subject to notice
of effectiveness, 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
$993,000.
(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 the 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.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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 effected in February 1998. 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 285 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, MassMutual,
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,
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<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 and its telephone number is (860) 409-2000. The Company's
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, the expansion
of sales and marketing
capabilities and other
general corporate
purposes, including
working capital.
Nasdaq National Market Symbol...................... CMND
</TABLE>
- --------
(1) Excludes 200,550 shares of Common Stock issuable upon the exercise of stock
options outstanding as of February 1, 1998 at a weighted average exercise
price of $7.47 per share, 61,500 of which were issued on March 5, 1997 in
exchange for units of shadow stock issued pursuant to the Company's Shadow
Stock Incentive Plan (the "Exchange Options"), 43,050 of which are
currently exercisable, and 139,050 of which were issued pursuant to the
Company's 1997 Employee, Director and Consultant Stock Plan (the "1997 Plan
Options"), 2,500 of which are currently exercisable. See "Management--
Employee Benefit Plans."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED
-------------------------------------------- DECEMBER 31, 1997
1993 1994 1995 1996 1997 PRO FORMA(3)
------- ------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $ 6,127 $ 9,272 $ 12,436 $ 17,069 $ 25,057 $ 25,057
Gross profit........... 406 2,382 3,328 4,575 8,084 8,084
Income (loss) from
operations............ (202) 280 315 (597) 829 373
Net income (loss)(1)... (256) 193 221 (423) (497) 425
Pro forma earnings
(loss) per common
share-diluted(2)...... $ 0.01 $ 0.06
======== ========
Shares used in per
share calculation..... 4,654 7,557
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
AS
ACTUAL ADJUSTED(4)
------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................... $ 392 $ 19,942
Working capital ....................................... 78 19,628
Total assets........................................... 14,425 33,967
Short-term debt........................................ 1,414 556
Series A convertible preferred stock................... 2,223 --
Series B convertible preferred stock................... 8,000 --
Stockholders' equity (deficit)......................... (722) 29,903
</TABLE>
- --------
(1) Net loss for the year ended December 31, 1997 includes a one-time 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) Adjusted to reflect on a pro forma basis a federal income tax provision as
if the Company had historically been taxed as a C corporation.
(3) Adjusted to reflect (i) the purchase by the Company of the 49% minority
interest in the Offshore Technology Resource Center, (ii) the normalization
of United States federal income tax to reflect C corporation status and
(iii) the elimination of interest expense for debt repaid with a portion of
the net proceeds of this offering, as if such transactions had occurred at
the beginning of the year.
(4) 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, and to give effect to the Preferred Stock Conversion. 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,
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 311% to $25.1
million in 1997 from $6.1 million in 1993, and increased by approximately 47%
from 1996 to 1997. 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
experienced, 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 attracting and
retaining future employees or retaining current employees. An inability to
6
<PAGE>
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. For the year ended December 31, 1997, the Company's four largest
customers, The Hartford Financial Services Group, Inc. ("The Hartford"), New
York Life Insurance Company ("New York Life"), Phoenix and The Mutual Life
Insurance Company of New York accounted for 13.1%, 13.0%, 10.3% and 7.1% of
the Company's total revenue, respectively. For the year ended December 31,
1996, the Company's four largest customers, The Hartford, New York Life,
MassMutual and Phoenix accounted for 13.6%, 12.6%, 8.4% and 8.1% of the
Company's total 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
7
<PAGE>
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."
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 no revenue from Year 2000 solutions services in 1996
and 21% of its revenue from Year 2000 solutions services during the year ended
December 31, 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 projects that 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
8
<PAGE>
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 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. 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 in part on its
continued status as an authorized remarketer of computer products. There can
be no assurance, however, that the Company will maintain its status as an
approved reseller and service provider. 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.
9
<PAGE>
IMMIGRATION ISSUES
As of December 31, 1997, the Company employed four foreign nationals in the
United States. Each of these foreign nationals obtained the visa required from
the Immigration and Naturalization Service. During 1998, the Company intends
to increase the number of qualified foreign nationals which it employs in the
United States. 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. The Company believes
that its success, in part, may result from its ability to attract and retain
persons with technical and project management skills from other countries due
to the general shortage of qualified technical professionals in the United
States.
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 year ended December 31, 1997 revenue derived from the Company's
operations in India accounted for approximately 10% of the Company's revenue,
all of which related to services performed for customers located in the United
States. The Company expects that revenue from its Indian operations, together
with revenue, if any, generated in the future from the provision of services
outside the United States, 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. The realization of any of the foregoing 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. In addition, the Company's failure to
complete a project in the contractually prescribed time period, particularly a
Year 2000 solutions services contract, may result in a claim for substantial
damages against the Company. 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
10
<PAGE>
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 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 Certificate of Incorporation and By-Laws, 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."
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS
The completion of this offering will provide significant benefits to the
current stockholders of the Company, including certain of its directors and
officers. The Company will not receive any of the net proceeds from the sale
of shares by the Selling Stockholders, which will be approximately $3.1
million in the aggregate, assuming a public offering price of $11.00 per
share. The completion of this offering will also create a public market for
the Common Stock and thereby is likely to substantially increase the market
value of the Common Stock held by current stockholders in the Company. Upon
the closing of this offering, assuming a public offering price of $11.00 per
share, the difference between the aggregate purchase price paid by the
Company's current stockholders for their shares and the aggregate market value
of such shares will be approximately $49.8 million. The Company also intends
to use a portion of the net proceeds of the offering to pay accumulated and
unpaid dividends (anticipated to be approximately $300,000 upon consummation
of this offering) on its Series A and Series B Convertible Preferred Stock
upon the Preferred Stock Conversion, which Preferred Stock is held by Phoenix
and its wholly-owned subsidiary PHL Global Holding Co. In addition, the
Company intends to use a portion of the net proceeds for the repayment of the
outstanding balance of its credit facility with People's Bank (approximately
$858,000 as of December 31, 1997). This credit facility is guaranteed by
Edward G. Caputo, a current stockholder, director and the President and Chief
Executive Officer of the Company. Mr. Caputo will
12
<PAGE>
thus benefit personally from the repayment of this guaranteed debt. See "Use
of Proceeds," "Dilution," "Management" and "Principal and Selling
Stockholders."
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.
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 undesignated 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."
13
<PAGE>
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
5,297,750 shares of Common Stock (including 45,550 shares of Common Stock that
may be acquired pursuant to the exercise of options held by them and which are
currently exercisable) 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
$20.5 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, of which $858,000 was outstanding as of December 31, 1997. The facility
bears interest at the bank's prime rate plus 0.5% per annum (9.0% as of
December 31, 1997). 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 convertible preferred
stock, par value $.01 per share (the "Series A Convertible Preferred Stock"),
and Series B convertible preferred stock, par value $.01 per share (the
"Series B Convertible Preferred Stock"), upon the Preferred Stock Conversion
(which dividends were equal to an aggregate of $75,474 as of December 31, 1997
and are anticipated to be an aggregate of approximately $300,000 upon the
consummation of this offering). 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 by increasing
the size of its sales force and recruiting staff and expanding its marketing
and promotional programs 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 holders 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
December 31, 1997 (i) on an actual basis and (ii) on an as adjusted basis 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 giving effect to the deduction of the underwriting discounts and
commissions and estimated offering expenses payable by the Company, the
application of the net proceeds thereof and the Preferred Stock Conversion.
The following table should be read in conjunction with the Consolidated
Financial Statements, including the Notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------
AS
ACTUAL ADJUSTED(1)
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt........................................ $1,414 $ 556
====== =======
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, as adjusted.................. 2,223 --
Series B convertible preferred stock, 100 shares
authorized, issued and outstanding; and no shares
issued and outstanding, as adjusted.................. 8,000 --
Stockholders' equity (deficit):
Common stock, $.01 par value; 25,000,000 shares
authorized; 4,275,000 shares issued and outstanding;
and 7,556,750 as adjusted(2)......................... 1 34
Additional paid-in capital............................ -- 30,636
Accumulated deficit................................... (636) (680)
Cumulative translation adjustment..................... (87) (87)
------ -------
Total stockholders' equity (deficit)................. (722) 29,903
------ -------
Total capitalization............................... $9,501 $29,903
====== =======
</TABLE>
- --------
(1) 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 and to give effect to the Preferred Stock Conversion. See
"Use of Proceeds."
(2) Excludes 200,550 shares of Common Stock issuable upon exercise of stock
options outstanding (61,500 Exchange Options, 43,050 of which are
currently exercisable, and 139,050 1997 Plan Options, 2,500 of which are
currently exercisable) as of February 1, 1998 at a weighted average
exercise price of $7.47 per share.
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1997, assuming the Preferred Stock Conversion, was approximately $2.6 million
or $0.48 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 December
31, 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 December 31, 1997 would have been
approximately $23.1 million or $3.05 per share. This represents an immediate
increase in pro forma net tangible book value of $2.57 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$7.95 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
Net tangible book value per share before offering............. $0.48
Increase per share attributable to new investors.............. 2.57
-----
Pro forma net tangible book value per share after offering...... 3.05
------
Dilution per share to new investors............................. $ 7.95
======
</TABLE>
- --------
(1) Before deducting underwriting discounts and commissions and estimated
offering expenses.
The following table summarizes on a pro forma basis, as of December 31,
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 200,550 shares of Common Stock issuable upon
exercise of stock options outstanding (61,500 Exchange Options, 43,050 of
which are currently exercisable, and 139,050 1997 Plan Options, 2,500 of which
are currently exercisable) as of February 1, 1998 at a weighted average
exercise price of $7.47 per share. 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, 1995,
1996 and 1997 and for the years then ended 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, 1994 is derived from audited consolidated financial statements not
included in this Prospectus. The selected consolidated financial data as of
December 31, 1993 is 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. 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>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue............... $ 6,127 $ 9,272 $ 12,436 $ 17,069 $ 25,057
Cost of revenue....... 5,721 6,890 9,108 12,494 16,973
------- ------- -------- -------- --------
Gross profit......... 406 2,382 3,328 4,575 8,084
Selling, general and
administrative
expenses............. 608 2,102 3,013 5,172 7,255
------- ------- -------- -------- --------
Income (loss) from
operations.......... (202) 280 315 (597) 829
Other income
(expense), net....... (38) (55) (50) (75) (277)
------- ------- -------- -------- --------
Income (loss) before
income taxes and
minority interest.... (240) 225 265 (672) 552
Income tax (provision)
benefit.............. (16) (32) (44) 8 95
Income tax (provision)
for change in
corporate status..... -- -- -- -- (693)
------- ------- -------- -------- --------
Income (loss) before
minority interest.... (256) 193 221 (664) (46)
Minority interest in
net (income) loss.... -- -- -- 241 (451)
------- ------- -------- -------- --------
Net income (loss)..... (256) 193 221 (423) (497)
Preferred stock
dividends and
accretion............ -- -- -- -- (80)
------- ------- -------- -------- --------
Income (loss)
applicable to common
stockholders......... $ (256) $ 193 $ 221 $ (423) $ (577)
======= ======= ======== ======== ========
Pro forma earnings
(loss) per common
share-diluted ....... $ 0.01
========
Shares used in per
share calculation.... 4,654
<CAPTION>
DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash ................. $ 43 $ 83 $ 223 $ 444 $ 392
Working capital
(deficit)............ 265 86 85 (99) 78
Total assets.......... 1,112 1,188 2,294 4,816 14,425
Short-term debt....... 187 436 949 1,452 1,414
Long-term debt........ 418 -- -- 1,145 --
Series A convertible
preferred stock...... -- -- -- -- 2,223
Series B convertible
preferred stock...... -- -- -- -- 8,000
Stockholders' equity
(deficit)............ (50) 142 365 (58) (722)
</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 year ended December 31, 1997
was 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 138 as of December
31, 1997 to perform the significant additional services required by its new
Year 2000 contracts. In order to meet anticipated growth in the demand for
Year 2000 solutions services, the Company intends to increase its
infrastructure of personnel, facilities, equipment and other resources in the
Offshore Technology Resource Center. During 1998, the Company intends to
expend approximately $350,000 for the lease of additional office space in its
existing facility in downtown Bangalore, the purchase of equipment and
leasehold improvements. 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 revenue does 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. On 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
19
<PAGE>
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 recorded goodwill of approximately
$6.8 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.
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
one-time 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 treatment 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 $429,000 (before
minority interest) as of December 31, 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 4 of the Notes to
Consolidated Financial Statements.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
revenue for the years indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
--------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Revenue......................................... 100.0% 100.0% 100.0%
Cost of revenue................................. 73.2 73.2 67.7
------- ------- -------
Gross profit................................... 26.8 26.8 32.3
Selling, general and administrative expenses.... 24.2 30.3 29.0
------- ------- -------
Income (loss) from operations.................. 2.6 (3.5) 3.3
Other income (expense), net..................... (0.4) (0.5) (1.1)
------- ------- -------
Income (loss) before income taxes and minority
interest....................................... 2.2 (4.0) 2.2
Income tax (provision) benefit.................. (0.4) -- 0.4
Income tax (provision) for change in corporate
status......................................... -- -- (2.8)
------- ------- -------
Income (loss) before minority interest.......... 1.8 (4.0) (0.2)
Minority interest in net (income) loss.......... -- 1.4 (1.8)
------- ------- -------
Net income (loss)............................... 1.8% (2.6)% (2.0)%
======= ======= =======
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenue. Revenue during the year ended December 31, 1997 increased by 46.8%
to $25.1 million from $17.1 million during the year ended December 31, 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 year ended December 31, 1997
increased by 76.1% to $8.1 million from $4.6 million during the year ended
December 31, 1996. Gross profit as a percentage of revenue increased to 32.3%
during the year ended December 31, 1997 from 26.8% during the year ended
December 31, 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 year ended December 31, 1997
increased by 40.4% to $7.3 million from $5.2 million during the year ended
December 31, 1996. Selling, general and administrative expenses as a
percentage of revenue decreased to 29.0% during the year ended December 31,
1997 from 30.3% during the year ended December 31, 1996. The decrease resulted
primarily from increased revenue from the Company's offshore facilities.
Income (Loss) from Operations. Income from operations during the year ended
December 31, 1997 was $829,000 compared to a loss of $(597,000) during the
year ended December 31, 1996. Income from operations as a percentage of
revenue was 3.3% during the year ended December 31, 1997 as compared to a loss
of (3.5)% during the year ended December 31, 1996.
21
<PAGE>
Other Expense. Other expense during the year ended December 31, 1997
increased to $277,000 from $75,000 during the year ended December 31, 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) Benefit. Income tax provision during the year ended
December 31, 1997 increased to $(598,000) from a benefit of $8,000 during the
year ended December 31, 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 $451,000 during the year
ended December 31, 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 37.9%
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 39.4% 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
73.3% 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.
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain quarterly operating information for
each of the eight quarters ending December 31, 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, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <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 $7,316
Cost of revenue........ 2,636 3,157 3,048 3,653 3,846 3,987 4,380 4,760
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.......... 1,063 1,411 1,247 854 1,298 1,749 2,481 2,556
Selling, general and
administrative
expenses.............. 1,062 1,212 1,187 1,711 1,474 1,731 2,079 1,971
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations........... 1 199 60 (857) (176) 18 402 585
Other income (expense),
net................... 15 (18) (24) (48) (38) (130) (73) (36)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes and
minority interest..... 16 181 36 (905) (214) (112) 329 549
Income tax (provision)
benefit............... -- -- (7) 15 -- -- 21 74
Income tax (provision)
for change in
corporate status...... -- -- -- -- -- -- (693) --
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
minority interest..... 16 181 29 (890) (214) (112) (343) 623
Minority interest in
net (income) loss..... -- -- -- 241 (57) 33 (160) (267)
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)...... $ 16 $ 181 $ 29 $ (649) $ (271) $ (79) $ (503) $ 356
====== ====== ====== ====== ====== ====== ====== ======
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue................ 100.0% 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 74.8 69.5 63.8 65.1
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.......... 28.7 30.9 29.0 18.9 25.2 30.5 36.2 34.9
Selling, general and
administrative
expenses.............. 28.7 26.5 27.6 38.0 28.6 30.2 30.3 26.9
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations........... -- 4.4 1.4 (19.1) (3.4) .3 5.9 8.0
Other income (expense),
net................... 0.4 (0.4) (0.6) (1.1) (0.7) (2.3) (1.1) (0.5)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes and
minority interest..... 0.4 4.0 0.8 (20.2) (4.1) (2.0) 4.8 7.5
Income tax (provision)
benefit............... -- -- (0.1) 0.4 -- -- 0.3 1.0
Income tax (provision)
for change in
corporate status...... -- -- -- -- -- -- (10.1) --
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
minority interest..... 0.4 4.0 0.7 (19.8) (4.1) (2.0) (5.0) 8.5
Minority interest in
net (income) loss..... -- -- -- 5.4 (1.1) 0.6 (2.3) (3.6)
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)...... 0.4% 4.0% 0.7% (14.4)% (5.2)% (1.4)% (7.3)% 4.9%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
23
<PAGE>
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 accuracy of estimates of resources and time frames
required to complete ongoing projects, 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. 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 generated cash of $290,000 in 1997 and
used cash of $1.1 million in 1996 and $108,000 in 1995. In 1996 and 1995 the
use of cash was 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 year
ended December 31, 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 to finance additions to equipment and improvements.
The Company's financing activities provided cash of $1.2 million for the
year ended December 31, 1997, $2.2 million in 1996 and $512,000 in 1995.
During the year ended December 31, 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.
As of December 31, 1997, the Company had working capital of $78,000 and cash
of $392,000. The Company also had an available bank line of credit for its
U.S. facilities of $1.6 million as of December 31, 1997 ($2.5 million less
$900,000 outstanding). Borrowings under this bank line 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 intends to repay the outstanding balance under this line
of credit from the net proceeds of this offering. See "Use of Proceeds." The
line of credit contains certain financial covenants which require the Company
to maintain minimum total net worth, maximum total liabilities in relation to
total net worth and a current ratio of 1.25:1. At December 31, 1996, the
Company's current ratio was 1.04:1. This covenant default was waived by
People's Bank in May, 1997. Upon the advice of its independent accountants,
the Company adjusted its 1995 financial statements in connection with a post-
closing audit. As a result of such adjustments the Company was not in
compliance with any of these financial covenants for the year ended December
31, 1995 and the six month period ended June 30, 1996. These covenant defaults
were waived by People's Bank in August, 1996. While the Company does not
anticipate a need for the use of this facility in the forseeable future, if it
does borrow under
24
<PAGE>
the line it may be required to seek additional amendments or waivers in the
future. Although the Company anticipates that it would be able to obtain such
amendments or waivers, there can be no assurance that it would be able to do
so.
The Company's Offshore Technology Resource Center maintains a credit
facility for approximately $800,000 with 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. Of the $557,000 outstanding as of December 31, 1997, $157,000 was
repaid in January 1998 and $400,000 matures in March 1998. Borrowings under
the Indian credit facility are unsecured and are utilized primarily to fund
the working capital requirements of the Offshore 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.
customers 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."
On August 26, 1997, the Company issued to Phoenix 100 shares of its Series A
Convertible Preferred Stock, which has a liquidation preference of $2,186,137
plus accrued and unpaid dividends, in exchange for $2,186,137 of subordinated
indebtedness owed to Phoenix. Such dividends amounted to $75,474 as of
December 31, 1997. The Series A Convertible Preferred Stock entitles the
holder to one vote per share of Common Stock into which the Series A
Convertible Preferred Stock is convertible, including the right to elect one
director as a class, and has a dividend requirement 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 at any time into an
aggregate of 522,500 shares of the Company's Common Stock and are redeemable
by Phoenix after July 31, 1999. These shares will automatically convert into
Common Stock upon consummation of this offering. See "Certain Transactions."
On December 31, 1997, the Company issued to PHL 100 shares of Series B
Convertible Preferred Stock, which has a liquidation preference of $8,000,000
and a dividend requirement of 10% per annum which shall accrue on a cumulative
basis. The holders are also entitled to one vote per share of Common Stock
into which the Series B Convertible Preferred Stock is convertible and the
right to elect one director as a class. These shares are redeemable by PHL
after July 31, 1999 and are convertible at any time into an aggregate of
659,250 shares of the Company's Common Stock. The Series B Convertible
Preferred Stock will automatically convert into Common Stock upon consummation
of this offering. See "Certain Transactions."
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."
25
<PAGE>
THE YEAR 2000 ISSUE
The Company does not believe that it has material exposure to the Year 2000
issue with respect to its own information systems since its existing systems
correctly define the year 2000. Although the Company believes that the
information systems of its major vendors (insofar as they relate to the
Company's business) comply with Year 2000 requirements, there can be no
assurance that the Year 2000 issue will not affect the information systems of
the Company's major vendors as they relate to the Company's business, or that
any such impact of a major vendor's information system would not have a
material adverse effect on the Company.
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 285
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, MassMutual, 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
27
<PAGE>
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.
28
<PAGE>
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.
29
<PAGE>
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 144 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:
30
<PAGE>
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMAND SYSTEMS SOLUTIONS DESCRIPTION
- --------------------------------------------------------------------------------
<S> <C>
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 utilizing leading technol- . Prototype development
ogy tools provided by vendors such . Prototype deployment to
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.
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
COMMAND SYSTEMS SOLUTIONS DESCRIPTION
- --------------------------------------------------------------------------------
COMMAND2000--Year 2000 solutions The Company provides the following
services. Provides expertise to six step methodology to analyze,
cost-effectively assess business renovate and test millions of lines
requirements and develop quality of code and millions of items of
solutions utilizing a combina- data:
tion of on-site project manage-
ment staff and programming sup- . Management Awareness--Advise
port from the Company's Offshore corporate executives of the na-
Technology Resource Center in ture and scope of the Year 2000
Bangalore, India. problem.
. Inventory Analysis--Provide a
comprehensive survey, data col-
lection and analysis of the
scope of the Year 2000 problem
by application, line of business
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 documented.
. 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 facili-
ty, combined with the renovation
of affected code.
. Testing--Provide unit testing
and parallel testing comparisons
back to the predetermined base-
line of each application system.
- --------------------------------------------------------------------------------
COMMANDOO--Object- . Incorporate the use of business
oriented development services to objects within the application
improve new application develop- design.
ment time to market and reduce . Establish a repeatable process
ongoing application maintenance for the project life cycle.
expense by providing and utiliz- . Develop and utilize enterprise-
ing leading object-oriented wide object repository.
tools, methodologies and expert-
ise.
- --------------------------------------------------------------------------------
COMMANDSTAFF-- . Design
IT staff augmentation services . Data modeling
to provide customers with highly . Analysis
skilled IT professionals, over a . Programming
wide range of technologies from . Development
client server and/or traditional . Testing
technology developers to help . Networking
desk support to supplement IT . Implementation
requirements on demand and as . Help Desk
needed. IT professionals are . Maintenance
carefully selected and techni-
cally qualified to match areas
of expertise with specific cus-
tomer requirements.
- --------------------------------------------------------------------------------
COMMANDSOURCE--Provides and man- Outsource and/or insource ongoing
ages long-term maintenance of appli- customer application maintenance and
cation systems by utilizing a enhancement needs across
range of technology toolsets. client/server and mainframe computer
The Company provides carefully environments, onsite at customer lo-
selected and qualified resources cations, offsite at the Company's
that are fully integrated into domestic offices and/or at the Off-
the customer's IT environment. shore Technology Resource Center.
- --------------------------------------------------------------------------------
32
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
COMMAND SYSTEMS SOLUTIONS DESCRIPTION
- --------------------------------------------------------------------------------
COMMANDU--Technology Education . Provides client/server,
Centers. The Company trains soft- networking, object-oriented
ware developers in state-of-the- techniques and database
art development tools available training for developers of
from leading software tool vendors application systems and
such as: network integrators.
.Microsoft . Provides technical development
.Powersoft training program for the skill
.Rational migration of customers' staff
and the technical skill
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.
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
33
<PAGE>
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.
- -------------------------------------------------------------------------------
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 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 year ended December 31, 1997, the Company's three largest
customers, The Hartford, New York Life and Phoenix, accounted for 13.1%, 13.0%
and 10.3% 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 12.6% 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.
34
<PAGE>
Organizations to which the Company provided services during the year ended
December 31, 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
Boston Mutual .Command2000 Service .CommandPRO
.CommandSTAFF
Citibank .CommandSTAFF
Phoenix .CommandNET
Fleet Services .CommandPRO .CommandPRO
.CommandSTAFF .CommandSTAFF
.CommandU
G.E. Capital .CommandPRO .CommandWARE
.CommandSTAFF
.CommandWARE QualMed .CommandWEB
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
MassMutual .CommandPRO Unicare Life & .CommandSTAFF
.CommandSTAFF HealthCompany
United Parcel
Service .CommandSTAFF
</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 is a
Preferred Vendor and has successfully completed more than a dozen projects
for this insurance company.
35
<PAGE>
COMMANDNET--The Company provided project management and implementation
for a network and workstation migration and infrastructure upgrade of more
than 3,000 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
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 subsequently 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 was awarded a multi-million dollar
contract to assess and renovate over eight million lines of code for
century change compliance. Due to the speed, efficiency and effectiveness
of the Command2000 process, the Company has been engaged to renovate
another two 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
36
<PAGE>
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 18 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 14 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 Technology Education 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,
had over 10 years of relevant industry work experience. As of December 31,
1997, the Company had 350 employees comprised of 285 salaried IT
professionals, 18 sales and marketing personnel and 47 general and
administrative personnel. As of December 31, 1997, the Company also utilized
31 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, 2000. 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 September 16, 1998 but is renewable at the
option of the Company for two successive two-year periods. 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 February 10, 1998
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------- --- -----------------------------------------------
<C> <C> <S>
47 President, Chief Executive Officer and Chairman
Edward G. Caputo.......... of the Board
Stephen L. Willcox........ 46 Executive Vice President, Chief Operating
Officer, Secretary and Director
Robert B. Dixon........... 61 Vice President of Finance and Treasurer
45 Vice President of Marketing and Assistant
Glenn M. King............. Secretary
56 Vice President of Management Consulting
Lee Lapioli............... Services
Mary Lou Welch............ 50 Vice President of Sales and Recruiting
William P. Scharfenstein.. 50 Vice President of Operations
John J.C. Herndon(1)(2)... 66 Director
James M. Oates(1)(2)...... 51 Director
Joseph D. Sargent......... 68 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 December 1997 and as a Director of the Company
since October 1997. From July 1997 until December 1997, 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 and as Treasurer for the Company since December 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.
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.
William P. Scharfenstein has served as Vice President of Operations since
February 1998. From 1973 to February 1997, Mr. Scharfenstein served in various
capacities for Pratt & Whitney including Senior System Programmer, Business
Support from 1973 to 1982, Senior Systems Analyst, Operations Research from
1982 to 1986, Superior Systems Programming & Operations from 1986 to 1992, MIS
Manager, Powerplant Production from 1992 to June 1997, and MIS Manager, Eagle
Service from July 1997 to February 1998. Previously, Mr. Scharfenstein served
as Systems Analyst for Durham-Bush, Beneficial Computing Services and
Travelers Insurance Company.
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.
Joseph D. Sargent has served as a Director of the Company since January
1998. Mr. Sargent has served as Chairman and Principal of Bradley, Foster &
Sargent since 1993. Mr. Sargent also currently serves as Chairman and Director
of Connecticut Surety Corporation and its several affiliates, positions he has
held since December 1992. From 1995 to 1996, Mr. Sargent served as Chairman
and Director of S-K-I Ltd. Mr. Sargent served as Chairman, and later as Vice
Chairman, of Conning & Company, an investment banking firm, from 1991 to 1995
and as its Chairman and Chief Executive Officer from 1988 to 1991. Mr. Sargent
is a Director of Trenwick Group Inc., E.W. Blanch Holdings, Policy Management
Systems Corporation, Mutual Risk Management Ltd., MMI Companies, Inc. and
Executive Risk, Inc., all of which are publicly held companies.
41
<PAGE>
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
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.
There are no family relationships among any of the executive officers and
directors of the Company.
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.
42
<PAGE>
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.
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(3)...................... 1997 107,333 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
Former Vice President of Operations
</TABLE>
- --------
(1) Mr. Willcox, Ms. Welch and Mr. Scharfenstein, who joined the Company in
December 1997, November 1997 and February 1998, 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,
Ms. Welch's base salary is $120,000 and Mr. Scharfenstein'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) Mr. Dixon's salary includes $24,000 received as compensation for
consulting services rendered to the Company for the first two months of
1997.
43
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made pursuant to the Company's 1997 Plan during 1997 to each of
the Named Executive Officers.(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(3)
----------------------------------------------- -----------------------
NUMBER OF
SECURITIES
UNDERLYING PERCENT OF TOTAL EXERCISE
OPTIONS OPTIONS GRANTED OR BASE
GRANTED TO EMPLOYEES IN PRICE EXPIRATION
NAME (#)(2) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------------ ---------- ---------------- -------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Edward G. Caputo........ -- -- -- -- -- --
Robert B. Dixon......... 12,500 5.9% 4.00 3/5/07 31,445 79,687
Glenn M. King........... 12,500 5.9% 4.00 3/5/07 31,445 79,687
1,750 * 9.00 12/31/07 9,905 25,101
Lee Lapioli............. -- -- -- -- -- --
David R. Wheeland....... 12,500 5.9% 4.00 3/5/07 31,445 79,687
</TABLE>
- --------
* Less than one percent.
(1) Mr. Willcox was granted an option to purchase 50,000 shares of Common
Stock on January 1, 1998 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 $9.00 per share.
(2) Options which expire on March 5, 2007 were granted on March 5, 1997 in
exchange for units of shadow stock previously granted under the Company's
Shadow Stock Incentive Plan. All other options are granted pursuant to and
in accordance with the Company's 1997 Plan. See " -- Employee Benefit
Plans."
(3) Potential realizable value is based on the assumption that the price per
share of Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. The assumed 5% and 10% annual rates of
appreciation (compounded annually) over the term of the option are set
forth in accordance with the rules and regulations adopted by the
Commission and do not represent the Company's estimate of stock price
appreciation.
44
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
options during 1997 by each of the Named Executive Officers and the fiscal
year-end value of unexercised in-the-money options.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL
FISCAL YEAR-END
YEAR-END ($)
(#) EXERCISABLE/
EXERCISABLE/ UNEXERCISABLE
NAME UNEXERCISABLE (1)(2)
- --------------------------------------------------- ------------- --------------
<S> <C> <C>
Edward G. Caputo................................... --/-- --/--
Robert B. Dixon.................................... --/12,500 --/62,500
Glenn M. King...................................... 12,500/1,750 62,500/--
Lee Lapioli........................................ --/-- --/--
David R. Wheeland.................................. 7,500/5,000 37,500/25,000
</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.
(2) Mr. Willcox was granted an option to purchase 50,000 shares of Common
Stock on January 1, 1998 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.
Employment Agreements
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.
The Company and Mr. Willcox have entered into an employment agreement
pursuant to which, among other things, in the event that Mr. Willcox's
employment is terminated voluntarily or by the Company for any reason other
than for "cause" (as defined in the agreement), Mr. Willcox will be entitled
to a severance payment equal to one-half of his annual base salary in effect
on the date of termination, but in no event less than $87,500. The Company may
pay this severance either as a lump sum or over a six-month period following
termination.
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 February 1, 1998, options to
purchase a total of 139,050 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
to be granted and to 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.
Shadow Stock Incentive Plan
In March, 1997, an aggregate of 61,500 Exchange Options were issued to eight
employees in exchange for an aggregate of 61,500 outstanding shadow purchase
units that had previously been granted to such employees under the Shadow
Stock Incentive Plan. The Exchange Options have an exercise price of $4.00 per
share and expire on March 5, 2007. The Shadow Stock Incentive Plan has been
terminated and no shadow purchase units are outstanding.
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 $10,000 in 1998). 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.
46
<PAGE>
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 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. Mr. Oates is a director of Phoenix Duff &
Phelps and Phoenix Funds which are affiliates of 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, LLC, 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. During 1996 and
1997, Phoenix invested an aggregate of approximately $1.0 million to the
Offshore Technology Resource Center. 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. Approximately $1.4 million of this was used by the
Company to directly fund the Offshore Technology Resource Center and
approximately $600,000 was used by the Company itself to develop the
infrastructure needed in the United States to support the Offshore Technology
Resource Center. 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. At the time the Offshore Technology Resource Center was
established, the only relationship between the Company and Phoenix was that
the Company provided IT services to Phoenix.
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 Series A Convertible
Preferred Stock. These shares of Series A Convertible Preferred 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 Convertible Preferred 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." In March 1997, the Company requested
that Phoenix exchange the Notes for equity securities in the Company in order
to improve its balance sheet and to provide the Company with greater
flexibility under its line of credit facility with People's Bank. Following
the Company's request, representatives of Phoenix and the Company negotiated
the terms of the exchange, pursuant to which shares of Series A Convertible
Preferred Stock were issued to Phoenix in exchange for approximately
$2.2 million of indebtedness represented by the Notes. In determining the
fairness of the transaction to the Company, the Company's Board of Directors
considered, among other things, (i) the advantage of the debt-for-equity
exchange, including the impact on the Company's balance sheet and the added
flexibility under the Company's line of credit facility with People's Bank,
(ii) the reduction of the 15% rate of interest to a 10% dividend rate, (iii)
the fairness of the terms of the Series A Convertible Preferred Stock, (iv)
the advantages of having Phoenix as a long-term stockholder, including
increasing the incentives of Phoenix to remain as a customer as a result of
its equity position in the Company and (v) the absence of reasonable
alternative means to raise additional equity in the near term. The Company has
pledged all of its shares held in Command Holdings (the "CH Shares"), its
wholly-owned subsidiary, to Phoenix to secure the Company's dividend and
redemption obligations arising under the Series A Convertible Preferred Stock.
The pledge of the CH Shares will be released upon consummation of the
offering.
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 Series B Convertible Preferred Stock. These shares of Series B
Convertible Preferred 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 Convertible Preferred Stock
outstanding as of the consummation of this offering will be converted into an
aggregate of 1,181,750 shares of Common Stock.
48
<PAGE>
In connection with the issuance of the Series A Stock and Series B
Convertible Preferred 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.
During the years ended December 31, 1994, 1995 and 1996, 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, respectively. For
the year ended December 31, 1997, the Company provided IT services to Phoenix,
which generated revenue of approximately $2.6 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.
TRANSACTIONS WITH CERTAIN OFFICERS
Mr. Wheeland's employment with the Company was terminated in January 1998.
In connection with such termination, the Company intends to pay Mr. Wheeland's
salary and to continue to provide his employment benefits through March 31,
1998.
In February 1997, the Company guaranteed a loan of $80,000 from People's
Bank to Mr. Wheeland, the Company's former Vice President of Operations.
Pursuant to the terms of the loan, Mr. Wheeland pledged 12,500 units of
Command Systems, Inc. shadow stock (which was converted into 12,500 stock
options in March 1997, 7,500 of which remain outstanding) to People's Bank as
collateral for 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. 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 pledged shadow stock for an amount equal to the then
outstanding balance of the loan, whereupon such loan would be assumed by the
Company. In connection with the termination of Mr. Wheeland's employment with
the Company in January 1998, the Company agreed with People's Bank that such
put option will become exercisable upon the earlier of a default under the
loan or December 31, 1998.
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 February 10, 1998,
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...... -- -- -- -- --
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(6) * -- 1,250(4) *
Joseph D. Sargent....... -- -- -- -- --
All current directors
and executive officers
as a group (10 per-
sons).................. 5,474,250(7) 100.0% 300,000 5,181,750(7) 68.3%
</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, a New
York domiciled mutual life insurance company. 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) Consists solely of shares of Common Stock underlying options which are
exercisable as of December 31, 1997 or within 60 days of such date. Mr.
Oates is a director of each of Phoenix Duff & Phelps and Phoenix Funds,
both of which are affiliates of Phoenix.
(7) See Notes 4, 5 and 6.
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, par value $.01 per
share, and 4,999,800 shares of undesignated preferred stock, par value $.01
per share.
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
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 Company shall be given in a timely manner as provided
in the By-Laws of the Company 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 Company representing at least seventy percent (70%) of
the voting power of all of the then outstanding shares of the capital stock of
the Company 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 Company, 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.
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 45,550 shares of Common Stock, which
are currently exercisable, 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 200,500 shares of
Common Stock are outstanding, 45,550 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 5,297,750 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 and
indemnification by the Selling Stockholders 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
55
<PAGE>
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.
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.
The Common Stock has been approved for quotation, subject to notice of
effectiveness, 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 and schedule of the Company at
December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports 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
56
<PAGE>
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 Citicorp 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.
57
<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, 1996 and 1997................ F-3
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997..................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1995, 1996 and 1997 ................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
PRO FORMA FINANCIAL DATA:
Headnote to Pro Forma Financial Data..................................... F-16
Pro Forma Statement of Operations for the year ended December 31, 1996... F-17
Pro Forma Statement of Operations for the year ended December 31, 1997... F-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Command Systems, Inc.
We have audited the accompanying consolidated balance sheets of Command
Systems, Inc. as of December 31, 1996 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Command
Systems, Inc. at December 31, 1996 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Hartford, Connecticut
February 9, 1998
F-2
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 443,505 $ 391,687
Accounts receivable, net of allowance for doubtful
accounts of $24,500 and $259,893 in 1996 and 1997.. 2,375,064 4,203,241
Prepaid expenses and other assets................... 416,116 354,950
Deferred income taxes .............................. -- 52,024
---------- -----------
Total current assets............................... 3,234,685 5,001,902
Equipment and improvements:
Furniture and equipment............................. 914,452 2,007,254
Leasehold improvements.............................. 554,873 852,476
---------- -----------
1,469,325 2,859,730
Less accumulated depreciation....................... (396,785) (825,562)
---------- -----------
Net equipment and improvements........................ 1,072,540 2,034,168
Other assets:
Goodwill............................................ -- 6,845,338
Deposits............................................ 441,644 428,005
Other non-current assets............................ 67,396 115,674
---------- -----------
$4,816,265 $14,425,087
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit...................................... $1,378,890 $ 857,535
Bank loan........................................... -- 556,952
Accounts payable and accrued expenses............... 1,281,058 2,218,540
Accrued payroll and related costs................... 376,305 610,933
Loan payable to officer............................. 73,224 --
Deferred revenue.................................... 150,434 219,544
Income taxes payable................................ 1,700 78,535
Deferred income taxes............................... 72,095 381,987
---------- -----------
Total current liabilities.......................... 3,333,706 4,924,026
Notes payable......................................... 1,145,463 --
---------- -----------
Total liabilities.................................. 4,479,169 4,924,026
Minority interest..................................... 395,561 --
Preferred stock, $.01 par value, 5,000,000 shares
authorized...........................................
Series A convertible preferred stock, 100 shares
authorized, issued and outstanding................. -- 2,223,475
Series B convertible preferred stock, 100 shares
authorized, issued and outstanding................. -- 8,000,000
Stockholders' 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)......................... (59,465) (636,509)
Cumulative translation adjustment................... -- (86,905)
---------- -----------
Total stockholders' equity (deficit)............. (58,465) (722,414)
---------- -----------
Total liabilities and stockholders' equity
(deficit)....................................... $4,816,265 $14,425,087
========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue................................. $12,436,529 $17,069,417 $25,057,039
Cost of revenue......................... 9,108,436 12,494,448 16,972,812
----------- ----------- -----------
Gross profit.......................... 3,328,093 4,574,969 8,084,227
Selling, general and administrative
expenses............................... 3,012,869 5,171,912 7,254,992
----------- ----------- -----------
Income (loss) from operations......... 315,224 (596,943) 829,235
Other income (expense):
Other income.......................... -- 42,786 --
Interest income....................... 2,195 14,138 32,911
Interest expense...................... (52,405) (132,482) (309,657)
----------- ----------- -----------
(50,210) (75,558) (276,746)
----------- ----------- -----------
Income (loss) before income taxes and
minority interest...................... 265,014 (672,501) 552,489
Income tax (provision) benefit.......... (43,577) 8,056 (597,751)
----------- ----------- -----------
221,437 (664,445) (45,262)
----------- ----------- -----------
Minority interest....................... -- 241,439 (451,431)
----------- ----------- -----------
Net income (loss)....................... 221,437 (423,006) (496,693)
----------- ----------- -----------
Preferred stock dividends and
accretion.............................. -- -- (80,351)
----------- ----------- -----------
Income (loss) applicable to common
stockholders........................... $ 221,437 $ (423,006) $ (577,044)
=========== =========== ===========
Pro forma results of operations:
Adjustments to U.S. federal income tax
provision assuming
C corporation status for all
periods.............................. $ (53,720) $ -- $ 633,000
----------- ----------- -----------
Net income (loss), as adjusted........ 167,717 (423,006) 136,307
Preferred stock dividends and
accretion............................ -- -- (80,351)
----------- ----------- -----------
Income (loss) applicable to common
stockholders......................... $ 167,717 $ (423,006) $ 55,956
=========== =========== ===========
Pro forma earnings per common share:
Basic earnings (loss) per common
share.............................. $ 0.04 $ (0.09) $ 0.01
=========== =========== ===========
Diluted earnings (loss) per common
share.............................. $ 0.04 $ (0.09) $ 0.01
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED CUMULATIVE
---------------- EARNINGS TRANSLATION
SHARES AMOUNT (DEFICIT) ADJUSTMENT TOTAL
--------- ------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995.. 4,275,000 $1,000 $ 142,104 $ -- $143,104
Net income................. -- -- 221,437 -- 221,437
--------- ------ --------- -------- ---------
Balance at December 31,
1995....................... 4,275,000 1,000 363,541 -- 364,541
Net loss................... -- -- (423,006) -- (423,006)
--------- ------ --------- -------- ---------
Balance at December 31,
1996....................... 4,275,000 1,000 (59,465) -- (58,465)
Net loss................... -- -- (496,693) -- (496,693)
Preferred stock dividends
and accretion............. -- -- (80,351) -- (80,351)
Translation adjustment..... -- -- -- (86,905) (86,905)
--------- ------ --------- -------- ---------
Balance at December 31,
1997....................... 4,275,000 $1,000 $(636,509) $(86,905) $(722,414)
========= ====== ========= ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
COMMAND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
--------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ 221,437 $ (423,006) $ (496,693)
Adjustments to reconcile net income
(loss) to net cash (used in) provided by
operating activities:
Depreciation and amortization.......... 58,963 136,796 428,777
Bad debt expense....................... -- 24,500 235,395
Deferred income taxes.................. 42,079 (15,948) 257,868
Minority interest...................... -- (241,439) 451,431
Accrued interest capitalized........... -- 38,370 132,674
Other.................................. -- 4,773 --
Changes in operating assets and
liabilities:
Accounts receivable.................. (718,936) (637,497) (2,063,572)
Prepaid expenses and other assets.... (23,566) (386,286) 61,166
Deposits and other noncurrent
assets.............................. (17,410) (489,258) (34,639)
Accounts payable and accrued
expenses............................ 268,475 691,485 937,482
Accrued payroll and related costs.... 60,716 74,760 234,628
Deferred revenue..................... -- 150,434 69,110
Income taxes payable................. -- -- 76,835
--------- ----------- ----------
Net cash (used in) provided by
operating activities.............. (108,242) (1,072,316) 290,462
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and improvements.. (263,884) (954,602) (1,497,783)
--------- ----------- ----------
Net cash used in investing
activities........................ (263,884) (954,602) (1,497,783)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under revolving
line of credit agreement................ 512,400 503,390 (521,355)
Proceeds from bank loan.................. -- -- 806,952
Principal payments of bank loan.......... -- -- (250,000)
Minority investment in affiliate......... -- 637,000 391,098
Proceeds from notes payable.............. -- 1,107,093 869,630
Payment of loan payable to officer....... -- -- (73,224)
Preferred stock issuance costs........... -- -- (43,013)
--------- ----------- ----------
Net cash provided by financing
activities........................ 512,400 2,247,483 1,180,088
--------- ----------- ----------
Effect of exchange rate changes on cash... -- -- (24,585)
Increase (decrease) in cash............... 140,274 220,565 (51,818)
Cash, beginning of year................... 82,666 222,940 443,505
--------- ----------- ----------
Cash, end of year......................... $ 222,940 $ 443,505 $ 391,687
========= =========== ==========
CASH PAID FOR:
Interest expense......................... $ 52,405 $ 104,482 $ 193,202
Income taxes............................. 1,498 3,581 271,130
NON-CASH FINANCING ACTIVITIES:
Preferred stock exchanged for notes
payable................................. $2,186,137
Preferred stock issued for purchase of
minority interest....................... 8,000,000
</TABLE>
See accompanying notes.
F-6
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
Command Systems, Inc. (the "Company") provides information technology
solutions and services to financial services organizations.
Through December 31, 1997, the Company held a 51% interest in Command
International Software Pvt. ("CIS"), an Indian unlimited liability company,
with the remaining 49% interest held by Phoenix Home Life Mutual Insurance Co.
("PHL"). On December 31, 1997, the Company purchased PHL's holdings (see Note
5).
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.
Revenue Recognition
The Company recognizes revenue on time-and-materials contracts as the
services are performed. Revenue on fixed-price contracts are recognized using
the percentage of completion method. Under this method, applicable fees and
profits on such contracts are recorded concurrently with costs incurred
thereon. The Company bears the risk of cost overruns and inflation with
respect to its fixed-price projects. If estimates indicate a probable ultimate
loss on a fixed-price contract, provision is made at that date for the entire
estimated loss.
Revenue from product sales, primarily equipment and commercially available
software, are recognized upon shipment.
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. In conjunction with the formation of the Company as a Delaware
holding corporation (see Note 6) and the issuance of its Series A convertible
preferred stock, the S Corporation election was terminated and the Company
became subject to U.S. federal income taxes. The Company utilizes the asset
and liability method of accounting for income taxes. Under this method,
deferred income taxes are recorded to reflect the tax consequences of future
years differences between tax basis of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. A valuation allowance is provided against
the future benefit of deferred tax assets if it is determined that it is more
likely than not that the future tax benefits associated with the deferred tax
asset will not be realized (see Note 4).
F-7
<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 and the Command Systems, Inc. 1997 Employee, Director and
Consultant Stock Plan under APB No. 25.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries which have a
functional currency other than the U.S. dollar reflect the translation of
assets and liabilities into United States dollars at current exchange rates
with income and expense accounts being translated at average rates of exchange
prevailing during the period. The reflecting adjustments are recognized as a
separate component of the stockholder's equity. Foreign currency transaction
gains and losses, which are not material, are recognized in net income (loss)
when incurred.
Earnings Per Share
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share."
This statement replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement No. 128 requirements.
For purposes of computing basic and diluted earnings per common share,
options 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 6) have been included in
the denominator of common 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.
Pro forma earnings per common share reflect adjustments in the U.S. federal
income tax provision assuming C corporation status for all periods presented.
3. DEBT
The Company maintains a line of credit with a current availability of
$2,500,000 or 75% ($1,000,000 prior to May 26, 1997) of the Company's accounts
receivable less than 90 days past due. Interest is charged at the bank's prime
rate of interest plus 0.5% (10%, 8.75% and 9% in 1995, 1996 and 1997,
respectively).
The line of credit is guaranteed by the Company's President, and is
collateralized by all personal property of the Company. The agreement also
contains several restrictive covenants which require, among other things, the
Company to maintain defined financial ratios and prohibits the declaration and
payment of 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. The agreement expires August 15, 1998.
F-8
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On July 1, 1996, the Company and its wholly-owned subsidiary Command
International Holdings ("CIH") entered into a note purchase agreement (the
"Agreement") with Phoenix Home Life Mutual Insurance ("PHL") under which the
Company could issue up to $3 million (U.S. dollars) aggregate principal amount
of its 15% Subordinated Secured Series Notes (the "C Notes"), accrued and
capitalized interest on such notes and its Zero Coupon Receivables-Based
Subordinated Secured Series Notes (the "Z Notes"). Also, under this Agreement,
CIH was authorized to issue up to $3 million (U.S. dollars) aggregate
principal amount of its 15% Guaranteed Senior Secured Series Notes (the "M
Notes") and accrued capitalized interest on such notes. The payment
obligations of the Company in respect to the C Notes and the Z Notes rank
junior and subordinate in right of payment to the senior indebtedness of the
Company under the M Notes.
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. Repayment of the debt is due in 2001. The payment obligations of
the Company in respect of the C, Z and M Notes are subordinate to the senior
indebtedness of the Company under the line of credit.
On August 26, 1997, the Company entered into an agreement with PHL whereby
the Company issued to PHL 100 shares of its Series A convertible preferred
stock in exchange for the aggregate outstanding indebtedness of $2,186,137 of
the C, Z, and M Notes, including accrued capitalized interest of $171,044.
CIS entered into a RS. 20,000,000 ($560,000) letter of credit facility on
December 31, 1996; no amounts related thereto were outstanding at December 31,
1996 and 1997.
CIS has a short term credit facility whereby each borrowing under the
facility has a term of six months from the date of disbursement and bears
interest at varying rates based upon the prime lending rate and the currency
borrowed; borrowing may be denominated in Indian rupees or U.S. dollars. At
December 31, 1997, rates of interest ranged from 10.65% to 16.00%. There were
no outstanding balances under this credit facility at December 31, 1996;
$556,952 was outstanding at December 31, 1997.
4. INCOME TAXES
Comparisons of the provision for income taxes follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Federal
Current........................................ $ -- $ -- $ 334,871
Deferred....................................... -- -- 293,078
------- ------- ---------
Total federal................................ -- -- 627,949
State
Current........................................ 1,498 5,270 5,012
Deferred....................................... 42,079 (13,326) (35,210)
------- ------- ---------
Total state.................................. 43,577 (8,056) (30,198)
------- ------- ---------
Total provision.............................. $43,577 $(8,056) $ 597,751
======= ======= =========
</TABLE>
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 on the cash basis of accounting ceased. The Company
recognized additional taxable income as a result and incurred a liability of
approximately $693,000. Under current statutes this liability will be payable
over a period of four years.
F-9
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effective tax rate from operations differed from the federal statutory
rate for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate................................ 34.0% 34.0% 34.0%
State income taxes, net of federal benefit............ 16.4 (1.2) (5.5)
No federal income tax benefit (provision) for S
corporation period income (loss)..................... (34.0) (9.6) 15.9
Tax effect of conversion from S corporation to C
corporation, related primarily to accounting method
change............................................... -- -- 125.5
Foreign profits and losses not subject to tax......... -- (24.4) (56.7)
Other................................................. -- -- (5.0)
----- ----- -----
Effective income tax rate............................. 16.4% (1.2)% 108.2%
===== ===== =====
</TABLE>
The significant components of the Company's deferred tax assets and
liabilities are:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1997
------- --------
<S> <C> <C>
Deferred tax assets
State net operating loss carryforwards............... $11,000 $ 36,639
Bad debt reserve..................................... -- 125,272
Reserves and accruals................................ -- 136,714
Accrued payroll and related costs.................... -- 84,341
------- --------
11,000 382,966
------- --------
Deferred tax liabilities
Cash basis of accounting............................. 78,700 --
Tax effect of change from S corporation to C
corporation, primarily related to accounting method
change.............................................. -- 693,031
Tax over book depreciation........................... 4,300 19,898
------- --------
83,000 712,929
------- --------
Net deferred federal and state liabilities......... $72,000 $329,963
======= ========
</TABLE>
The Company has net operating loss ("NOL") carryforwards for state tax
purposes of approximately $118,000 and $450,000 as of December 31, 1996 and
1997, respectively. The NOL expires through 2010.
The financial statements reflect no foreign income tax provision. Under
Indian tax laws, CIS is not currently subject to a corporate tax since it
earns all of its income from export activities. This exemption is for a period
of five consecutive years during an eight year period which began in 1996. CIH
is also eligible for certain tax exemptions under the laws of Mauritius. As a
result of such exemptions, no deferred tax asset or liability is recognized.
During 1996 and 1997 income (loss) of the Company's foreign subsidiaries
before minority interest was $(492,732) and $921,287, respectively.
5. 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 owned a 51% interest. PHL invested $637,000 and $391,098 in this
venture during 1996 and 1997, respectively.
F-10
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On December 31, 1997, PHL exchanged its 49% interest for 100 shares of the
Company's Series B convertible preferred stock valued at $8,000,000. The
Company recorded this as a purchase and recognized the excess of the purchase
price $6,845,338 over the fair value of the assets acquired and liabilities
assumed as goodwill. The Company will amortize this goodwill over a 15 year
period.
The pro forma results of operations for the years ended December 31, 1996
and 1997 which reflect the elimination of interest expense, minority interest
in earnings of this subsidiary and the amortization of goodwill are as
follows, and assume the transaction had occurred at the beginning of the
periods presented:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revenue............................................ $17,069,417 $25,057,039
Net (loss)......................................... (740,164) (449,295)
Income (loss) per share applicable to common
stockholders--diluted............................. (0.13) (0.08)
</TABLE>
At December 31, 1996 and 1997, included in prepaid expenses and other assets
are receivables from PHL approximating $365,000 and $4,000, respectively;
included in accounts payable and accrued expenses are payables to PHL
approximating $481,000 and $248,000, respectively.
6. STOCKHOLDERS' EQUITY
On July 1, 1997 Command Systems, Inc., a Delaware corporation ("CSI"), 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 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 this
recapitalization. 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 February 5, 1998, the Company effectuated a 1-for-2
reverse stock split. All share and per share data have been restated
retroactively.
On August 26, 1997, CSI issued 100 shares of its Series A convertible
preferred stock. The Series A convertible preferred stock has a liquidation
preference of $2,186,137 plus accrued and unpaid dividends. Such dividends
amounted to $75,474 at December 31, 1997. 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 requirement 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 at any time into 522,500 shares of CSI common stock and are
redeemable by PHL after July 31, 1999. These shares automatically convert
following a qualified public offering.
On December 31, 1997, the Company issued 100 shares of Series B convertible
preferred stock. The Series B convertible preferred stock has a liquidation
preference of $8,000,000 and has a dividend requirement 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 at any
time into 659,250 shares of the Company's common stock. The Series B
convertible preferred stock automatically converts following a qualified
public offering.
F-11
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has filed a registration statement for the initial public
offering of 2,100,000 shares of its common stock. Assuming the successful
completion of the offering and the conversion of the Series A and B
convertible preferred stock, the Company would have stockholders' equity at
December 31, 1997 as follows:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
--------- -----------
<S> <C> <C>
Common stock......................................... $ 1,000 $ 33,818
Additional paid-in capital........................... -- 30,636,319
Accumulated deficit.................................. (636,509) (680,042)
Cumulative translation adjustment.................... (86,905) (86,905)
--------- -----------
$(722,414) $29,903,190
========= ===========
</TABLE>
The Company had maintained a Shadow Stock Incentive Plan (the "Shadow Plan")
for certain key employees, whereby awards, expressed in units, were earned
only upon the occurrence of certain events including continued employment for
five years after the grant date. The Shadow Plan provided for any earned
benefits to be paid either in cash or in the form of common stock of the
Company. At December 31, 1995 and 1996 there were 53,750 and 61,500 units
outstanding, respectively. The Company accounted for this Shadow Plan as a
stock appreciation right and, therefore, accrued amounts based on a formula
value defined in the Shadow Plan which reflected the benefits to be earned.
There was no compensation expense recognized under the Shadow Plan for the
years ended December 31, 1995, 1996 and 1997, respectively. In March 1997 the
Company issued options to purchase 61,500 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.
In August 1997, the Company created the Command Systems, Inc. 1997 Employee,
Director and Consultant Stock Plan (the "Option Plan"). The Company reserved
427,500 shares of its common stock for issuance under the Option Plan. In
December 1997, the Company granted options to purchase 89,050 shares of its
common stock at a price of $9.00 per share to certain employees and directors.
Options granted under the plan generally have a five year term. Options
generally vest in increments of 20% on the anniversary of the date of grant.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1995 under the fair value method of that
Statement. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997: risk-free interest rate of 6%, volatility factor of the
expected market price of the Company's common stock of 40.4% and a weighted-
average expected life for the options of 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma net loss would have been approximately $660,000 and pro
forma loss per common share basic and diluted would have been $0.14 for 1997.
F-12
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In accordance with the provisions of SFAS No. 123, the pro forma disclosures
include only the effect of stock options granted in 1997. These pro forma
effects may not be representative of the effects of SFAS No. 123 on future
years because of the fact that options vest over several years and new grants
generally are made each year.
Changes in outstanding options were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding December 31, 1996....................... -- --
Options granted................................... 155,550 $6.96
Options exercised................................. -- --
Options cancelled................................. -- --
------- -----
Outstanding December 31, 1997....................... 155,550 $6.96
======= =====
</TABLE>
As of December 31, 1997, there were options exercisable for 45,550 shares.
Outstanding options at December 31, 1997 had exercisable prices ranging from
$4.00 to $9.00.
A former employee has pledged 7,500 common stock purchase options as
collateral for a bank loan. The Company has granted the bank a put option
whereby upon default of the loan, the bank could require the Company to
repurchase the options for the outstanding balance of the loan.
7. LEASES
The Company leases office space from unrelated third parties. Total rent
expense for the years ended December 31, 1995, 1996 and 1997 was $132,839,
$251,597 and $543,700, respectively.
The Company is required to maintain security deposits for office space
rented in Bangalore, India. Such deposits amounted to $421,862 and $413,807 at
December 31, 1996 and 1997, respectively.
Future minimum lease payments under non-cancelable operating leases at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.................... $ 515,216
1999.................... 529,395
2000.................... 557,315
2001.................... 324,998
2002.................... 349,373
----------
$2,276,297
==========
</TABLE>
8. BENEFIT PLANS
The Company has established a 401(k) Retirement Savings Plan (the "401(k)
Plan"). All employees of the Company's domestic operations 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 maximum contribution
allowable each year under IRS regulations. The Company contributed $27,000 to
the 401(k) Plan during 1997. No such contributions were made in 1995 or 1996.
F-13
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS
The Company had a noninterest bearing loan payable to its President. The
outstanding balance at December 31, 1996 was $73,224. The loan was payable on
demand and was subordinated to the debt described in Note 3. The loan was
repaid in October 1997.
The Company provided IT services to PHL representing revenues of
approximately $2,800,000, $1,300,000 and $2,600,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Numerator:
Net income (loss)...................... $ 221,437 $(423,006) $(496,693)
Preferred stock dividends.............. -- -- (80,351)
--------- --------- ---------
Numerator for basic earnings per share-
income available to common stockhold-
ers................................... 221,437 (423,006) (577,044)
Effect of dilutive securities:
Preferred stock dividends............. -- -- --
--------- --------- ---------
Numerator for diluted earnings per
share................................ $ 221,437 $(423,006) $(577,044)
Denominator:
Weighted-average shares outstanding.... 4,275,000 4,275,000 4,275,000
Assumed issuance of shares using the
treasury stock method to recognize se-
curities issuable at prices below the
assumed public offering price:
Employee stock options................ 55,327 55,327 55,327
Convertible preferred stock........... 323,760 323,760 323,760
Denominator for basic earnings per
share 4,654,087 4,654,087 4,654,087
Effect of dilutive securities:
Employee stock options................ -- -- --
Convertible preferred stock........... -- -- --
--------- --------- ---------
Denominator for diluted earnings per
share................................. 4,654,087 4,654,087 4,654,087
Basic earnings (loss) per share......... $ 0.05 $ (0.09) $ (0.12)
========= ========= =========
Diluted earnings (loss) per share....... $ 0.05 $ (0.09) $ (0.12)
========= ========= =========
</TABLE>
For additional disclosures regarding the outstanding Series A and B
convertible preferred stock and the employee stock options see Note 6.
F-14
<PAGE>
COMMAND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of computing pro forma basic and diluted earnings, the Company
has assumed that it was taxed as a C corporation for U.S. federal income tax
purposes at statutory tax rates.
11. GEOGRAPHIC DATA AND MAJOR CUSTOMERS
The Company is engaged in one segment of business, providing information
technology services to large organizations. The Company operates in two
geographic areas. Prior to 1996, the Company only operated in the United
States.
<TABLE>
<CAPTION>
1996 United States India Elimination Consolidated
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $17,069,417 $ -- -- $17,069,417
Income (loss) from operations (82,194) (514,749) -- (596,943)
Identifiable assets 3,434,094 1,382,171 -- 4,816,265
<CAPTION>
1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $25,057,039 $2,870,150 $(2,870,150) $25,057,039
Income (loss) from operations (99,974) 929,209 -- 829,235
Identifiable assets 12,173,801 2,251,286 -- 14,425,087
</TABLE>
Approximately 50%, 42% and 43% of the Company's 1995, 1996 and 1997 revenue,
respectively, was generated from four major customers in the financial
services industry. For the years ended December 31, 1995 and 1996, two
customers accounted for approximately 12% and 23%, and 14% and 13%,
respectively, of revenue. For the year ended December 31, 1997, three
customers accounted for approximately 13%, 13% and 10%, respectively, of
revenue.
F-15
<PAGE>
PRO FORMA FINANCIAL DATA
(UNAUDITED)
On December 31, 1997 the Company issued 100 shares of its Series B
convertible preferred stock valued at $8,000,000 to PHL in exchange for PHL's
49% interest in the Offshore Technology Resource Center. This transaction has
been treated as a purchase and the excess of cost over the fair value of the
assets acquired and liabilities assumed has been recognized as goodwill.
The pro forma statements of operations for the years ended December 31, 1996
and 1997 reflect the effects of this transaction as if it had occurred at the
beginning of the periods presented. In addition, these statements reflect
adjustments to the Company's U.S. federal income tax provision to recognize
what the Company's earnings would have been had the Company historically been
taxed as a C corporation.
The pro forma statement of operations also takes into effect the use of net
proceeds of the Company's initial public offering and the conversion of the
Series A and B convertible preferred stock.
The pro forma results of operations are not necessarily indicative of
results to be expected in the future.
F-16
<PAGE>
COMMAND SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENT PRO FORMA
----------- ---------- -----------
<S> <C> <C> <C>
Revenue........................... $17,069,417 $17,069,417
Cost of revenue................... 12,494,448 12,494,448
----------- -----------
Gross profit.................... 4,574,969 4,574,969
Selling, general and
administrative expenses.......... 5,171,912 $ 114,089 (a) 5,266,001
----------- -----------
Loss from operations............ (596,943) (711,032)
Other income (expense)............ (75,558) 38,370 (b) 61,172
96,360 (d)
----------- -----------
Loss before income taxes and
minority interest................ (672,501) (649,860)
Income tax benefit................ 8,056 8,056
----------- -----------
(664,445) (641,804)
Minority interest................. 241,439 (241,439)(c) --
----------- -----------
Net (loss)........................ (423,006) (641,804)
Preferred stock dividends and
accretion........................ -- --
----------- -----------
Loss applicable to common
stockholders..................... $ (423,006) $ (641,804)
=========== ===========
Earnings per common share:
Basic earnings (loss) per common
share.......................... $ (0.09) $ (0.08)(e)
=========== ===========
Diluted earnings (loss) per
common share................... $ (0.09) $ (0.08)(e)
=========== ===========
</TABLE>
Notes to Statement:
(a) To reflect the amortization of goodwill over an estimated useful life of
15 years.
(b) To reflect the elimination of interest expense related to the C, Z and M
notes used to finance the operation of the Offshore Technology Resource
Center.
(c) To eliminate the 49% minority interest previously held by PHL.
(d) To eliminate interest on the Company's domestic line of credit assumed to
be refinanced by the proceeds of the Company's public offering of
2,100,000 shares of common stock.
(e) Earnings per share is computed using weighted average shares outstanding
of 7,556,750, which assumes the conversion of the Series A and B
convertible preferred stock and the issuance of 2,100,000 shares of common
stock in connection with the initial public offering.
F-17
<PAGE>
COMMAND SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENT PRO FORMA
----------- ---------- -----------
<S> <C> <C> <C>
Revenue............................. $25,057,039 $25,057,039
Cost of revenue..................... 16,972,812 16,972,812
----------- -----------
Gross profit...................... 8,084,227 8,084,227
Selling, general and administrative
expenses........................... 7,254,992 $456,356(a) 7,711,348
----------- -----------
Income from operations............ 829,235 372,879
Other income (expense).............. (276,746) 132,674(b) (43,432)
100,640(d)
----------- -----------
Income before income taxes and
minority interest.................. 552,489 329,447
Income tax (provision) benefit...... (597,751) 693,000(g) 95,249
----------- -----------
(45,262) 424,696
Minority interest................... (451,431) 451,431(c) --
----------- -----------
Net income (loss)................... (496,693) 424,696
Preferred stock dividends and
accretion.......................... (80,351) 80,351(f) --
----------- -----------
Income (loss) applicable to common
stockholders....................... $ (577,044) $ 424,696
=========== ===========
Earnings per common share:
Basic earnings (loss) per common
share............................ $ (0.12) $ 0.06 (e)
=========== ===========
Diluted earnings (loss) per common
share............................ $ (0.12) $ 0.06 (e)
=========== ===========
</TABLE>
Notes to Statement:
(a) To reflect the amortization of goodwill over an estimated useful life of
15 years.
(b) To reflect the elimination of interest expense related to the C, Z, and M
notes used to finance the operations of the Offshore Technology Resource
Center.
(c) To eliminate the 49% minority interest previously held by PHL.
(d) To eliminate interest on the Company's domestic line of credit assumed to
be refinanced by the proceeds of the Company's public offering of
2,100,000 shares of common stock.
(e) Earnings per share is computed using weighted average shares outstanding
of 7,556,750, which assumes the conversion of the Series A and B
convertible preferred stock and the issuance of 2,100,000 shares of common
stock in connection with the assumed initial public offering.
(f) To eliminate the preferred stock dividends and accretion.
(g) To eliminate the U.S. Federal income tax provision associated with the
Company's conversion from S Corporation to C Corporation status to assume
that the Company had historically been treated as a C Corporation for tax
purposes.
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 MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS, ANY OF THE
UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION 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 UN-
DER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
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 OF COMMAND SYSTEMS APPEARS HERE]
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 69,375.00
Legal Fees and Expenses 375,000.00
Blue Sky Fees and Expenses 5,000.00
Accounting Fees and Expenses 250,000.00
Printing and Engraving 250,000.00
Transfer Agent and Registrar Fees and Expenses 10,000.00
Miscellaneous 20,042.60
-----------
Total $993,000.00
===========
</TABLE>
All of the above expenses will be paid by the Registrant.
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) to Phoenix 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) to PHL Global Holding, Co., a wholly-owned subsidiary of Phoenix
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 200,550 shares of Common Stock to employees
and consultants of the Company in exchange for services. 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 Certificate of Amendment to Registrant's Amended and Restated
Certificate of Incorporation filed on February 5, 1998.
+3.3 By-Laws of the Registrant.
4.1 Specimen Certificate for shares of the Company's Common Stock.
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.
10.14 Employment Agreement dated January 1, 1998 between Registrant and
Stephen L. Willcox.
10.15 Form of Lock-Up Letter.
+21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, independent auditors.
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>
- --------
+ Previously submitted.
(b) Financial Statement Schedules
Report of Independent Auditors.
Schedule II--Valuation and Qualifying Accounts.
All financial statement schedules other than as provided are omitted because
the information is not required, or is otherwise included in the Consolidated
Financial Statements or the Notes thereto.
II-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Command Systems, Inc.
We have audited the consolidated financial statements of Command Systems,
Inc. as of December 31, 1996 and 1997, and for each of the three years in the
period ended December 31, 1997, and have issued our report thereon dated
February 9, 1998 (included elsewhere in this Registration Statement). Our
audit also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Hartford, Connecticut
February 9, 1998
II-6
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COMMAND SYSTEMS, INC.
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN D
-------- ---------- -------------------- ---------- ----------
ADDITIONS
--------------------
CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DEDUCTIONS PERIOD
----------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997....................
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.... $24,500 $357,582 $-- $(122,189) $259,893
Year ended December 31,
1996....................
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.... $ -- $ 24,500 $-- $ -- $ 24,500
Year ended December 31,
1995....................
Deducted from asset
accounts:
Allowance of doubtful
accounts receivable.... $ -- $ -- $-- $ -- $ --
</TABLE>
II-7
<PAGE>
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 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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, Commonwealth of Massachusetts, on February 13, 1998.
COMMAND SYSTEMS, INC.
By: /s/ Edward G. Caputo
---------------------------------
EDWARD G. CAPUTO
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Edward G. Caputo President, Chief February 13, 1998
- ------------------------------------- Executive Officer
EDWARD G. CAPUTO and Chairman of the
Board (Principal
executive officer)
/s/ Stephen L. Willcox Executive Vice February 13, 1998
- ------------------------------------- President, Chief
STEPHEN L. WILLCOX Operating Officer,
Secretary and
Director (Principal
financial officer)
* Vice President of February 13, 1998
- ------------------------------------- Finance and
ROBERT B. DIXON Treasurer
(Principal
accounting officer)
* Director February 13, 1998
- -------------------------------------
JOHN J.C. HERNDON
* Director February 13, 1998
- -------------------------------------
JAMES M. OATES
/s/ Joseph D. Sargent Director February 13, 1998
- -------------------------------------
JOSEPH D. SARGENT
</TABLE>
* Executed pursuant to power of attorney
/s/ Stephen L. Willcox
- -------------------------------------
STEPHEN L. WILLCOX AS ATTORNEY-IN-
FACT
II-9
<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 Certificate of Amendment to Registrant's Amended and Restated
Certificate of Incorporation filed on February 5, 1998.
+3.3 By-Laws of the Registrant.
4.1 Specimen Certificate for shares of the Company's Common Stock.
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.
10.14 Employment Agreement dated January 1, 1998 between Registrant and
Stephen L. Willcox.
10.15 Form of Lock-Up Letter.
+21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, independent auditors.
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>
- --------
+ Previously submitted.
<PAGE>
EXHIBIT 1.1
2,400,000 Shares
COMMAND SYSTEMS, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 1998
----------- ---
COWEN & COMPANY
VOLPE BROWN WHELAN & COMPANY, LLC
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Dear Sirs:
1. Introductory. Command Systems, Inc., a Delaware corporation (the
------------
"Company"), and the selling stockholders named in Schedule B hereto (the
"Selling Stockholders") propose to sell, pursuant to the terms of this
Agreement, to the several underwriters named in Schedule A hereto (the
"Underwriters," or, each, an "Underwriter"), an aggregate of 2,400,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"), of the Company.
The aggregate of 2,400,000 shares so proposed to be sold is hereinafter referred
to as the "Firm Stock." The Selling Stockholders listed in Schedule B hereto
also propose to sell to the Underwriters, upon the terms and conditions set
forth in Section 3 hereof, up to an additional 360,000 shares of Common Stock
(the "Optional Stock"). The Firm Stock and the Optional Stock are hereinafter
collectively referred to as the "Stock." Cowen & Company ("Cowen") and Volpe
Brown Whelan & Company, LLC ("Volpe Brown") are acting as representatives of the
several Underwriters and in such capacity are hereinafter referred to as the
"Representatives."
2. (a) Representations, Warranties and Agreements of the Company.
---------------------------------------------------------
The Company represents and warrants to, and agrees with, the several
Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-
43877) in the form in which it became or becomes effective and also in
such form as it may be when any post-effective amendment thereto shall
become effective with respect to the Stock, including any preeffective
prospectuses included as part of the registration statement as
originally filed or as part of any amendment or supplement thereto, or
filed pursuant to Rule 424 under the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, copies of which have heretofore been
delivered to you, has been carefully prepared by the Company in
conformity with the requirements of the Securities Act and has been
<PAGE>
filed with the Commission under the Securities Act; one or more
amendments to such registration statement, including in each case an
amended preeffective prospectus, copies of which amendments have
heretofore been delivered to you, have been so prepared and filed. If
it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this Agreement
shall also include any registration statement relating to the Stock
that is filed and declared effective pursuant to Rule 462(b) under the
Securities Act. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or
(A) if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities Act and such
information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act, the term
"Prospectus" as used in this Agreement means the prospectus in the
form included in the Registration Statement as supplemented by the
addition of the Rule 430A information contained in the prospectus
filed with the Commission pursuant to Rule 424(b) and (B) if
prospectuses that meet the requirements of Section 10(a) of the
Securities Act are delivered pursuant to Rule 434 under the Securities
Act, then (i) the term "Prospectus" as used in this Agreement means
the "prospectus subject to completion" (as such term is defined in
Rule 434(g) under the Securities Act) as supplemented by (a) the
addition of Rule 430A information or other information contained in
the form of prospectus delivered pursuant to Rule 434(b)(2) under the
Securities Act or (b) the information contained in the term sheets
described in Rule 434(b)(3) under the Securities Act, and (ii) the
date of such prospectuses shall be deemed to be the date of the term
sheets. The term "Preeffective Prospectus" as used in this Agreement
means the prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus
shall have been amended from time to time prior to the date of the
Prospectus.
(ii) The Commission has not issued or, to the Company's
knowledge, threatened to issue any order preventing or suspending the
use of any Preeffective Prospectus, and, at its date of issue, each
Preeffective Prospectus conformed in all material respects with the
requirements of the Securities Act and did not include any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
and, when the Registration Statement becomes effective and at all
times subsequent thereto up to and including each Closing Date (as
hereinafter defined), the Registration Statement and the Prospectus
and any amendments or supplements thereto contained and will contain
all material statements and information required to be included
therein by the Securities Act and conformed and will conform in all
material respects to the
-2-
<PAGE>
requirements of the Securities Act and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto,
included or will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing representations, warranties and agreements
shall not apply to (A) information contained in or omitted from any
Preeffective Prospectus or the Registration Statement or the
Prospectus or any such amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter, directly or through you,
or by any Selling Stockholder, specifically for use in the preparation
thereof or (B) to the distribution responsibilities of the
Underwriters; there is no franchise, lease, contract, agreement or
document required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement
which is not described or filed therein as required; and all
descriptions of any such franchises, leases, contracts, agreements or
documents contained in the Registration Statement are accurate and
complete descriptions of such documents in all material respects.
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, neither the
Company nor any of its subsidiaries has incurred any liabilities or
obligations, direct or contingent, nor entered into any transactions
not in the ordinary course of business (or as contemplated hereby),
and there has not been any material adverse change in the condition
(financial or otherwise), properties, business, management, prospects,
net worth or results of operations of the Company and its
subsidiaries, considered as a whole and individually, or any change in
the capital stock or, except with respect to regularly scheduled
payments of interest or principal, short-term or long-term debt of the
Company and its subsidiaries considered as a whole and individually.
Neither the Company nor any of its subsidiaries have material
contingent obligations which are not disclosed in the Company's
financial statements which are included in the Registration Statement,
as it may be amended or supplemented, which are required to be so
disclosed under generally accepted accounting principles in the United
States ("GAAP"); and, whether or not required to be disclosed under
GAAP, to the Company's knowledge, neither the Company nor any of its
subsidiaries have material contingent obligations which are not
disclosed on such financial statements.
(iv) The financial statements, together with the related
notes and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and changes in financial position of the Company and its
consolidated subsidiaries at the respective dates or for the
respective periods therein specified. Such statements and related
notes and
-3-
<PAGE>
schedules have been prepared in accordance with generally accepted
accounting principles in the United States applied on a consistent
basis except as may be set forth in the Prospectus. The selected
financial and statistical data set forth in the Prospectus under the
caption "Selected Consolidated Financial Data" fairly present, on the
basis stated in the Registration Statement, the information set forth
therein.
(v) Ernst & Young LLP, who have audited the financial
statements included in the Registration Statement and the Prospectus,
are independent public accountants as required by the Securities Act
and the Rules and Regulations.
(vi) The Company and each of its subsidiaries have been
duly organized and are validly existing and in good standing as
corporations under the laws of their respective jurisdictions of
organization, with corporate power and authority to own or lease their
properties and to conduct their businesses as described in the
Registration Statement and the Prospectus; the Company and its
subsidiaries are in possession of and operating in compliance in all
material respects with all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and orders
required for the conduct of their businesses, all of which are valid
and in full force and effect; and the Company and each of such
subsidiaries are duly qualified or authorized to do business and in
good standing as foreign corporations in all other jurisdictions where
their ownership or leasing of properties or the conduct of their
businesses requires such qualification or authorization. The Company
and each of its subsidiaries has all requisite power and authority,
and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits of and from all
public regulatory or governmental agencies and bodies to own, lease
and operate its properties and conduct its business as now being
conducted and as described in the Registration Statement and the
Prospectus, and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially
burdensome restriction not adequately disclosed in the Registration
Statement and the Prospectus. The Company owns all of the issued and
outstanding capital stock of Command International Holdings, LLC, a
corporation organized under the laws of Mauritius ("Command
Mauritius"), and Command Mauritius owns all of the issued and
outstanding capital stock of Command International Software Pvt., an
unlimited liability company organized under the laws of India
("Command India"), and neither the Company nor any of its direct or
indirect subsidiaries owns or controls, directly or indirectly, any
other corporations, associations or other entities.
(vii) The Company's authorized and outstanding capital
stock is on the date hereof, and will be on the Closing Dates, as set
forth under the heading "Capitalization" in the Prospectus; the
information set forth under the caption "Capitalization" in the
Prospectus (after giving effect to the transactions therein described)
is true and correct; the outstanding shares of Common Stock (including
the outstanding shares of Stock) of the Company conform to the
description thereof in the Registration Statement and the Prospectus
and have been duly authorized and
-4-
<PAGE>
validly issued and are fully paid and nonassessable and have been
issued in compliance with all applicable federal and state securities
laws and were not issued in violation of or subject to any preemptive
rights or similar rights to subscribe for or purchase securities.
Except as disclosed in and or contemplated by the Registration
Statement and the Prospectus and the financial statements of the
Company and related notes and schedules thereto included in the
Registration Statement and the Prospectus, the Company does not have
outstanding any options or warrants to purchase, or any preemptive
rights or other rights to subscribe for or to purchase any securities
or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the
Company's stock option and other stock plans or arrangements, and the
options or other rights granted or exercised thereunder, as set forth
in the Registration Statement and the Prospectus, accurately and
fairly presents the information required to be shown with respect to
such plans, arrangements, options and rights. The name of each holder
of an option to purchase shares of the capital stock of the Company
which is or will be outstanding as of the date hereof and which will
vest in whole or in part prior to 180 days following the date hereof
has been included in Schedule C hereto and has delivered a lock-up
agreement to Cowen. All outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, and are fully
paid and nonassessable and are owned directly by the Company or by
another wholly-owned subsidiary of the Company free and clear of any
liens, charges, encumbrances, equities or claims. Neither the
transactions contemplated hereby nor by the (i) Stock Exchange
Agreement dated as of December 31, 1997 among the Company, Phoenix
Home Life Mutual Insurance Company ("Phoenix"), PHL Global Holding Co.
("PHL Global") and Command Mauritius (the "Stock Exchange Agreement");
(ii) the Company's grant of options to purchase ____ shares of Common
Stock under its 1997 Employee, Director and Consultant Stock Plan (the
"1997 Plan") or (iii) the grant of options to purchase
________________ shares of Common Stock in substitution for rights
previously granted or awarded pursuant to the Company's Shadow Stock
Incentive Plan (the "Shadow Plan") has or will trigger any anti-
dilution provisions applicable to any securities of the Company (other
than those that have been expressly waived or that will automatically
expire upon the Closing Date prior to taking effect). Upon
consummation of the offering contemplated hereby on the First Closing
Date (as defined below), all outstanding shares of the Company's
Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock of the Company shall have automatically converted into
an aggregate of 2,351,250 shares of Common Stock as is set forth under
the caption "Capitalization" in the Prospectus.
(viii) The grant of options pursuant to the 1997 Plan in
substitution for rights granted or awarded pursuant to the Shadow Plan
has not and will not result in any damage, loss, obligation or other
financial obligation of or to the Company (other than the Company's
obligations with respect to the options themselves) or result in the
incurrence of any tax liability or other adverse tax
-5-
<PAGE>
consequence or result in a charge to earnings or other adverse effect
on the Company's financial statements.
(ix) The Stock to be issued and sold by the Company to
the Underwriters hereunder has been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein,
will be duly and validly issued, fully paid and nonassessable and free
of any preemptive or similar rights and will conform in all material
respects to the description thereof in the Registration Statement and
the Prospectus.
(x) Except as set forth in the Registration Statement
and the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries or affiliates
is a party or of which any property of the Company or any subsidiary
or affiliate is subject, which, if determined adversely to the Company
or any such subsidiary or affiliate, might individually or in the
aggregate (A) prevent or adversely affect the transactions
contemplated by this Agreement or the Stock Exchange Agreement, (B)
suspend the effectiveness of the Registration Statement, (C) prevent
or suspend the use of the Preeffective Prospectus in any jurisdiction
or (D) result in a material adverse change in the condition (financial
or otherwise), properties, business, management, prospects, net worth
or results of operations of the Company and its subsidiaries
considered as a whole, and there is no valid basis for any such legal
or governmental proceeding; and to the best of the Company's knowledge
no such proceedings are threatened or contemplated against the Company
or any subsidiary or affiliate by governmental authorities or others.
Neither the Company nor any of its subsidiaries is a party or, to the
Company's knowledge, otherwise subject to, the provisions of any
material injunction, judgment, decree or order of any court,
regulatory body or other governmental agency or body ("Governmental
Authority"). The description of the Company's litigation under the
heading "Business--Legal Proceedings" in the Prospectus is true and
correct and complies with the Rules and Regulations.
(xi) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated
(A) will not conflict with or result in the violation of any
provisions of the Amended and Restated Certificate of Incorporation,
By-Laws or other organizational documents of the Company or any of its
subsidiaries, or any law, order, rule or regulation applicable to the
Company or any of its subsidiaries of any court or governmental agency
or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties or assets or will result in
the creation of a lien on any of the properties or assets of the
Company or any of its subsidiaries and (B) will not conflict with or
result in a breach or violation of any of the terms or provisions of
or constitute a default (or an event which with notice or lapse of
time, or both, would constitute a default) under any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
-6-
<PAGE>
or by which it or any of its subsidiaries, or its properties or the properties
of any of its subsidiaries, is or may be bound.
(xii) No consent, approval, authorization or order of any court or
governmental agency or body is required or necessary in connection with the
execution and delivery by the Company or for the consummation by the Company of
the transactions contemplated by this Agreement, except such as may be required
by the National Association of Securities Dealers, Inc. (the "NASD") or under
the Securities Act or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or the securities or "Blue Sky" laws of any jurisdiction in
connection with the purchase and distribution of the Stock by the Underwriters.
(xiii) The Company has the full corporate power and authority to
enter into this Agreement to perform its obligations hereunder (including to
issue, sell and deliver the Stock) and this Agreement has been duly and validly
authorized, executed and delivered by the Company and is a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except to the extent that rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or the public
policy underlying such laws and except as the enforcement hereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by general equitable principles.
(xiv) The execution, delivery and performance of the Exchange
Documents (as defined below) by the Company and Command Mauritius and, to the
Company's knowledge, the other parties thereto, and the consummation of the
transactions therein contemplated did not and will not result in a breach or
violation of any of the terms or provisions of or constitute a default (or an
event which with notice or lapse of time, or both, would constitute a default)
under any indenture, mortgage, deed of trust, note agreement or other agreement
or instrument by which such party or any of its properties is or may be bound,
any organizational documents of such party, or any law, order, rule or
regulation applicable to such party of any court or governmental agency or body
having jurisdiction over such party or any of its properties or will result in
the creation of a lien. Each of the Exchange Documents is in full force and
effect and the Company, Command Mauritius and, to the knowledge of the Company,
the other parties thereto are in full compliance with all their obligations
under such agreements. Except with respect to the Exchange Documents or as
otherwise disclosed in the Registration Statement and Prospectus, there are no
agreements, contracts, commitments, undertakings, or other arrangements, whether
oral or written, between, among or involving the Company or any of its
subsidiaries or affiliates and Phoenix or any of its subsidiaries or affiliates.
True and complete copies of the Exchange Agreements have been provided to
counsel to the Underwriters. The Stock Exchange Agreement, the Registration
Rights Agreement dated as of December 31, 1997 between the Company and PHL
Global and the Co-Sale Agreement dated as of December 31,
-7-
<PAGE>
1997 among the Company, PHL Global and Edward G. Caputo (the "Co-Sale
Agreement"), and the Stock Exchange Agreement dated August 26, 1997 between the
Company and Phoenix, the Registration Rights Agreement dated August 26, 1997
between the Company and Phoenix, the Co-Sale Agreement by and among the Company,
Phoenix and Edward G. Caputo are collectively referred to herein as the
"Exchange Documents".
(xv) No consent, approval, authorization or order of any court or
governmental agency or body is required or necessary in connection with the
execution and delivery by the Company and Command Mauritius of, or the
consummation by the Company and Command Mauritius of the transactions
contemplated by, the Exchange Documents, except for the approval of the Reserve
Bank of India for the transfer of the Command India capital stock contemplated
by the Exchange Agreement, which approval has been obtained.
(xvi) Each of the Company, Command Mauritius and, to the Company's
knowledge, each other party to the Exchange Documents has the full corporate
power and authority to enter into the Exchange Documents and to perform its
obligations thereunder and the Exchange Documents have been duly and validly
authorized, executed and delivered by the Company and Command Mauritius and are
valid and binding obligations of such party, enforceable against such party in
accordance with their terms, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by general equitable principles.
(xvii) The Company and its subsidiaries are in all material respects
in compliance with, and conduct their businesses in conformity in all material
respects with, all applicable federal, state, local and foreign laws, rules and
regulations or any court or governmental agency or body; to the knowledge of the
Company, except as set forth in the Registration Statement and the Prospectus,
no prospective change in any of such federal, state, local or foreign laws,
rules or regulations has been adopted which, when made effective, would have a
material adverse effect on the operations of the Company or any of its
subsidiaries. Except as disclosed in the Registration Statement and the
Prospectus, the Company and its subsidiaries are in compliance with all
applicable existing federal, state, local and foreign laws, rules and
regulations relating to the protection of human health or the environment or
imposing liability or requiring standards of conduct concerning any Hazardous
Materials ("Environmental Laws"), except for such instances of noncompliance
which, either singly or in the aggregate, would not have a material adverse
effect. The term "Hazardous Material" means (A) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (B) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended, (C) any petroleum or petroleum
product, (D) any polychlorinated biphenyl and (E) any pollutant or contaminant
or hazardous, dangerous or toxic chemical, material, waste
-8-
<PAGE>
or substance regulated under or within the meaning of any other Environmental
Law.
(xviii) The Company and its subsidiaries have filed all necessary
federal, state, local and foreign income, payroll, franchise and other tax
returns and have paid all taxes shown as due thereon or with respect to any of
their properties (other than those being contested in good faith which have been
disclosed to Cowen); and there is no tax deficiency that has been, or to the
knowledge of the Company is likely to be, asserted against the Company or any of
its subsidiaries or any of their respective properties or assets that would
adversely affect the financial position, business or results of operations of
the Company and its subsidiaries. All tax liabilities have been adequately
provided for in the consolidated financial statements of the Company contained
in the Registration Statement and the Prospectus.
(xix) Except as disclosed in the Registration Statement and the
Prospectus, no person or entity has the right to require registration of shares
of Common Stock or other securities of the Company because of the filing or
effectiveness of the Registration Statement or otherwise. Except to the extent
set forth in the Registration Statement and Prospectus, each person or entity
with the right to require registration of shares of Common Stock has waived such
right in writing and a true and complete a copy of such waiver has been
delivered to counsel for the Underwriters.
(xx) Neither the Company nor, to the Company's knowledge, any of
its officers, directors or affiliates has taken or will take, directly or
indirectly, any action designed or intended to stabilize or manipulate the price
of any security of the Company, or which caused or resulted in, or which might
in the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.
(xxi) The Company has provided you with all financial statements of
the Company and its subsidiaries since January 1, 1992 to the date hereof that
are available to the officers of the Company, including unaudited consolidated
financial statements for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997.
(xxii) The Company and its subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark registrations,
tradenames, copyrights, licenses, inventions, trade secrets and rights described
in the Prospectus as being owned by them or any of them or, except where the
failure to have such rights would not have a material adverse effect on the
business or financial condition of the Company and its subsidiaries individually
or taken as a whole, necessary for the conduct of their respective businesses,
and the Company is not aware of any claim to the contrary or any challenge by
any other person to the
-9-
<PAGE>
rights of the Company and its subsidiaries with respect to the foregoing. The
Company's business as now conducted and as proposed to be conducted does not and
will not infringe or conflict with in any material respect patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses or other
intellectual property or franchise right of any person. Except as described in
the Prospectus, no claim has been made against the Company alleging the
infringement by the Company of any patent, trademark, service mark, tradename,
copyright, trade secret, license in or other intellectual property right or
franchise right of any person.
(xxiii) The Company and its subsidiaries have performed in all
material respects the obligations required to be performed by them under all
contracts required by Item 601(b)(10) of Regulation S-K under the Securities Act
to be filed as exhibits to the Registration Statement, and neither the Company
nor any of its subsidiaries nor, to the Company's knowledge, any other party to
such contract is in default under or in breach of any such obligations. Neither
the Company nor any of its subsidiaries has received any notice of such default
or breach.
(xxiv) Neither the Company nor any of its subsidiaries is involved
in any labor dispute and, to the Company's knowledge, no such dispute is
threatened. The Company is not aware that (A) any executive, key employee or
significant group of employees of the Company or any subsidiary plans to
terminate employment with the Company or any such subsidiary or (B) any such
executive or key employee is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreement that would be
violated by the present or proposed business activities of the Company and its
subsidiaries. Neither the Company nor any subsidiary has or expects to have any
liability for any prohibited transaction or funding deficiency or any complete
or partial withdrawal liability with respect to any pension, profit sharing or
other plan which is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or, with respect to Command India, other similar law,
to which the Company or any subsidiary makes or ever has made a contribution and
in which any employee of the Company or any subsidiary is or has ever been a
participant. With respect to such plans, the Company and each subsidiary are in
compliance in all material respects with all applicable provisions of ERISA or,
with respect to Command India, other similar law.
(xxv) The Company has obtained the written agreement described in
Section 8(m) of this Agreement from each of the parties listed in Schedule C
hereto and has delivered true and complete copies thereof to Cowen.
(xxvi) The Company and its subsidiaries have, and the Company and
its subsidiaries as of the Closing Dates will have, good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company or of
its
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<PAGE>
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as would not have a
material adverse effect on the Company and its subsidiaries considered as a
whole; and any real property and buildings held under lease by the Company and
its subsidiaries or proposed to be held after giving effect to the transactions
described in the Registration Statement and the Prospectus are, or will be as of
each Closing Date, held by them under valid, subsisting and enforceable leases
with such exceptions as would not have a material adverse effect on the Company
and its subsidiaries considered as a whole or individually, in each case except
as described in or contemplated by the Registration Statement and the Prospectus
and except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, or by general equitable principles.
(xxvii) The Company and its subsidiaries maintain insurance against
such losses and risks and in such amounts as are customary in the businesses in
which they are engaged or propose to engage after giving effect to the
transactions described in the Registration Statement and the Prospectus; and
neither the Company nor any of its subsidiaries has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from insurers as may be necessary
to continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries considered as a whole and
individually, except as described in or contemplated by the Prospectus.
(xxviii) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the Company any
brokerage or finder's fee or other fee or commission as a result of any of the
transactions contemplated by this Agreement.
(xxix) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of doing Business with Cuba, and the Company
- ---------------------------------------------------------
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"), whichever
date is later, the Company will provide the Department notice of such business
in a form acceptable to the Department.
(xxx) The Company and each of its subsidiaries maintain a system of
internal accounting controls reasonably sufficient to provide that (A)
transactions are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit preparation
of financial
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<PAGE>
statements in conformity with generally accepted accounting principles
in the United States and to maintain accountability for assets; (C)
access to assets is permitted only in accordance with management's
general or specific authorization; and (D) the recorded accountability
for assets is compared with existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(xxxi) Neither the Company nor any of its subsidiaries
nor, to the Company's knowledge, any director, employee or agent of
the Company or any of its subsidiaries has made any payment of funds
of the Company or any of its subsidiaries or received or retained any
funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be
disclosed in the Registration Statement and the Prospectus.
(xxxii) Neither the Company nor any of its subsidiaries is
or, after application of the net proceeds of the offering contemplated
hereby as described under the caption "Use of Proceeds" in the
Prospectus, will become, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended.
(xxxiii) The Company is not and does not intend to become
(a) a controlled foreign corporation, as such term is defined in the
Internal Revenue Code of 1986, as amended (the "Code"), (b) a passive
foreign investment company within the meaning of Section 1296(a) of
the Code or (c) a foreign personal holding corporation, as such term
is defined in the Code.
(xxxiv) Each certificate signed by any officer of the
Company or any of its subsidiaries and delivered to the Underwriters
or counsel for the Underwriters shall be deemed to be a representation
and warranty by the Company as to the matters covered thereby.
(xxxv) The Common Stock has been approved for quotation
and trading on the Nasdaq National Market, subject to official notice
of effectiveness.
For purposes of the foregoing representations and warranties which are
conditioned by reference to the knowledge of the Company, the Company shall be
charged with the knowledge of each Selling Stockholder.
(b) Representations, Warranties and Agreements of the Selling
---------------------------------------------------------
Stockholders. Each Selling Stockholder severally and not jointly represents and
- ------------
warrants to, and agrees with, the several Underwriters that such Selling
Stockholder:
(i) Now has, and on each Closing Date will have, valid
and marketable title to the Stock to be sold by such Selling
Stockholder, free and clear of any lien, claim, security interest or
other encumbrance, including, without limitation, any restriction on
transfer, and has full right, power and authority to enter into this
Agreement, the Power of Attorney and the Custody Agreement (each as
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<PAGE>
hereinafter defined), and, to the extent such Selling Stockholder is a
corporation or a partnership, has been duly organized and is validly
existing and in good standing as a corporation or a partnership, as
applicable, under the laws of its jurisdiction of organization.
(ii) Now has, and on each Closing Date will have, upon
delivery of and payment for each share of Stock hereunder, full right,
power, authority and any approval required by law to sell, transfer,
assign and deliver the Stock being sold by such Selling Stockholder
hereunder, and each of the several Underwriters will acquire valid and
marketable title to all of the Stock being sold to the Underwriters by
such Selling Stockholder, free and clear of any liens, encumbrances,
equities claims, restrictions on transfer or other defects whatsoever.
(iii) For a period of 180 days after the date of this
Agreement, without the consent of Cowen, such Selling Stockholder will
not offer to sell, sell, contract to sell or otherwise dispose of any
capital stock or securities convertible into or exchangeable for
capital stock, including, without limitation, capital stock which may
be deemed to be beneficially owned by such Selling Stockholder in
accordance with the Rules and Regulations, except for the Stock being
sold hereunder.
(iv) Has duly executed and delivered a power of attorney
in substantially the form heretofore delivered to the Representatives
(the "Power of Attorney"), appointing Lewis J. Geffen and Brian P.
Keane, and each of them or their duly appointed substitutes, as
attorney-in-fact (the "Attorneys-in-fact") with authority to execute
and deliver this Agreement on behalf of such Selling Stockholder, to
authorize the delivery of the shares of Stock to be sold by such
Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated
by this Agreement.
(v) Has duly executed and delivered a custody agreement
in substantially the form heretofore delivered to the Representatives
(the "Custody Agreement"), with Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C. as custodian ("Mintz Levin"), pursuant to which
certificates in negotiable form for the shares of Stock to be sold by
such Selling Stockholder hereunder have been placed in custody for
delivery under this Agreement.
(vi) Has, by execution and delivery of each of this
Agreement, the Power of Attorney and the Custody Agreement, created
valid and binding obligations of such Selling Stockholder, enforceable
against such Selling Stockholder in accordance with its terms, except
to the extent that rights to indemnity hereunder may be limited by
federal or state securities laws or the public policy underlying such
laws and, except with respect to the Power of Attorney and Custody
Agreement, except as the enforcement thereof may be limited by
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<PAGE>
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally, or by general
equitable principles.
(vii) The performance by such Selling Stockholder of this
Agreement, the Custody Agreement and the Power of Attorney, and the
consummation by such Selling Stockholder of the transactions
contemplated hereby and thereby will not result in a breach or
violation by such Selling Stockholder of any of the terms or
provisions of, or constitute a default by such Selling Stockholder
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement
or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of its properties is bound, or any
judgment of any court or governmental agency or body applicable to
such Selling Stockholder or any of its properties, or to such Selling
Stockholder's knowledge, any statute, decree, order, rule or
regulation of any court or governmental agency or body applicable to
such Selling Stockholder or any of its properties or, in the case of a
Selling Stockholder that is a corporation or other entity, the
certificate of incorporation, by-laws or other organizational
documents of such Selling Stockholder.
(viii) Neither such Selling Stockholder nor, to the
knowledge of such Selling Stockholder, any of its affiliates has taken
or will take, directly or indirectly, any action designed or intended
to stabilize or manipulate the price of any security of the Company,
or which caused or resulted in, or which might in the future
reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.
(ix) Has no reason to believe that the representations
and warranties of the Company contained in this Section 2 are not true
and correct, has reviewed the Registration Statement and the
Prospectus and has no knowledge of any material fact, condition or
information not disclosed in the Registration Statement or the
Prospectus which has adversely affected or may adversely affect the
business of the Company or any of its subsidiaries; and the sale of
the Shares by such Selling Stockholder pursuant hereto is not prompted
by any materially adverse information concerning the Company or any of
its subsidiaries which is not set forth in the Registration Statement
and the Prospectus. The information pertaining to the Selling
Stockholder under the caption "Selling Stockholders" in the Prospectus
is complete and accurate in all material respects.
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<PAGE>
Each Selling Stockholder agrees that the shares of Stock represented
by the certificates held in custody under the Custody Agreement are for the
benefit of and coupled with and subject to the interests of the Underwriters,
the other Selling Stockholders and the Company hereunder, and that the
arrangement for such custody and the appointment of the Attorneys-in-fact are
irrevocable; that the obligations of such Selling Stockholder hereunder shall
not be terminated by operation of law, whether by the death or incapacity,
liquidation or distribution of such Selling Stockholder, or any other event,
that if such Selling Stockholder should die or become incapacitated or is
liquidated or dissolved or any other event occurs, before the delivery of the
Stock hereunder, certificates for the Stock to be sold by such Selling
Stockholder shall be delivered on behalf of such Selling Stockholder in
accordance with the terms and conditions of this Agreement and the Custody
Agreement, and action taken by the Attorneys-in-fact or any of them under the
Power of Attorney shall be as valid as if such death, incapacity, liquidation or
dissolution or other event had not occurred, whether or not the Custodian, the
Attorneys-in-fact or any of them shall have notice of such death, incapacity,
liquidation or dissolution or other event.
3. Purchase by, and Sale and Delivery to, Underwriters--Closing
------------------------------------------------------------
Dates. The Company and the Selling Stockholders agree, severally and not
- -----
jointly, to sell to the Underwriters the Firm Stock, with the number of shares
to be sold by the Company and each Selling Stockholder being the number of
Shares set opposite his, her or its name in Schedule B; and on the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase the Firm Stock from the Company and the
Selling Stockholders, the number of shares of Firm Stock to be purchased by each
Underwriter being set opposite its name in Schedule A, subject to adjustment in
accordance with Section 12 hereof. The number of shares of Stock to be
purchased by each Underwriter from each Selling Stockholder hereunder shall bear
the same proportion to the total number of shares of Stock to be purchased by
such Underwriter hereunder as the number of shares of stock being sold by each
Selling Stockholder bears to the total number of shares of Stock being sold by
all Selling Stockholders, subject to adjustment by the Representatives to
eliminate fractions.
The purchase price per share to be paid by the Underwriters to the
Company and the Selling Stockholders net of underwriting discounts and
commissions will be $_____ per share (the "Purchase Price").
The Company and the Selling Stockholders will deliver the Firm Stock
to the Representatives for the respective accounts of the several Underwriters
(in the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company and the Selling Stockholders given at or prior to 12:00 Noon, New York
Time, on the second full business day preceding the First Closing Date (as
defined below) or, if no such direction is received, in the names of the
respective Underwriters or in such other names as Cowen may designate (solely
for the purpose of administrative convenience) and in such denominations as
Cowen may determine), against payment of the aggregate Purchase Price therefor
by wire transfer, certified or official bank check or checks in immediately
available funds (same day funds), payable to the order of the Company and each
Selling Stockholder, all at the offices of Buchanan Ingersoll, College Centre,
500 College Road East, Princeton, New Jersey 08540. The time and date of the
delivery and closing shall be at 10:00 a.m., New York Time, on
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____________, 1998, in accordance with Rule 15c6-1 of the Exchange Act. The time
and date of such payment and delivery are herein referred to as the "First
Closing Date." The First Closing Date and the location of delivery of, and the
form of payment for, the Firm Stock may be varied by agreement among the
Company, the Selling Stockholders and Cowen. The First Closing Date may be
postponed pursuant to the provisions of Section 12.
The Company and the Selling Stockholders shall make the certificates
for the Firm Stock available to the Representatives for examination on behalf of
the Underwriters not later than 10:00 a.m., New York Time, on the business day
preceding the First Closing Date at the offices of Cowen & Company, Financial
Square, New York, New York 10005.
It is understood that Cowen or Volpe Brown, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment to the Company or to the Selling Stockholders on behalf of any
Underwriter or Underwriters, for the Stock to be purchased by such Underwriter
or Underwriters. Any such payment by Cowen or Volpe Brown shall not relieve
such Underwriter or Underwriters from any of its or their other obligations
hereunder.
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is advisable.
The Representatives shall promptly advise the Company and the Selling
Stockholders of the making of the initial public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, each
Selling Stockholder hereby grants to the Underwriters an option to purchase,
severally and not jointly, up to the aggregate number of shares of Optional
Stock set forth opposite each such Selling Stockholder's name on Schedule B
hereto, for an aggregate of up to 360,000 shares. The price per share to be
paid for the Optional Stock shall be the Purchase Price. The option granted
hereby may be exercised as to all or any part of the Optional Stock at any time,
and from time to time, not more than thirty (30) days subsequent to the
effective date of this Agreement. No Optional Stock shall be sold and delivered
unless the Firm Stock previously has been, or simultaneously is, sold and
delivered. The right to purchase the Optional Stock or any portion thereof may
be surrendered and terminated at any time upon notice by the Underwriters to the
Company and the Selling Stockholders.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Cowen to the Selling Stockholders setting forth the
number of shares of the Optional Stock to be purchased by them and the date and
time for delivery of and payment for the Optional Stock. Each date and time for
delivery of and payment for the Optional Stock (which may be the First Closing
Date, but not earlier) is herein called the "Option Closing Date" and shall in
no event be earlier than two (2) business days nor later than ten (10) business
days after written notice is given. (The Option Closing Date and the First
Closing Date are herein called the "Closing Dates" and each a "Closing Date.")
All purchases of Optional Stock from the Selling Stockholders shall be made 50%
from Edward G. Caputo and 50% from Phoenix Home Life Mutual Insurance Company
and PHL Global Holding Co. Optional Stock shall be purchased for the account of
each
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Underwriter in the same proportion as the number of shares of Firm Stock
set forth opposite such Underwriter's name in Schedule A hereto bears to the
total number of shares of Firm Stock (subject
to adjustment by the Underwriters to eliminate odd lots). Upon exercise of the
option by the Underwriters, each Selling Stockholder agrees to sell to the
Underwriters the number of shares of Optional Stock set forth in the written
notice of exercise and the Underwriters agree, severally and not jointly and
subject to the terms and conditions herein set forth, to purchase the number of
such shares determined as aforesaid.
The Selling Stockholders will deliver the Optional Stock to the
Representatives in Princeton, New Jersey (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Selling Stockholders
given at or prior to 12:00 Noon, New York Time, on the second full business day
preceding the Option Closing Date or, if no such direction is received, in the
names of the respective Underwriters or in such other names as Cowen may
designate (solely for the purpose of administrative convenience) and in such
denominations as Cowen may determine, against payment of the aggregate Purchase
Price therefor by wire transfer, or certified or official bank checks, in
immediately available funds (same day funds), payable to the order of each
Selling Stockholder all at the offices of Buchanan Ingersoll, College Centre,
500 College Road East, Princeton, New Jersey 08540. The Selling Stockholders
shall make the certificates for the Optional Stock available to the Underwriters
for examination not later than 10:00 a.m., New York Time, on the business day
preceding the Option Closing Date at the offices of Cowen & Company, Financial
Square, New York, New York 10005. The Option Closing Date and the location of
delivery of, and the form of payment for, the Option Stock may be varied by
agreement among the Company, the Selling Stockholders and Cowen. The Option
Closing Date may be postponed pursuant to the provisions of Section 12.
4. Covenants and Agreements of the Company and the Selling
-------------------------------------------------------
Stockholders.
------------
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) if the Company and the
Representatives have determined not to proceed pursuant to Rule 430A
of the Rules and Regulations, use its best efforts to cause the
Registration Statement to become effective, (B) if the Company and the
Representatives have determined to proceed pursuant to Rule 430A of
the Rules and Regulations, use its best efforts to comply with the
provisions of and make all requisite filings with the Commission
pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
(C) if the Company and the Representatives have determined to deliver
Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use
its best efforts to comply with all the applicable provisions thereof.
The Company will advise the Representatives promptly as to the time at
which the Registration Statement becomes effective, will advise the
Representatives promptly of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of
the institution of any proceedings for that purpose, and will use its
best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible the lifting thereof,
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if issued. The Company will advise the Representatives promptly of the
receipt of any comments of the Commission or any request by the
Commission for any amendment of or supplement to the Registration
Statement or the Prospectus or for additional information and will not
at any time file any amendment to the Registration Statement or
supplement to the Prospectus which shall not previously have been
submitted to the Representatives a reasonable time prior to the
proposed filing thereof or to which the Representatives shall
reasonably object in writing or which is not in compliance with the
Securities Act and the Rules and Regulations.
(ii) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any amendments or
supplements to the Registration Statement or the Prospectus which in
the opinion of the Representatives may be necessary to enable the
several Underwriters to continue the distribution of the Stock and
will use its best efforts to cause the same to become effective as
promptly as possible.
(iii) If at any time after the effective date of the
Registration Statement when a prospectus relating to the Stock is
required to be delivered under the Securities Act any event relating
to or affecting the Company or any of its subsidiaries occurs as a
result of which the Prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact, or omit
to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Securities Act, the Company will promptly notify
the Representatives thereof and will prepare an amended or
supplemented prospectus which will correct such statement or omission;
and in case any Underwriter is required to deliver a prospectus
relating to the Stock nine (9) months or more after the effective date
of the Registration Statement, the Company upon the request of the
Representatives and at the expense of such Underwriter will prepare
promptly such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Securities
Act.
(iv) The Company will deliver to the Representatives, at or
before the Closing Date, signed copies of the Registration Statement,
as originally filed with the Commission, and all amendments thereto
including all financial statements and exhibits thereto, and will
deliver to the Representatives such number of copies of the
Registration Statement, including such financial statements but
without exhibits, and all amendments thereto, as the Representatives
may reasonably request. The Company will deliver or mail to or upon
the order of the Representatives, from time to time until the
effective date of the Registration Statement, as many copies of the
Preeffective Prospectus as the Representatives may reasonably request.
The Company will deliver or mail to or upon the order of the
Representatives on the date of the initial public offering, and
thereafter from time to time during the period when delivery of a
prospectus relating to the Stock is required under the Securities Act,
as many copies of the Prospectus, in final form or
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as thereafter amended or supplemented as the Representatives may
reasonably request; provided, however, that the expense of the
preparation and delivery of any prospectus required for use nine (9)
months or more after the effective date of the Registration Statement
shall be borne by the Underwriters required to deliver such
prospectus.
(v) The Company will make generally available to its
Stockholders as soon as practicable, but not later than the 45th day
following the end of the fiscal year occurring after the first
anniversary of the effective date of the Registration Statement, an
earnings statement which will be in reasonable detail (but which need
not be audited) and which will comply with Section 11(a) of the
Securities Act, covering a period of at least twelve (12) months
beginning after the "effective date" (as defined in Rule 158 under the
Securities Act) of the Registration Statement.
(vi) The Company will cooperate with the Representatives to
enable the Stock to be registered or qualified for offering and sale
by the Underwriters and by dealers under the securities laws of such
jurisdictions as the Representatives may reasonably designate and at
the request of the Representatives will make such applications and
furnish such consents to service of process or other documents as may
be required of it as the issuer of the Stock for that purpose;
provided, however, that the Company shall not be required to qualify
to do business or to file a general consent (other than that arising
out of the offering or sale of the Stock) to service of process in any
such jurisdiction where it is not now so subject. The Company will,
from time to time, prepare and file such statements and reports as are
or may be required of it as the issuer of the Stock to continue such
qualifications in effect for so long a period as the Representatives
may reasonably request for the distribution of the Stock. The Company
will advise the Representatives promptly after the Company becomes
aware of the suspension of the qualifications or registration of (or
any such exception relating to) the Common Stock of the Company for
offering, sale or trading in any jurisdiction or of any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any orders suspending such qualifications, registration or
exception, the Company will, with the cooperation of the
Representatives use its best efforts to obtain the withdrawal thereof.
(vii) The Company will furnish to its stockholders annual
reports containing financial statements certified by independent
public accountants and with quarterly summary financial information in
reasonable detail which may be unaudited. During the period of five
(5) years from the date hereof, the Company will deliver to the
Representatives and, upon request, to each of the other Underwriters
concurrently with furnishing to its stockholders copies of each annual
report of the Company and each other report furnished by the Company
to its stockholders and will deliver to the Representatives, (A) as
soon as they are available, copies of any other reports (financial or
other) which the Company shall publish or otherwise make available to
any of its stockholders as such, (B) as soon as they are available,
copies of any reports and financial statements furnished to or
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<PAGE>
filed with the Commission or any national securities exchange and (C)
from time to time such other information concerning the Company as you
may reasonably request. So long as the Company has active
subsidiaries, such financial statements will be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries
are consolidated in reports furnished to its stockholders generally.
Separate financial statements shall be furnished for all subsidiaries
whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and Regulations.
(viii) The Company will file with the NASD all documents
and notices required by the NASD of companies that have securities
designated on the Nasdaq National Market and will use its best efforts
to list, subject to official notice of effectiveness, on the Nasdaq
National Market, the Stock to be issued and sold by the Company.
(ix) The Company will maintain a transfer agent and
registrar for its Common Stock.
(x) Prior to filing its quarterly statements on Form 10-
Q, the Company will have its independent auditors perform a limited
quarterly review of its quarterly numbers; provided, however, that for
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one full year commencing the quarter immediately following the First
Closing Date, such review shall be in accordance with standards and
procedures as set forth in the Statement on Auditing Standards No. 71.
(xi) The Company will not, without the prior written
consent of Cowen, offer, sell, assign, transfer, encumber, contract to
sell, grant an option to purchase or otherwise dispose of, other than
by operation of law, gifts, pledges or dispositions by estate
representatives, any shares of Common Stock or securities convertible
into or exercisable or exchangeable for Common Stock (including,
without limitation, Common Stock of the Company which may be deemed to
be beneficially owned by the undersigned in accordance with the Rules
and Regulations) during the 180 days following the date on which the
Purchase Price is set, other than (A) the Company's sale of Common
Stock hereunder, (B) the Company's issuance of an aggregate of
2,351,250 shares of Common Stock upon conversion of the Series A
Convertible Preferred Stock and the Series B Convertible Preferred
Stock simultaneously with the First Closing Date, (C) the Company's
issuance of Common Stock upon the exercise of warrants and stock
options which are presently outstanding and described in the
Prospectus and (D) the Company's issuance of stock options under the
1997 Plan provided that none of such options vest prior to the
expiration of such 180-day period.
(xii) The Company will apply the net proceeds from the
sale of the Stock as set forth in the description under "Use of
Proceeds" in the Prospectus,
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<PAGE>
which description complies in all material respects with the
requirements of Item 504 of Regulation S-K.
(xiii) The Company will supply you with copies of all
correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Stock under the
Securities Act.
(xiv) Prior to each Closing Date the Company will furnish
to you, as soon as they have been prepared, copies of any unaudited
interim consolidated financial statements of the Company and its
subsidiaries, for any periods subsequent to the periods covered by the
financial statements appearing in the Registration Statement and the
Prospectus.
(xv) Prior to each Closing Date the Company will issue no
press release or other communications directly or indirectly and hold
no press conference with respect to the Company or any of its
subsidiaries, the financial condition, results of operation, business,
prospects, assets or liabilities of any of them, or the offering of
the Stock, without Cowen's prior written consent. For a period of
twelve (12) months following the latest Closing Date, the Company will
use its best efforts to provide to you copies of each press release or
other public communications with respect to the financial condition,
results of operations, business, prospects, assets or liabilities of
the Company concurrently with, or as soon as may reasonably be
practicable after the issuance thereof.
(xvi) During the period of five (5) years hereafter, the
Company will furnish to the Representatives, and upon request of the
Representatives, to each of the Underwriters: (A) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as
of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants; (B)
as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K or other report filed by the Company with
the Commission, or the NASD or any securities exchange; and (C) as
soon as available, copies of any report or communication of the
Company mailed generally to holders of its Common Stock. The Company
will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and
Regulations, which are not consolidated in the Company's financial
statements.
(xvii) The Company will not take, directly or indirectly,
any action designed to cause or result in, or that has constituted or
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
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<PAGE>
(xviii) Without the prior written consent of Cowen, for a
period of one year commencing on the date hereof, the Company will not
grant any options to purchase capital stock, or a security convertible
to capital stock, of the Company to any person or entity with an
exercise or conversion price below 75% of the fair market value (as
defined in Section 1 of the 1997 Plan) of the security issuable upon
the exercise or conversion thereof.
(b) Each Selling Stockholder, severally and not jointly, covenants
and agrees with the several Underwriters that:
(i) No offering, sale, short sale or other disposition
of any shares of Common Stock or other capital stock of the Company or
other securities convertible, exchangeable or exercisable for shares
of Common Stock or derivative of shares of Common Stock owned by such
Selling Stockholder or request by such Selling Stockholder for the
registration for the offer or sale of any of the foregoing (or as to
which such Selling Stockholder has the right to direct the
disposition) will be made for a period of 180 days after the date of
this Agreement, directly or indirectly, by such Selling Stockholder
otherwise than hereunder, as set forth in Section 8(m) herein or with
the prior written consent of Cowen.
(ii) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Tax Equity and
Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax
Compliance Act of 1983 with respect to the transactions herein
contemplated, each Selling Stockholder agrees to the extent required
by applicable law or regulation to deliver to you prior to or at the
First Closing Date a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof).
(iii) Such Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the
Company.
5. Payment of Expenses. (a) The Company will pay (directly or by
-------------------
reimbursement) all costs, fees and expenses incurred in connection with expenses
incident to the performance of the obligations of the Company and of the Selling
Stockholders under this Agreement and in connection with the transactions
contemplated hereby, including but not limited to (i) all expenses and taxes
incident to the issuance and delivery of the Stock to the Representatives; (ii)
all expenses incident to the registration of the Stock under the Securities Act;
(iii) the costs of preparing stock certificates (including printing and
engraving costs); (iv) all fees and expenses of the registrar and transfer agent
of the Stock; (v) all necessary issue, transfer and other stamp taxes in
connection with the issuance and sale of the Stock to the Underwriters; (vi)
fees and expenses of the Company's counsel and the Company's independent
accountants; (vii) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and
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distribution of the Registration Statement, each Preeffective Prospectus and the
Prospectus (including all exhibits and financial statements) and all amendments
and supplements provided for herein, the Selling Stockholders' Powers of
Attorney and Custody Agreement, the "Agreement Among Underwriters" between the
Representatives and the Underwriters, the Master Selected Dealers' Agreement,
the Underwriters' Questionnaire and the Blue Sky memoranda and this Agreement;
(viii) all filing fees, attorneys' fees and expenses incurred by the Company or
the Underwriters in connection with exemptions from the qualifying or
registering (or obtaining qualification or registration of) all or any part of
the Stock for offer and sale and determination of its eligibility for investment
under the Blue Sky or other securities laws of such jurisdictions as the
Representatives may designate; provided that the attorneys' fees incurred by the
--------
Underwriters in connection with the foregoing shall not in any event exceed
$5,000 in the aggregate; (ix) all fees and expenses paid or incurred in
connection with filings made with the NASD; and (x) all other costs and expenses
incident to the performance of their obligations hereunder which are not
otherwise specifically provided for in this Section; provided that (i) except as
--------
set forth in this Section 5 and in Section 11, the Underwriters shall pay all of
their own costs and expenses, including the fees and expenses of their counsel,
any transfer taxes on the sale of the Stock by the Underwriters and the expenses
of advertising any offering of the Stock made by the Underwriters and (ii) the
Company shall not have any obligation to pay or reimburse the expenses of a
defaulting Underwriter, as set forth in Sections 11 and 12.
(b) Except as otherwise agreed with the Company, the Selling
Stockholders will pay (directly or by reimbursement) all fees and expenses
incident to the performance of their obligations under this Agreement which are
not otherwise specifically provided for herein, including but not limited to any
fees and expenses of counsel for the Selling Stockholders, the Selling
Stockholders' pro rata share of fees and expenses of the Attorneys-in-fact and
the Custodian and all expenses and taxes incident to the sale and delivery of
the Stock to be sold by the Selling Stockholders to the Underwriters hereunder.
(c) In addition to their other obligations under Section 6(a) hereof,
the Company and each Selling Stockholder, severally but not jointly, agree that,
as an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon (i) any statement or
omission or any alleged statement or omission, (ii) any act or failure to act or
any alleged act or failure to act or (iii) any breach or inaccuracy in their
representations and warranties, they will reimburse each Underwriter on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
and each Selling Stockholder's obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company and each Selling Stockholder, as the
case may be, together with interest, compounded daily, determined on the basis
of the prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by Citibank, N.A., New York, New
York (the "Prime Rate"). Any such interim reimbursement payments which are not
made to an Underwriter in a timely manner as provided below shall bear interest
at the Prime Rate
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from the due date for such reimbursement. This expense reimbursement agreement
will be in addition to any other liability which the Company or any Selling
Stockholder may otherwise have. The request for reimbursement will be sent to
the Company with a copy to each Selling Stockholder. In the event that the
Company fails to make such reimbursement payment within thirty (30) days of the
reimbursement request, the Representatives shall notify the Selling Stockholders
of their obligation to make such reimbursement payments within fifteen (15)
days; provided, however, that each Selling Stockholder shall be required to
advance at such time only its pro rata portion of the reimbursement payment.
(d) In addition to its other obligations under Section 6(b) hereof,
each Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, described in Section 6(b) hereof which relates to information
furnished to the Company pursuant to Section 6(c) hereof, it will reimburse the
Company (and, to the extent applicable, each officer, director or controlling
person of the Company or any Selling Stockholder) on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company (and, to
the extent applicable, each officer, director or controlling person of the
Company or any Selling Stockholder) for such expenses and the possibility that
such payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company (and, to the extent applicable, each
officer, director or controlling person of the Company or any Selling
Stockholder) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement will be in addition to
any liability which such Underwriter may otherwise have.
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(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in paragraph (c) and/or (d) of
this Section 5, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in paragraph (c) and/or (d) of
this Section 5 and would not resolve the ultimate propriety or enforceability of
the obligation to reimburse expenses which is created by the provisions of
Section 6.
6. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of the Securities Act and the
respective officers, directors, partners, employees, representatives and agents
of each of such Underwriter (collectively, the "Underwriter Indemnified Parties"
and, each, an "Underwriter Indemnified Party"), against any losses, claims,
damages, liabilities or expenses (including the reasonable cost of investigating
and defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, which arise out of or are based in
whole or in part upon the Securities Act, the Exchange Act or any other federal,
state, local or foreign statute or regulation, or at common law, (i) on the
ground or alleged ground that any Preeffective Prospectus, the Registration
Statement or the Prospectus (or any Preeffective Prospectus, the Registration
Statement or the Prospectus as from time to time amended or supplemented)
includes or allegedly includes an untrue statement of a material fact or omits
or allegedly omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, unless such statement or omission
was made in reliance upon, and in conformity with, written information furnished
to the Company through the Representatives by or on behalf of any Underwriter
specifically for use in the preparation thereof or (ii) for any act or failure
to act or any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Stock or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or expense arising out of or based upon matters covered by
clause (i) above (provided that the Company shall not be liable under this
clause (ii) to the extent that it is determined in a final judgment by a court
of competent jurisdiction that such loss, claim, damage, liability or expense
resulted directly from any such acts or failures to act undertaken or omitted to
be taken by such Underwriter through its gross negligence or willful misconduct;
provided that the indemnity agreement set forth in this Section 6(a) with
- --------
respect to any Preeffective Prospectus (or the Prospectus if it has been amended
or supplemented) shall not inure to the benefit of any Underwriter Indemnified
Party from whom the person or entity asserting any loss, claim, damage,
liability or expense based upon any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state therein a material fact
purchased such Stock, if a copy of the Prospectus (or the amendment or
supplement to the Prospectus if it shall have been amended or supplemented) in
which such untrue or alleged untrue statement or omission or alleged omission
was corrected had
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not been sent or given to such person or entity within the time required by the
Securities Act and the Rules and Regulations through no fault of the Company.
Promptly after receipt by any Underwriter Indemnified Party of notice of any
claim or commencement or any action, such Underwriter Indemnified Party shall,
if a claim in respect thereof is to be made against the Company under this
Section 6(a), notify the Company in writing of such claim or action, but the
failure to so notify the Company shall not relieve the Company from any
liability which it may have to such Underwriter Indemnified Party under this
Section 6(a). The Company will be entitled to participate at its own expense in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Company elects to assume the defense,
such defense shall be conducted by counsel chosen by it. In the event the
Company elects to assume the defense of any such suit and retain such counsel,
any Underwriter Indemnified Parties, defendant or defendants in the suit, may
retain not more than one separate counsel but shall bear the fees and expenses
of such counsel unless (i) the Company shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit include any such
Underwriter Indemnified Parties, and the Company and such Underwriter
Indemnified Parties at law or in equity have been advised by counsel to the
Underwriters and have reasonably concluded based on such advice that one or more
legal defenses may be available to it or them which may not be available to the
Company, in which case the Company shall not be entitled to assume the defense
of such suit notwithstanding its obligation to bear the fees and expenses of
such counsel. The Company shall not be liable to indemnify any Underwriter
Indemnified Party for any settlement of any such claim or action effected
without the Company's consent, which consent shall not be unreasonably withheld.
This indemnity agreement is not exclusive and will be in addition to any
liability which the Company might otherwise have and shall not limit any rights
or remedies which may otherwise be available at law or in equity to each
Underwriter Indemnified Party.
(b) Each of the Selling Stockholders severally, and not jointly,
agrees to indemnify and hold harmless each Underwriter Indemnified Party against
any losses, claims, damages, liabilities or expenses (including the reasonable
cost of investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which arise out of or are
based in whole or in part upon the Securities Act, the Exchange Act or any other
federal, state, local or foreign statute or regulation, or at common law, on the
ground or alleged ground that any Preeffective Prospectus, the Registration
Statement or the Prospectus (or any Preeffective Prospectus, the Registration
Statement or the Prospectus as from time to time amended or supplemented)
includes or allegedly includes an untrue statement of a material fact or omits
or allegedly omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, unless such statement or omission
was made in reliance upon, and in conformity with, written information furnished
to the Company by any Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof. Promptly after receipt by any
Underwriter Indemnified Party of notice of any claim or commencement or any
action, such Underwriter Indemnified Party shall, if a claim in respect thereof
is to be made against a Selling Stockholder under this Section 6(b), notify such
Selling Stockholder in writing of such claim or action, but the failure to so
notify such Selling Stockholder shall not relieve such Selling Stockholder from
any liability which it may have to such Underwriter Indemnified Party under this
Section 6(b). Such Selling Stockholder shall be entitled to participate at his
or its own expense in the defense or, if he
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<PAGE>
or it so elects, to assume the defense of any suit brought to enforce any such
liability, but if such Selling Stockholder elects to assume the defense, such
defense shall be conducted by counsel chosen by him or it. In the event that any
Selling Stockholder elects to assume the defense of any such suit and retain
such counsel, any Underwriter Indemnified Parties, defendant or defendants in
the suit, may retain not more than one separate counsel but shall bear the fees
and expenses of such counsel unless (i) such Selling Stockholder shall have
specifically authorized the retaining of such counsel or (ii) the parties to
such suit include any such Underwriter Indemnified Parties, and such Selling
Stockholder and such Underwriter Indemnified Parties at law or in equity have
been advised by counsel to the Underwriters and have reasonably concluded based
on such advice that one or more legal defenses may be available to it or them
which may not be available to such Selling Stockholder, in which case such
Selling Stockholder shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such counsel.
[The liability of Phoenix Home Life Mutual Insurance Company and PHL Global
Holding Co. under this Agreement shall not exceed the net proceeds (before
deducting offering expenses) received by Phoenix Home Life Mutual Insurance
Company or PHL Global Holding Co., as applicable, from the sale of Stock in the
Offering.] This indemnity agreement is not exclusive and will be in addition to
any liability which the Selling Stockholders might otherwise have and shall not
limit any rights or remedies which may otherwise be available at law or in
equity to each Underwriter Indemnified Party.
(c) Each Underwriter severally and not jointly agrees to indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act (collectively, the "Company
Indemnified Parties") and each Selling Stockholder and each person, if any, who
controls a Selling Stockholder within the meaning of the Securities Act
(collectively, the "Stockholder Indemnified Parties"), against any losses,
claims, damages, liabilities or expenses (including, unless the Underwriter or
Underwriters elect to assume the defense, the reasonable cost of investigating
and defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, which arise out of or are based in
whole or in part upon the Securities Act, the Exchange Act or any other federal,
state, local or foreign statute or regulation, or at common law, on the ground
or alleged ground that any Preeffective Prospectus, the Registration Statement
or the Prospectus (or any Preeffective Prospectus, the Registration Statement or
the Prospectus, as from time to time amended and supplemented) includes or
allegedly includes an untrue statement of a material fact or omits or allegedly
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, but only insofar as any such statement or
omission was made in reliance upon, and in conformity with, written information
furnished to the Company through the Representatives by or on behalf of any
Underwriter, specifically for use in the preparation thereof; provided, however,
that in no case is such Underwriter to be liable with respect to any claims made
against any Company Indemnified Party or Stockholder Indemnified Party against
whom the action is brought unless such Company Indemnified Party or Stockholder
Indemnified Party shall have notified such Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Company
Indemnified Party or Stockholder Indemnified Party, but failure to notify such
Underwriter of such claim shall not relieve it from any
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<PAGE>
liability which it may have to any Company Indemnified Party or Stockholder
Indemnified Party otherwise than on account of its indemnity agreement contained
in this paragraph. Such Underwriter shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if such Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it. In the
event that any Underwriter elects to assume the defense of any such suit and
retain such counsel, the Company Indemnified Parties or Stockholder Indemnified
Parties and any other Underwriter or Underwriters or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, respectively. The Underwriter
against whom indemnity may be sought shall not be liable to indemnify any person
for any settlement of any such claim effected without such Underwriter's
consent. This indemnity agreement is not exclusive and will be in addition to
any liability which such Underwriter might otherwise have and shall not limit
any rights or remedies which may otherwise be available at law or in equity to
any Company Indemnified Party or Stockholder Indemnified Party.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other from the offering
of the Stock. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
or alleged statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Stockholders or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating,
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<PAGE>
defending, settling or compromising any such claim. Notwithstanding the
provisions of this subsection (d), (x) no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the shares of the Stock underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and (y) neither Phoenix Home Life
Mutual Insurance Company nor PHL Global Holding Co. shall be required to
contribute any amount in excess of the net proceeds (before deducting offering
expenses) received by it from the sale of Stock in the Offering. The
Underwriters' obligations to contribute are several in proportion to their
respective underwriting obligations and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7. Survival of Indemnities, Representations, Warranties, etc. The
---------------------------------------------------------
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Stockholders, the Company or any of its officers or directors or any controlling
person, and shall survive delivery of and payment for the Stock or termination
of this Agreement.
8. Conditions of Underwriters' Obligations. The respective
---------------------------------------
obligations of the several Underwriters hereunder shall be subject to the
accuracy, at and (except as otherwise stated herein) as of the date hereof, at
and as of each Closing Date, of the representations and warranties made herein
by the Company and the Selling Stockholders, to compliance at and as of each
Closing Date by the Company and the Selling Stockholders with their covenants
and agreements herein contained and other provisions hereof to be satisfied at
or prior to the Closing Dates, and to the following additional conditions:
(a) The Registration Statement shall have become effective and
no stop order suspending the effectiveness thereof shall have been issued
and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or the Representatives, shall be threatened by the
Commission, and any request for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus
or otherwise) shall have been complied with to the reasonable satisfaction
of the Representatives. Any filings of the Prospectus, or any supplement
thereto, required pursuant to Rule 424(b) or Rule 434 of the Rules and
Regulations, shall have been made in the manner and within the time period
required by Rule 424(b) and Rule 434 of the Rules and Regulations, as the
case may be.
(b) The Representatives shall have been satisfied that there
shall not have occurred any change, on a consolidated basis, prior to each
Closing Date in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of the
Company and its subsidiaries considered as a whole and individually, or any
change in the capital stock or, except with respect to regularly scheduled
payments of
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<PAGE>
interest and principal, short-term or long-term debt of the Company and its
subsidiaries considered as a whole and individually, such that (i) the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact which, in the reasonable
opinion of the Representatives, is material, or omits to state a fact
which, in the reasonable opinion of the Representatives, is required to be
stated therein or is necessary to make the statements therein not
misleading, or (ii) it is unpracticable in the reasonable judgment of the
Representatives to proceed with the public offering or purchase the Stock
as contemplated hereby.
(c) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is
material and adverse to the Company or which affects or may affect the
Company's or the Selling Stockholders' ability to perform their respective
obligations under this Agreement shall have been instituted or threatened
and there shall have occurred no material adverse development in any such
existing action, suit or proceeding.
(d) At the time of execution of this Agreement, the
Representatives shall have received from Ernst & Young LLP, independent
certified public accountants, a letter, dated the date hereof, in form and
substance satisfactory to the Underwriters.
(e) The Representatives shall have received from Ernst & Young
LLP, independent certified public accountants, a letter, dated each Closing
Date, to the effect that such accountants reaffirm, as of each Closing
Date, and as though made on each Closing Date, the statements made in the
letter furnished by such accountants pursuant to paragraph (d) of this
Section 8.
(f) The Representatives shall have received from Mintz Levin,
counsel for the Company and the Selling Stockholders, an opinion, dated
each Closing Date, substantially to the effect set forth on Exhibit I
hereto.
(g) The Representatives shall have received from Kelley Drye &
Warren LLP, local Indian counsel for the Company and the Selling
Stockholders, opinions, dated each Closing Date, substantially to the
effect set forth on Exhibit II hereto.
(h) The Representatives shall have from Iqbal M. Rajahbalee,
local Mauritius counsel for the Company and the Selling Stockholders, an
opinion, dated each Closing Date, addressed to the Underwriters
substantially to the effect set forth on Exhibit III.
(i) The Representatives shall have received from Buchanan
Ingersoll, counsel for the Underwriters, their opinion or opinions dated
each Closing Date with respect to the incorporation of the Company, the
validity of the Stock, the Registration Statement and the Prospectus and
such other related matters as it may reasonably request, and the Company
and the Selling Stockholders shall have furnished to such counsel such
documents as they may request for the purpose of enabling them to pass upon
such matters.
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<PAGE>
(j) The Representatives shall have received a certificate, dated
each Closing Date, of the chief executive officer or the President and the
chief financial or accounting officer of the Company to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the knowledge of
the signers, no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities
Act;
(ii) Neither any Preeffective Prospectus, as of its
date, nor the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, as of the time when the
Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate,
included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as set forth or contemplated in the
Prospectus, neither the Company nor any of its subsidiaries has
incurred any material liabilities or obligations, direct or
contingent, nor entered into any material transactions, not in
the ordinary course of business and there has not been any
material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered individually and as a whole, or any
change in the capital stock, or, except with respect to
regularly scheduled payments of interest and principal, short-
term or long-term debt of the Company and its subsidiaries
considered individually and as a whole;
(iv) The representations and warranties of the Company
in this Agreement are true and correct in all material respects
at and as of each Closing Date, and the Company has complied in
all material respects with all the agreements and performed or
satisfied all the conditions on its part to be performed or
satisfied at or prior to each Closing Date; and
(v) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, (i)
there has not been any material adverse change or a development
involving a material adverse change in the condition (financial
or otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered as a whole and individually; (ii) the
business and operations conducted by the Company and its
subsidiaries have not
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<PAGE>
sustained a loss by strike, fire, flood, accident or other
calamity (whether or not insured) of such a character as to
interfere materially with the conduct of the business and
operations of the Company and its subsidiaries considered as a
whole and individually; (iii) no legal or governmental action,
suit or proceeding is pending or to the Company's knowledge
threatened against the Company which is material to the Company,
whether or not arising from transactions in the ordinary course
of business, or which may materially and adversely affect the
transactions contemplated by this Agreement; (iv) since such
dates and except as so disclosed, the Company has not incurred
any material liability or obligation, direct, contingent or
indirect, made any change in its capital stock (except pursuant
to its stock plans), made any material change in its short-term
or funded debt or repurchased or otherwise acquired any of the
Company's capital stock; and (v) the Company has not declared or
paid any dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders of record on a
date prior to each Closing Date.
(k) The Representatives shall have received a certificate or
certificates, dated each Closing Date, of each Selling Stockholder to the
effect that as of the Closing Date his or its representations and
warranties in this Agreement are true and correct in all material respects
as if made on and as of each Closing Date, and that he or it has performed
in all material respects all its obligations and satisfied all the
conditions on his or its part to be performed or satisfied at or prior to
the Closing Date.
(l) The Company and each Selling Stockholder shall have
furnished to the Representatives such additional certificates as the
Representatives may have reasonably requested as to the accuracy in all
material respects, at and as of the Closing Dates, of the representations
and warranties made herein by them and as to compliance in all material
respects at and as of each Closing Date by them with their covenants and
agreements herein contained and other provisions hereof to be satisfied at
or prior to the Closing Dates, and as to satisfaction of the other
conditions to the obligations of the Underwriters hereunder.
(m) Cowen shall have received written agreements from each of
the officers, directors and holders of Common Stock and holders of vested
options to acquire Common Stock of the Company set forth on Schedule C
hereto that each will not offer, sell, assign, transfer, encumber, contract
to sell, grant an option to purchase or otherwise dispose of other than by
operation of law, gifts, pledges or disposition by estate representatives,
any shares of Common Stock (including, without limitation, Common Stock
which may be deemed to be beneficially owned by such officer, director or
holder in accordance with the Rules and Regulations) during the 180 days
following the date of the final Prospectus, except for the Stock being sold
hereunder by the Selling Stockholders.
(n) The Nasdaq National Market shall have approved the Stock for
listing, subject only to official notice of effectiveness.
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All opinions, certificates, letters and other documents will be
in compliance with the provisions hereunder only if they are reasonably
satisfactory in form and substance to the Representatives. The Company
will furnish to the Representatives conformed copies of such opinions,
certificates, letters and other documents as the Representatives shall
reasonably request. If any of the conditions hereinabove provided for in
this Section shall not have been satisfied when and as required by this
Agreement, this Agreement may be terminated by the Representatives by
notifying the Company of such termination in writing or by telegram at or
prior to each Closing Date, but Cowen, on behalf of the Representatives,
shall be entitled to waive any of such conditions.
9. Effective Date. This Agreement shall become effective immediately
--------------
as to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representatives
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams (i) advising Underwriters that the shares of Stock are released for
public offering or (ii) offering the Stock for sale to securities dealers,
whichever may occur first.
10. Termination. This Agreement (except for the provisions of
-----------
Section 5) may be terminated by the Company at any time before it becomes
effective in accordance with Section 9 by notice to the Representatives and may
be terminated by the Representatives at any time before it becomes effective in
accordance with Section 9 by notice to the Company. In the event of any
termination of this Agreement under this or any other provision of this
Agreement, there shall be no liability of any party to this Agreement to any
other party, other than as provided in Sections 5, 6 and 11 and other than as
provided in Section 12 as to the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First Closing
Date or the Option Closing Date (only for such portion) trading in securities on
the Nasdaq National Market, the American Stock Exchange or the New York Stock
Exchange shall have been suspended or minimum or maximum prices shall have been
established on such exchange or market, or a banking moratorium shall have been
declared by New York or United States authorities; (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market; (iii) if at or prior to the First Closing Date or the
Option Closing Date (only for such portion) there shall have been (A) an
outbreak or escalation of hostilities between the United States and any foreign
power or of any other insurrection or armed conflict involving the United States
or (B) any change in financial markets or any calamity or crisis which, in
either case (A) or (B) in the judgment of the Representatives, makes it
impractical or inadvisable to offer or sell the Firm Stock or Optional Stock, as
applicable, on the terms contemplated by the Prospectus; (iv) if there shall
have been any development or prospective development involving particularly the
business or properties or securities of the Company or any of its subsidiaries
or the transactions contemplated by
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<PAGE>
this Agreement, which, in the judgment of the Representatives, makes it
impracticable or inadvisable to offer or deliver the Firm Stock or the Optional
Stock, as applicable, on the terms contemplated by the Prospectus; (v) if there
shall be any litigation or proceeding, pending or threatened, which, in the
judgment of the Representatives, makes it impracticable or inadvisable to offer
or deliver the Firm Stock or Optional Stock, as applicable, on the terms
contemplated by the Prospectus; or (vi) if there shall have occurred any of the
events specified in the immediately preceding clauses (i) - (v) together with
any other such event that makes it, in the judgment of the Representatives,
impractical or inadvisable to offer or deliver the Firm Stock or Optional Stock,
as applicable, on the terms contemplated by the Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any other
-----------------------------
provisions hereof, if this Agreement shall not become effective by reason of any
election of the Company or the Selling Stockholders pursuant to the first
paragraph of Section 10 or shall be terminated by the Representatives under
Section 8 or Section 10, the Company will bear and pay the expenses specified in
Section 5 hereof and, in addition to its their obligations pursuant to Section 6
hereof, the Company will reimburse the reasonable out-of-pocket expenses of the
several Underwriters (including reasonable fees and disbursements of counsel for
the Underwriters) incurred in connection with this Agreement and the proposed
purchase of the Stock, and promptly upon demand the Company will pay such
amounts to you as Representatives; provided that (i) this Section 11 shall not
--------
apply (A) if this Agreement shall have been terminated by the Representatives
upon any failure, refusal or inability of the Company to perform any condition
to be fulfilled by it hereunder, which failure, refusal or inability to perform
any agreement or fulfill any condition is due to the default or omission of any
Underwriter under this Agreement or (B) if this Agreement shall have been
terminated under Section 12 following the default or defaults of any
Underwriter, and (ii) the Company shall have no such obligation to pay or
reimburse the expenses if any Underwriter who shall have defaulted in its
obligation to purchase shares of Stock hereunder.
12. Substitution of Underwriters. If any Underwriter or Underwriters
----------------------------
shall default in its or their obligations to purchase shares of Stock hereunder
and the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of shares underwritten, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or defaults occur
is more than ten percent (10%) of the total number of shares underwritten and
arrangements satisfactory to the Representatives and the Company for the
purchase of such shares by other persons are not made within forty-eight (48)
hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company and
the Selling Stockholders shall have the right to postpone any Closing Date for a
period of not more than five (5) full business days in order that the Company
and the Selling Stockholders may effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the
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respective numbers of shares to be purchased by the remaining Underwriters or
substituted Underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. Nothing herein contained shall
relieve any defaulting Underwriter of its liability to the Company, the Selling
Stockholders or the other Underwriters for damages occasioned by its default
hereunder. Any termination of this Agreement pursuant to this Section 12 shall
be without liability on the part of any non-defaulting Underwriter, the Selling
Stockholders or the Company, except for expenses to be paid or reimbursed
pursuant to Section 5 and except for the provisions of Section 6.
13. Notices. All communications hereunder shall be in writing and,
-------
if sent to the Underwriters shall be mailed, delivered or telecopied and
confirmed to you, as their Representatives c/o Cowen & Company at Financial
Square, New York, New York 10005, with a copy to Buchanan Ingersoll, College
Centre, 500 College Road East, Princeton, New Jersey 08540, Attention: David J.
Sorin, except that notices given to an Underwriter pursuant to Section 6 hereof
shall be sent to such Underwriter at the address furnished by the
Representatives or, if sent to the Company or the Selling Stockholders, shall be
mailed, delivered or telecopied and confirmed c/o Command Systems, Inc., 76
Batterson Park Road, Farmington, Connecticut 06032, with a copy to Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C. at One Financial Center, Boston,
Massachusetts 02111, Attention: Lewis J. Geffen.
14. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the several Underwriters, the Company and the Selling Stockholders
and their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company and the Selling
Stockholders contained in this Agreement shall also be for the benefit of the
person or persons entitled to the benefit of the provisions of Section 6 and
each person, if any, who controls any Underwriter or Underwriters within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
and the indemnities of the several Underwriters shall also be for the benefit of
each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons entitled to the benefit of
Section 6 and each person, if any, who controls the Company or any Selling
Stockholders within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act.
15. Applicable Law; Submission to Jurisdiction. This Agreement shall
------------------------------------------
be governed by and construed in accordance with the laws of the State of New
York, without giving effect to its conflict-of-law principles. Each of the
parties hereto consents to the jurisdiction of and venue in federal and state
courts located in the Borough of Manhattan, City and State of New York, over any
suit, action or proceeding with respect to this Agreement.
16. Authority of the Representatives. In connection with this
--------------------------------
Agreement, you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement
-35-
<PAGE>
by Cowen, as Representative, will be binding on all the Underwriters; and any
action taken under this Agreement by any of the Attorneys-in-fact will be
binding on all the Selling Stockholders.
17. Partial Unenforceability. The invalidity or unenforceability of
------------------------
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
18. General. This Agreement constitutes the entire agreement of the
-------
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and the
Representatives.
19. Counterparts. This Agreement may be signed in two (2) or more
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take such action.
* * * * *
-36-
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
COMMAND SYSTEMS, INC.
By:
------------------------------
Name: Edward G. Caputo
Title: President
SELLING STOCKHOLDERS LISTED
IN SCHEDULE B
By: Attorney-in-fact
By:
--------------------------
Attorney-in-fact
Acting on behalf of the Selling Stockholders
listed in Schedule B.
Accepted and delivered in
New York, New York as of
the date first above written.
COWEN & COMPANY
VOLPE BROWN WHELAN & COMPANY, LLC
Acting on their own behalf
and as Representatives of the several
Underwriters referred to in the
foregoing Agreement.
By: Cowen & Company
By: Cowen Incorporated,
its general partner
By:
------------------------------
Title:
-37-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of shares Number of shares
of Firm Stock to of Optional Stock
Be Purchased to Be Purchased
------------ ---------------
Name
- ----
<S> <C> <C>
Cowen & Company......................................... [ ] [ ]
Volpe Brown Whelan & Company, LLC....................... [ ] [ ]
------- -------
Total................................................... 2,400,000 360,000
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Number of Firm Shares to Optional Shares
Be Sold to Be Sold
------------------------- ----------------
<S> <C> <C>
Command Systems, Inc.............................. 2,100,000 0
Selling Stockholders
- --------------------
Edward G. Caputo.................................. [ ] [180,000]
Phoenix Home Life Mutual Insurance Company........ [ ] [ ]
PHL Global Holding Co............................. [ ] [ ]
----- -----
Total............................................. 2,400,000 360,000
========= =======
</TABLE>
<PAGE>
SCHEDULE C
Edward G. Caputo
Stephen L. Willcox
Robert D. Dixon
Glenn M. King
Lee Lapioli
David R. Wheeland
Mary Lou Welch
John J. C. Herndon
James M. Oates
Russell Adams
Pamela A. Broderick
Holly R. Neumann
Stephen C. Chasse
William L. Tamburro
Phoenix Home Life Mutual Insurance Company
PHL Global Holding co.
<PAGE>
EXHIBIT I
FORM OF MINTZ LEVIN OPINION
[Date]
Cowen & Company
Volpe Brown Whelan & Company, LLC
As representatives of the several
Underwriters named in Schedule A
c/o Cowen & Company
Financial Square
New York, New York 10005
Re: Command Systems, Inc.
---------------------
2,400,000 Shares of Common Stock
Dear Sirs:
We have acted as counsel for Command Systems, Inc., a Delaware corporation
(the "Company"), in connection with the sale by the Company and purchase of
2,400,000 shares of Common Stock, par value $.01 per share, of the Company (the
"Shares") by the several Underwriters listed in Schedule A to the Underwriting
Agreement, dated ________________ ____, 1998 among the Company, Cowen & Company
and Volpe Brown Whelan & Company, LLC, as representatives of the several
Underwriters named therein (the "Underwriting Agreement"). This opinion is
being furnished pursuant to Section 8(f) of the Underwriting Agreement. All
defined terms not defined herein shall have the meanings ascribed to them in the
Underwriting Agreement.
We are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company is duly qualified to do business and in good standing as a foreign
corporation in Connecticut, Massachusetts and New York, which constitute all of
the jurisdictions wherein the failure to be so qualified could reasonably be
expected to have a material adverse effect on the business, assets, operations
or results of operations of the Company. The Company has all power and
authority necessary to own or hold its properties and conduct the business in
which it is engaged.
2. The authorized, issued and outstanding capital stock is as set forth in the
Prospectus under the caption "Capitalization", and all of the issued shares of
capital stock of the Company have been duly and validly authorized and issued,
including the shares of Stock to be sold by the Selling Stockholders pursuant to
the Underwriting Agreement, are fully paid and non-assessable and all of the
Shares to be issued and sold by the Company to the Underwriters
<PAGE>
pursuant to the Underwriting Agreement, have been duly and validly authorized
and, when issued and delivered against payment therefor as provided for in the
Underwriting Agreement, shall be duly and validly issued, fully paid and non-
assessable; and, to our knowledge, all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly authorized and issued
and are fully paid, non-assessable and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims; and the
Company has granted options to purchase shares of the Company's capital stock as
set forth in the Prospectus, and all such granted options have been duly and
validly authorized by the Company and conform to the descriptions thereof set
forth in the Prospectus.
3. Except as described in the Prospectus, to our knowledge, there are no
outstanding securities of the Company convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of capital stock of
the Company and there are no outstanding or authorized options, warrants or
rights of any character obligating the Company to issue any shares of its
capital stock or any securities convertible or exchangeable into or evidencing
the right to purchase or subscribe for any shares of such stock; and except as
described in the Prospectus, to our knowledge, no holder of any securities of
the Company or any other person has the right, contractual or otherwise, which
has not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
shares of Stock or the right to have any shares of Stock or other securities of
the Company included in the Registration Statement or the right, as a result of
the filing of the Registration Statement, to require registration under the
Securities Act of any shares of Stock or other securities of the Company.
4. The shares of Stock conform in all material respects to the description
thereof contained in the Prospectus, and the form of certificate used to
evidence the shares of Stock is in due and proper form and complies in all
material respects with all applicable statutory requirements.
5. There are no preemptive or other rights to subscribe for or to purchase, nor
any restriction upon the voting or transfer of, any of the Shares pursuant to
the Company's Amended and Restated Certificate of Incorporation or By-Laws or,
except with respect to the Co-Sale Agreement, any agreement or other instrument.
6. Based solely on our inquiry of the Company's President and Chief Executive
Officer, or otherwise to our knowledge, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is a party
or of which any property or assets of the Company or any of its Subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, could have a material adverse effect on the Company and its
subsidiaries; and, to our knowledge, no such proceedings are threatened or
contemplated by governmental authorities or other third parties.
7. The Company and each of its subsidiaries owns or possesses all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being
<PAGE>
owned by them or any of them or necessary for the conduct of their respective
businesses, and we are not aware of any claim to the contrary or any challenge
or basis for challenge by any other person to the rights of the Company or any
of its subsidiaries with respect to the foregoing.
8. The Company has full corporate power and authority to enter into the
Underwriting Agreement and to perform its obligations thereunder (including to
issue, sell and deliver the Shares), and the Underwriting Agreement has been
duly and validly authorized, executed and delivered by the Company and is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that rights to indemnification
and contribution thereunder may be limited by federal or state securities laws
or the public policy underlying such laws.
9. The execution, delivery and performance of the Underwriting Agreement and
the consummation of the transactions therein contemplated (other than with
respect to Sections 5(c), 5(d) and 5(e) and Section 6 thereof, as to which we
express no opinion) will not result in a breach or violation of any of the terms
or provisions of or constitute a default under (A) the Amended and Restated
Certificate of Incorporation or By-Laws of the Company or (B) to our knowledge,
any indenture, mortgage, deed of trust, note agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which any of them or any of their properties is or may be bound, or, to our
knowledge, any law, order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its subsidiaries
or any of their properties or, to our knowledge, result in the creation of a
lien.
10. No consent, approval, authorization or filing by or with any governmental
agency or body is required in connection with the execution and delivery by the
Company of the Underwriting Agreement and the issuance and sale by the Company
of the Stock to the Underwriters, except such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or under the Securities Act
or the securities or "Blue Sky" laws of any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters.
11. The execution, delivery and performance of the Exchange Documents by the
Company and Command Mauritius and the consummation of the transactions therein
contemplated by the Company and Command Mauritius did not and will not result in
a breach or violation of any of the terms or provisions of or constitute a
default (or an event which with notice or lapse of time, or both, would
constitute a default) under (A) the Amended and Restated Certificate of
Incorporation or By-Laws of the Company or (B) to our knowledge, any indenture,
mortgage, deed of trust, note agreement or other agreement or instrument by
which the Company or any of its properties is or may be bound, or, to our
knowledge, any law, order, rule or regulation of any court or governmental
agency or body having jurisdiction over such party or any of its properties or,
to our knowledge, will result in the creation of a lien. To our knowledge, each
of the Exchange Documents is in full force and effect and the parties thereto
are in full compliance with all their obligations under such agreements. To our
knowledge, except with respect to the Exchange Documents, as otherwise disclosed
in the Registration Statement and Prospectus or otherwise disclosed in writing
to Cowen, there are no agreements, contracts, commitments, undertakings, or
other arrangements, whether oral or written, between, among or
<PAGE>
involving the Company or any of its subsidiaries or affiliates and Phoenix or
any of its subsidiaries or affiliates.
12. To our knowledge, the Company and each of its subsidiaries are in
material compliance with, and conduct their businesses in material conformity
with, all applicable federal, state and local laws, rules and regulations,
including, but not limited to, those of any governmental agency, court or
tribunal; to our knowledge, no prospective change in any of such federal, state,
local or foreign laws, rules or regulations has been adopted which, when made
effective, would have a material adverse effect on the operations of the Company
and its subsidiaries.
13. The Underwriting Agreement has been duly authorized, executed and
delivered by the Company and by or on behalf of each Selling Stockholder. The
Power of Attorney and Custody Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Stockholder. Each Attorney-in-Fact has
been duly authorized by each Selling Stockholder to deliver the Stock to be so
sold by such Selling Stockholder on behalf of such Selling Stockholder in
accordance with the terms of this Agreement.
14. Immediately prior to the applicable Closing Date, to our knowledge
after due inquiry of corporate books and records, review of certificates
representing the Shares to be sold by each Selling Stockholder and review of all
representations and warranties by and certificates from such Selling
Stockholder, each Selling Stockholder had good and valid title to the Stock to
be sold by such Selling Stockholder hereunder on such date, free and clear of
all liens, encumbrances, equities and claims. Each Selling Stockholder has full
legal right, power and authority, and has obtained any approval required by law
(other than as required by State securities and Blue Sky laws as to which such
counsel need express no opinion), to sell, assign, transfer and deliver the
Stock to be sold by such Selling Stockholder.
15. Upon the Underwriters obtaining control of the Shares to be sold by
the Selling Stockholders and assuming the Underwriters purchased such Shares for
value and without notice of any adverse claim to such Shares within the meaning
of Section 8-102 of the Uniform Commercial Code as in effect in the State of New
Jersey, the Underwriters will have acquired all rights of the Selling
Stockholders in such Shares free of any adverse claim, any lien in favor of the
Company and any restrictions on transfer imposed by the Company.
16. We have been orally advised by a member of the Commission's staff that
the Registration Statement was declared effective under the Securities Act as of
___________ ___, 1998. The Prospectus was filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations in the manner and within the time
period prescribed by Rule 424(b) and, to our knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceeding for that purpose is pending or threatened by the Commission.
17. The Registration Statement and the Prospectus and any amendments or
supplements thereto, as of the effective date of the Registration Statement,
complied as to form in all material respects with the applicable requirements of
the Securities Act and the Rules and
<PAGE>
Regulations (except that we express no opinion as to the financial statements
and notes thereto, schedules or other financial information included therein).
18. To our knowledge, there are no contracts or other documents which are
required by the Securities Act or by the Rules and Regulations to be described
in the Prospectus or filed as exhibits to the Registration Statement which have
not been so described or filed as required.
19. Other than as described in the Prospectus, to our knowledge, there are
no contracts, agreements or understandings between the Company and any person
granting such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in the
securities registered pursuant to this Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Securities Act.
20. The descriptions in the Registration Statement and Prospectus of
statutes, rules, regulations, legal or governmental proceedings, contracts and
other documents are accurate and such descriptions fairly present the
information required to be disclosed; and to the best of our knowledge, there
are no legal or governmental proceedings, statutes, rules or regulations, or any
contracts or documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as required.
21. The statements (i) in the Prospectus under the captions "Description
of Capital Stock," "Certain Transactions," and "Shares Eligible for Future Sale"
and (ii) in Item 14 of the Registration Statement, insofar as such statements
constitute matters of law or legal conclusions, have been reviewed by us and
fairly present, in all material respects, the matters referred to therein.
22. To our knowledge, the Company has complied with all provisions of
Section 517.075 of the Florida Statutes (Chapter 92 198; Laws of Florida).
23. The Company is not, nor will it be immediately after receiving the
proceeds from the sale of the Shares, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
24. The Company is not and will not become, as a result of the
consummation of the transactions and contemplated by the Underwriting Agreement,
and the application of the net proceeds therefrom as described in the
Prospectus, (A) a controlled foreign corporation, as such term is defined in the
Code, (B) a passive foreign investment company within the meaning of Section
1296(a) of the Code or (C) a foreign personal holding corporation, as such term
is defined in the Code.
25. Based on a letter dated ____________ ___, 1998 from The Nasdaq Stock
Market, Inc., the shares of Stock to be sold under the Underwriting Agreement to
the Underwriters are
<PAGE>
duly authorized for quotation and trading on the Nasdaq National Market, subject
to official notice of effectiveness.
The foregoing opinion is limited to matters governed by the Federal laws of
the United States of America and the Delaware General Corporation Law.
In rendering such opinion, Mintz Levin may rely (A) as to all matters governed
other than by United States federal laws and the laws of the State of Delaware
on local counsel in the relevant jurisdictions reasonably satisfactory to the
Representatives and counsel to the Underwriters, provided that in each case
Mintz Levin shall state that they believe that they and the Underwriters are
justified in relying on such other counsel; and (B) as to matters of fact, to
the extent they deem proper, on the representations and warranties of the
Company set forth in this Agreement and on certificates of responsible officers
of the Company or its subsidiaries and certificates or other written statements
of officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company or of its
subsidiaries; provided that copies of any such statements or certificates shall
be delivered to counsel to the Underwriters
We participated in the preparation by the Company of the Registration Statement
and the Prospectus, including review and discussion of the contents thereof,
with officers and other representatives of the Company, representatives of the
independent public accountants for the Company and representatives of the
Underwriters and their counsel, during which the contents of the Registration
Statement and the Prospectus were discussed at length. There is no assurance,
however, that all possible material facts as to the Company were disclosed at
such conferences, and we cannot vouch for the accuracy or completeness of the
statements contained in the Registration Statement or Prospectus, other than to
the extent specifically set forth in Paragraphs 20 and 21 above. However,
nothing has come to our attention which has caused us to believe that (A) the
Registration Statement, as of the time it became effective under the Securities
Act, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (B) the Prospectus, or any supplement thereto, on the
date it was filed pursuant to the Rules and Regulations and as of the date
hereof, contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (except that we express no view as to financial statements and notes
thereto, schedules and other financial and statistical information included
therein).
Very truly yours,
<PAGE>
EXHIBIT II
Form of Indian Counsel Opinion
(i) Command India has been duly incorporated as a private
company under the provisions of the Companies Act, 1956 which is the
law governing, inter alia, unlimited liability companies in India.
Command India is validly existing as a private company in good
standing under the laws of India.
(ii) Command India has corporate power and authority to own,
lease and operate its properties, and to conduct its business as
described in the Registration Statement.
(iii) Command India is entitled to the benefit of all
instruments (including, but not limited to, contracts, leases, lease
deeds, bonds, agreements, permissions, and approval certificates)
acquired by it prior to and after consummation of the transactions
contemplated by the Exchange Agreement and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim, charge or
equity.
(iv) Command India is duly qualified as a company incorporated
under the Companies Act, 1956 to transact business and is in good
standing in each Indian jurisdiction in which such qualification is
required. All of the issued and outstanding capital stock of Command
India has been duly authorized and validly issued, is fully paid and
non-assessable and is owned of record by Command Mauritius, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim, charge or equity, and no options, warrants or other rights to
purchase, agreements or other obligations to issue, or other rights to
convert, any obligations into shares of capital or ownership interest
in Command India are outstanding.
(v) All contracts and documents with respect to Command India
summarized in the Registration Statement or the Prospectus are fairly
summarized in all material respects.
(vi) Such counsel is not aware of any litigation or
governmental or other action, suit, proceeding or investigation before
any court or before or by any public, regulatory or governmental
agency or body including, but not limited to, investigations and
proceedings against Command India known to such counsel to be pending
or threatened against, or involving the properties or business of, the
Company or Command India.
(vii) Except for the approvals of the Reserve Bank of India
with respect to the Exchange Documents, which have been obtained, no
authorization, approval, consent or order of any court or governmental
authority or agency is
<PAGE>
required in connection with the execution of the Exchange Documents;
to the best of such counsel's knowledge, the execution, delivery and
performance of the Exchange Documents and the consummation of the
transactions contemplated therein and compliance by each of the
parties thereto will not conflict with or constitute a breach of, or
default (or an event which with notice or lapse of time, or both,
would constitute a default) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of Command India or the Company or any of its subsidiaries
pursuant to, any indenture, mortgage, deed of trust, note agreement,
or other agreement or instrument to which Command India or the Company
or any of its subsidiaries is a party or by which it or any of them
may be bound, or to which any of the properties or assets of Command
India or the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the
Memorandum and Articles of Association of Command India or the
Certificate of Incorporation of the Company, or any applicable law,
administrative regulation or any order, rule or regulation known to
such counsel of any court, regulatory body, administrative agency or
other governmental body having jurisdiction over Command India or the
Company or any of its subsidiaries.
(viii) Nothing has come to such counsel's attention which
indicates that Command India is not conducting its business in
compliance with all laws, rules and regulations of India except for
such violations that would not, individually or in the aggregate, have
a material adverse effect on Command India's condition (financial or
otherwise), properties, business, management, prospects, net worth or
results.
(ix) Command India is not subject to any current claim and has
not received any notice of infringement or other violation of any
Intellectual Property of others; to the best of such counsel's
knowledge, (A) there are no legal or governmental proceedings pending
relating to Intellectual Property owned or used by Command India and
(B) no such proceedings, including without limitation interference
proceedings, are currently threatened or contemplated by governmental
authorities or others; such counsel has no knowledge of any facts
which would preclude Command India from having clear title to Command
India's Intellectual Property. Such counsel has no knowledge of any
facts that Command India lacks any rights or licenses to use all
Intellectual Property materially necessary to the conduct of its
business as now being or proposed to be conducted by Command India as
described in the Prospectus. To such counsel's knowledge, Command
India has not received any notice of conflict with rights or claims of
others with respect to any Intellectual Property owned or currently
being used by, or intended to be used by it, except as described in
the Prospectus.
In rendering such opinion, ____________________ may rely as to
matters of fact, to the extent they deem proper, on certificates of
responsible officers of Command India or its subsidiaries and certificates
or other written statements of officers
<PAGE>
of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of Command Mauritius or
its subsidiaries; provided that copies of any such statements or
certificates shall be delivered to counsel to the Underwriters. In addition
to the matters set forth above, such opinion shall also include a statement
to the effect that nothing has come to the attention of such counsel which
leads them to believe that the Registration Statement, as of the time it
became effective under the Securities Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the
Securities Act), contained, in relation to Command Mauritius, an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus or any amendment to the supplement
thereto, on the date it was filed pursuant to Rule 424(b), and the
Registration Statement and the Prospectus, or any amendment or supplement
thereto, as of the Closing Date, contain, in relation to Command Mauritius,
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,
in the light of the circumstances under which they were made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and other financial information included therein).
With respect to such statement, ____________________ may state that their
belief is based upon the procedures set forth therein, but is without
independent check and verification.
<PAGE>
EXHIBIT III
Form of Mauritius Counsel Opinion
(i) Command Mauritius has been duly incorporated as a
____________ company under the provisions of the ____________ which is
the law governing, inter alia, ____________ companies in Mauritius.
Command Mauritius is validly existing as a ____________ company in
good standing under the laws of Mauritius.
(ii) Command Mauritius has corporate power and authority to
own, lease and operate its properties, and to conduct its business as
described in the Registration Statement.
(iii) Command Mauritius is a holding company formed for the
purpose of owning the capital stock of Command India. Command
Mauritius conducts no business activities other than holding such
stock and making appropriate filings and fee or franchise tax payments
required to maintain its existence as a ____________ company is good
standing under the laws of Mauritius and any other jurisdictions
wherein it is required to be in good standing for the purposes of
owning capital stock of Command India. To our best knowledge, Command
Mauritius has no material liabilities, commitments, or obligations,
whether indebtedness or otherwise, and is not a party to or bound by
any other agreement, document or instrument, other than its
organizational documents and subscription documents relating to its
ownership of Command India capital stock.
(iv) Command Mauritius is duly qualified as a ____________
company incorporated under the ____________ to transact business and
is in good standing in each jurisdiction in which such qualification
is required. All of the issued and outstanding capital stock of
Command Mauritius has been duly authorized and validly issued, is
fully paid and non-assessable and is owned of record by Command
Systems, Inc., free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim, charge or equity, and no options,
warrants or other rights to purchase, agreements or other obligations
to issue, or other rights to convert, any obligations into shares of
capital or ownership interest in Command Mauritius are outstanding.
(v) Such counsel is not aware of any litigation or
governmental or other action, suit, proceeding or investigation before
any court or before or by any public, regulatory or governmental
agency or body including, but not limited to, investigations and
proceedings against Command Mauritius known to such counsel to be
pending or threatened against, or involving the properties or business
of, the Company or Command Mauritius.
<PAGE>
(vi) Except for the approvals of the Reserve Bank of India with
respect to the Exchange Documents, no authorization, approval, consent
or order of any court or governmental authority or agency was required
in connection with the execution of the Exchange Documents; to the
best of such counsel's knowledge, the execution, delivery and
performance of the Exchange Documents and the consummation of the
transactions contemplated therein and compliance by each of the
parties thereto will not conflict with or constitute a breach of, or
default (or an event which with notice or lapse of time, or both,
would constitute a default) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of Command Mauritius or the Company or any of its subsidiaries
pursuant to, any indenture, mortgage, deed of trust, note agreement,
or other agreement or instrument to which Command Mauritius or the
Company or any of its subsidiaries is a party or by which it or any of
them may be bound, or to which any of the properties or assets of
Command Mauritius or the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the
provisions of the ____________ of Command Mauritius or the Certificate
of Incorporation of the Company, or any applicable law, administrative
regulation or any order, rule or regulation known to such counsel of
any court, regulatory body, administrative agency or other
governmental body having jurisdiction over Command Mauritius or the
Company or any of its subsidiaries.
(vii) Nothing has come to such counsel's attention which
indicates that Command Mauritius is not conducting its business in
compliance with all laws, rules and regulations of Mauritius except
for such violations that would not, individually or in the aggregate,
have a material adverse effect on Command Mauritius's condition
(financial or otherwise), properties, business, management, prospects,
net worth or results.
In rendering such opinion, ____________________ may rely as to
matters of fact, to the extent they deem proper, on certificates of
responsible officers of Command India or its subsidiaries and certificates
or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate
existence or good standing of Command India or its subsidiaries; provided
that copies of any such statements or certificates shall be delivered to
counsel to the Underwriters. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has
come to the attention of such counsel which leads them to believe that the
Registration Statement, as of the time it became effective under the
Securities Act (but after giving effect to any modifications incorporated
therein pursuant to Rule 430A under the Securities Act), contained, in
relation to Command India, an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus or
any amendment to the supplement thereto, on the date it was filed pursuant
to Rule 424(b), and the Registration Statement and the Prospectus, or any
amendment or supplement thereto, as of the Closing Date, contain, in
relation to Command India, an untrue statement of a material fact or omit
to state a material fact required to be stated
<PAGE>
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
other financial information included therein). With respect to such
statement, ____________________ may state that their belief is based upon
the procedures set forth therein, but is without independent check and
verification.
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
COMMAND SYSTEMS, INC.
It is hereby certified that:
1. The name of the corporation is Command Systems, Inc. (the "Corporation").
The date of filing of the original Certificate of Incorporation of the
Corporation with the Secretary of State of the State of Delaware was July
1, 1997, as amended and restated on August 21, 1997, as amended and
restated on December 31, 1997.
2. That Article FOURTH, Section A of the Amended and Restated Certificate of
Incorporation of the Corporation is hereby amended by adding the following
language between existing first and second paragraphs:
"Upon the effectiveness of this Certificate of Amendment, each
two issued and outstanding shares of Common Stock of the
Corporation shall thereby be combined into one validly issued,
fully paid, and nonassessable share of Common Stock of the
Corporation. No scrip or fractional shares will be issued, and
each fractional share resulting from such combination shall be
redeemed by the Corporation for cash at a price per share equal
to the fair market value of a share of Common Stock on the date
hereof, as determined by the Board of Directors. There shall not
be any change in the number of shares authorized by reason of
such combination."
3. The amendment of the Amended and Restated Certificate of Incorporation
herein certified has been duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
EXECUTED, effective as of the 30th day of January 1998.
By: /s/ Edward G. Caputo
--------------------
Edward G. Caputo
President
<PAGE>
EXHIBIT 4.1
NUMBER Command SHARES
CAND Systems
=================
COMMAND SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MASSACHUSETTS OR
NEW YORK, NEW YORK
COMMON STOCK SEE REVERSE SIDE FOR
CERTAIN DEFINITIONS
- --------------------------------------------------------------------------------
This Certifies That CUSIP 200903 10 2
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF
COMMAND SYSTEMS, INC.
(herein called the "Corporation"), transferable on the books of the Corporation
by the holder hereof in person or by duly authorized attorney under surrender of
this Certificate properly endorsed. This Certificate and the shares represented
hereby are subject to the laws of the State of Delaware and to the Amended and
Restated Certificate of Incorporation and the By-laws of the Corporation, each
as from time to time amended.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Stephen L. Willcox /s/ Edward G. Caputo
EXECUTIVE VICE PRESIDENT, PRESIDENT AND CHIEF EXECUTIVE
CHIEF OPERATING OFFICER OFFICER
AND SECRETARY
Countersigned and Registered
BANKBOSTON, N.A.
Transfer Agent and Registrar
By
Authorized Signatory
Corporate Seal of
Command Systems, Inc.
<PAGE>
COMMAND SYSTEMS, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR SERIES OF STOCK. A
COPY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS WILL BE FURNISHED BY THE CORPORATION UPON WRITTEN REQUEST AND WITHOUT
CHARGE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants,
in common
UNIF GIFT MIN ACT-
-----------Custodian------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
--------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED _____________________________________hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL
ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------Shares
of the common stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
- -----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated X
------------------------------- -------------------------------------
NOTICE: The Signature to this
assignment must correspond with the
name as written upon the face of the
Certificate in every particular,
without alteration or enlargement, or
any change whatever.
Signature(s) Guaranteed:
----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARENTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C. APPEARS HERE]
February 11, 1998
Command Systems, Inc.
76 Batterson Park Road
Farmington, CT 06032
Ladies and Gentlemen:
We have acted as counsel to Command Systems, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing with the
Securities and Exchange Commission (the "Commission") of a Registration
Statement on Form S-1, Registration No. 333-43877 (the "Registration
Statement"), as amended, pursuant to which the Company is registering under the
Securities Act of 1933, as amended, up to 2,760,000 shares (the "Shares") of its
common stock, $.01 par value per share (the "Common Stock"). The Shares are to
be sold to a group of underwriters (the "Underwriters") who will be parties to
an Underwriting Agreement with the Company, the form of which Agreement will be
filed as an exhibit to the Registration Statement. The 2,760,000 shares of
Common Stock covered by the Registration Statement consist of 2,100,000 shares
being sold by the Company, 300,000 shares being sold by certain security holders
of the Company (the "Selling Stockholders") and 360,000 shares subject to an
over-allotment option granted to the Underwriters by the Selling Stockholders.
This opinion is being rendered in connection with the filing of the Registration
Statement. All capitalized terms used herein and not otherwise defined shall
have the respective meanings given to them in the Registration Statement.
In connection with this opinion, we have examined the Company's Amended and
Restated Certificate of Incorporation and Bylaws; the minutes of all pertinent
meetings of stockholders and directors of the Company relating to the
Registration Statement and the transactions contemplated thereby; such other
records of the corporate proceedings of the Company and certificates of the
Company's officers as we deemed relevant; and the Registration Statement and the
exhibits thereto filed with the Commission.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such copies.
<PAGE>
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Command Systems, Inc.
February 11, 1998
Page 2
Based upon the foregoing, and subject to the limitations set forth below,
we are of the opinion that (i) the Shares to be issued and sold by the Company,
when issued and delivered by the Company against payment therefor as
contemplated by the Underwriting Agreement, will be duly and validly issued,
fully paid and non-assessable shares of the Common Stock and (ii) the Shares to
be sold by the Selling Stockholders are duly and validly issued, fully paid and
non-assessable shares of Common Stock.
Our opinion is limited to the General Corporation Law of the State of
Delaware, and we express no opinion with respect to the laws of any other
jurisdiction. No opinion is expressed herein with respect to the qualification
of the Shares under the securities or blue sky laws of any state or any foreign
jurisdiction.
We understand that you wish to file this opinion as an exhibit to the
Registration Statement, and we hereby consent thereto. We hereby further
consent to the reference to us under the caption "Legal Matters" in the
prospectus included in the Registration Statement.
Very truly yours,
/s/ Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
<PAGE>
Exhibit 10.5
AMENDMENT NO. 1 TO CO-SALE AGREEMENT
------------------------------------
This Amendment No. 1. to 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"), Phoenix Home Life Mutual Insurance Company (the
"Stockholder") and Edward G. Caputo (the "Founder").
WHEREAS, the parties have previously entered into a Co-Sale Agreement dated as
of August 26, 1997 (the "Agreement"; capitalized terms used herein without
definition having the meanings ascribed to such terms in the Agreement);
WHEREAS, the parties desire to amend certain provisions of the Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
Section 1. Amendment to Section 6(e). Section 6(e) of the Agreement is
-------------------------
amended by deleting such Section in its entirety and substituting in lieu
thereof the following new Section 6(e):
"(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
(after giving effect to the exercise of any options or warrants then
outstanding, whether or not such options or warrants are then
exercisable, and the conversion to Common Stock of any convertible
securities then outstanding, whether or not such convertible
securities are then convertible) 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 (after giving effect to the exercise of any
options or warrants then outstanding, whether or not such options or
warrants are then exercisable, and the conversion to Common Stock of
any convertible securities then outstanding, whether or not such
convertible securities are then convertible)."
Section 2. Further Assurances. Each party hereby agrees, at any time and
------------------
from time to time after the date hereof, at the reasonable request of the other
party, to execute and deliver such other agreements, certificates or instruments
as may
<PAGE>
be reasonably requested in order to more effectively amend the Agreement as set
forth above or to evidence or confirm this Amendment.
Section 3. Effect of Amendment. The parties hereby ratify and confirm all of
-------------------
the provisions of the Agreement, as amended hereby, and agree and acknowledge
that the Agreement as so amended remains in full force and effect.
Section 4. Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of Connecticut, without giving effect
to its conflicts of law provisions.
Section 5. Counterparts. This Amendment may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers, thereunto duly authorized, as of the date
first above written.
COMMAND SYSTEMS, INC.
By: /s/ Edward G. Caputo
-----------------------------
Edward G. Caputo,
President
THE FOUNDER:
/s/ Edward G. Caputo
--------------------------------
Edward G. Caputo
THE STOCKHOLDER:
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
By: /s/ John J.C. Herndon
-----------------------------
Name: John J.C. Herndon
Title: Vice President
<PAGE>
EXHIBIT 10.7
COMMAND SYSTEMS, INC.
76 Batterson Park Road
Farmington, CT 06032
As of January 1, 1998
Edward G. Caputo
6 Morgan Place
Avon, CT 06001
Re: Employment Agreement
--------------------
Dear Mr. Caputo:
This letter is to confirm our understanding with respect to (i) your
employment by Command Systems, Inc. (the "Company"), (ii) your agreement not to
compete with the Company and (iii) your agreement to protect and preserve
information and property which is confidential and proprietary to the Company
(the terms and conditions agreed to in this letter shall hereinafter be referred
to as the "Agreement"). In consideration of the mutual promises and covenants
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby mutually acknowledged, we have
agreed as follows:
1. Employment; Board of Directors. The Company will employ you, and you
------------------------------
agree to be employed by the Company, as President and Chief Executive Officer of
the Company. You shall have the responsibilities, duties and authority
commensurate with such positions. You shall devote your full time and best
efforts in the performance of the foregoing services.
2. Term of Employment. Your employment hereunder shall commence the date of
------------------
this Agreement (the "Commencement Date") and shall continue until the third
anniversary of the Commencement Date, provided that on the third anniversary of
--------
the Commencement Date, and each anniversary thereafter, the term of your
employment hereunder shall be automatically extended for an additional period of
one (1) year unless either you or the Company shall have given written notice to
the other that such automatic extension not occur, which notice was given no
later than sixty (60) days prior to the relevant anniversary of the Commencement
Date.
3. Compensation; Benefits.
----------------------
(a) Salary. The Company shall pay you as your compensation for your services
------
and agreements hereunder during the term of this Agreement a base salary
determined from time to time by the Company's Board of Directors, payable in
substantially equal installments in accordance with the Company's payroll
practices for its senior executives as in effect from time to time, less any
amounts required to be withheld under applicable law.
(b) Annual Bonus. The Company may pay you an incentive performance bonus,
------------
which shall be determined in good faith by the Board of Directors taking into
consideration, among other things, the achievement of milestones by the Company.
(c) Vacation. You shall be entitled to vacation, paid holidays and personal
--------
days in accordance with the Company's policies with respect to its executives as
in effect from time to time.
<PAGE>
(d) Fringe Benefits. You shall be entitled to participate in any employee
---------------
benefit plans which the Company provides or may establish for the benefit of its
employees.
(e) Reimbursement of Expenses. You shall be entitled to reimbursement for
-------------------------
ordinary and reasonable out-of-pocket travel expenses which are reasonably
incurred by you in furtherance of the Company's business in accordance with the
Company's policies as in effect from time to time.
4. Prohibited Competition.
----------------------
(a) Certain Acknowledgments and Agreements.
--------------------------------------
(i) You recognize and acknowledge the competitive and sometimes
proprietary aspects of the business of the Company.
(ii) You acknowledge and agree that, for purposes of this Agreement, a
business will be deemed competitive with the Company if it is engaged in
rendering of information technology consulting or staffing services to
organizations in the insurance, banking, brokerage or other financial service
industries.
(iii) You further acknowledge and agree that, during the course of your
performing services for the Company, the Company will furnish, disclose or
make available to you confidential and proprietary information related to the
Company's business. You also acknowledge that such confidential information
and has been developed and will be developed by the Company through the
expenditure by the Company of substantial time, effort and money and that all
such confidential information could be used by you to compete with the
Company.
(b) Covenant Not to Compete. During the term of your employment with the
-----------------------
Company (the "Term") and for a period of two (2) years following the termination
of the Term, you shall not, anywhere in the United States or India, without the
prior written consent of the Company:
(i) For yourself or on behalf of any other person or entity, directly
or indirectly, either as principal, agent, stockholder, employee, consultant,
representative or in any other capacity, own, manage, operate or control, or
be concerned, connected or employed by, or otherwise associate in any manner
with, engage in or have a financial interest in any business which is directly
or indirectly competitive with the business of the Company; provided that
--------
nothing contained herein shall preclude you from purchasing or owning
securities of any such business if (A) such securities are publicly traded (B)
your holdings do not exceed three (3%) percent of the issued and outstanding
securities of any class of securities of such business; or
(ii) Either individually or on behalf of or through any third party,
solicit, divert or appropriate or attempt to solicit, divert or appropriate,
for the purpose of competing with the Company or any present or future parent,
subsidiary or other affiliate of the Company which is engaged in a similar
business as the Company, any partner, licensor, licensee, supplier or customer
of the Company, or any prospective partner, licensor, licensee, supplier or
customer with respect to which the Company has developed or made a
presentation or engaged in negotiations or discussions; or
(iii) Either individually or on behalf of or through any third party,
directly or indirectly, solicit, entice or persuade or attempt to solicit,
entice or persuade any other employees of or consultants to the Company or any
present or future parent, subsidiary or affiliate of the Company to leave the
services of the Company or any such parent, subsidiary or
2
<PAGE>
affiliate for any reason.
(c) Reasonableness of Restrictions. You further recognize and acknowledge
------------------------------
that (i) the types of employment which are prohibited by this Section 4 are
narrow and reasonable in relation to the skills which represent your principal
salable asset both to the Company and to your other prospective employers and
(ii) the specific but broad scope of the provisions of this Section 4 is
reasonable, legitimate and fair to you in light of the Company's needs to sell
and market its services in order to make the Company's business profitable and
in light of the limited restrictions on the type of employment prohibited herein
compared to the types of employment for which you are qualified to earn your
livelihood.
(d) Scope of Restrictions. You acknowledge and agree that the restrictions
---------------------
upon your activities contained in this Section 4 apply to your personal conduct
in the broadest sense, whether you engage in such activity directly or
indirectly, including, without limitation, indirect engagement in an activity
through a corporation, partnership or any other entity or through a spouse,
descendant or any other family member.
(e) Survival of Acknowledgments and Agreements. Your acknowledgments and
------------------------------------------
agreements set forth in this Section 4 shall survive the expiration or
termination of this Agreement and the termination of your employment with the
Company for any reason.
5. Protected Information. You shall at all times, both during and after any
---------------------
termination of this Agreement by either you or the Company, maintain in
confidence and shall not, without the prior written consent of the Company, use,
except in the course of performance of your duties for the Company, disclose or
give to others any fact or information which was disclosed to or developed by
you during the course of performing services for the Company and is not
generally available to the public, including but not limited to information and
facts concerning business plans, customers, future customers, suppliers,
licensors, licensees, partners, investors, affiliates or others, training
methods and materials, financial information, sales prospects, client lists,
Inventions (as defined in Section 6), or any other scientific, technical, trade
or business secret or confidential or proprietary information of the Company or
of any third party provided to you prior to or during the Term. In the event
you are questioned by anyone not employed by the Company or by an employee of or
a consultant to the Company not authorized to receive such information, in
regard to any such information or any other secret or confidential work of the
Company, or concerning any fact or circumstance relating thereto, you will
promptly notify the Board of Directors of the Company.
6. Ownership of Ideas, Copyrights and Patents.
------------------------------------------
(a) Property of the Company. You agree that all ideas, discoveries,
-----------------------
creations, manuscripts and properties, innovations, improvements, know-how,
inventions, designs, developments, apparatus, techniques, methods, and formulae
(all of the foregoing being hereinafter referred to as "the Inventions") which
may be used in the business of the Company, whether patentable, copyrightable or
not, which you may conceive, reduce to practice or develop prior to or during
the Term, alone or in conjunction with another, or others, and whether at the
request or upon the suggestion of the Company, or otherwise, shall be the sole
and exclusive property of the Company, and that you shall not publish any of the
Inventions without the prior written consent of the Company. You hereby assign
to the Company all of your right, title and interest in and to all of the
foregoing. You further represent and agree that to the best of your knowledge
and belief none of the Inventions will violate or infringe upon any right,
patent, copyright, trademark or right of
3
<PAGE>
privacy, or constitute libel or slander against or violate any other rights of
any person, firm or corporation and that you will use your best efforts to
prevent any such violation.
(b) Cooperation. At any time during or after the Term, you agree that you
-----------
will fully cooperate with the Company, its attorneys and agents in the
preparation and filing of all papers and other documents as may be required to
perfect the Company's rights in and to any of such Inventions, including, but
not limited to, joining in any proceeding to obtain letters patent, copyrights,
trademarks or other legal rights of the United States and of any and all other
countries on such inventions, provided that the Company will bear the expense of
such proceedings, and that any patent or other legal right so issued to you,
personally, shall be assigned by you to the Company without charge by you.
7. Disclosure to Future Employers. You agree that you will provide, and that
------------------------------
the Company may similarly provide in its discretion, a copy of the covenants
contained in Sections 4, 5 and 6 of this Agreement to any business or enterprise
which you may directly, or indirectly, own, manage, operate, finance, join,
control or in which you participate in the ownership, management, operation,
financing, or control, or with which you may be connected as an officer,
director, employee, partner, principal, agent, representative, consultant or
otherwise.
8. Records. Upon termination of your relationship with the Company, you
-------
shall deliver to the Company any property of the Company which may be in your
possession including products, materials, memoranda, notes, records, reports, or
other documents or photocopies of the same.
9. Insurance. The Company, in its sole discretion, may apply for and procure
---------
in its own name (whether or not for its own benefit) policies of insurance
insuring your life in such amounts as the Company deems advisable. You shall
have no right, title or interest in or to any such policies of insurance, except
as provided herein or to the extent your estate or other persons are
specifically named as beneficiaries thereof. You agree to submit to any medical
or other examinations and to execute and deliver any applications or other
instruments in writing that are reasonably necessary to effectuate such
insurance.
10. No Conflicting Agreements. You hereby represent and warrant that you
-------------------------
have no commitments or obligations inconsistent with this Agreement and you
hereby agree to indemnify and hold the Company harmless against loss, damage,
liability or expense arising from any claim based upon circumstances alleged to
be inconsistent with such representation and warranty.
11. General.
-------
(a) Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth above or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) made by
telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv)
sent by registered or certified mail, return receipt requested, postage prepaid.
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 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 (5th) business day following the day such mailing
is made.
4
<PAGE>
(b) Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
(c) Modifications and Amendments. The terms and provisions of this Agreement
----------------------------
may be modified or amended only by written agreement executed by the parties
hereto.
(d) Waivers and Consents. The terms and provisions of this Agreement may be
--------------------
waived, or consent for the departure therefrom granted, only by written document
executed by the party entitled to the benefits of such terms or provisions. No
such waiver or consent shall be deemed to be or shall constitute a waiver or
consent with respect to any other terms or provisions of this Agreement, whether
or not similar. Each such waiver or consent 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) Assignment. The Company may assign its rights and obligations hereunder
----------
to any person or entity who succeeds to all or substantially all of the
Company's business or that aspect of the Company's business in which you are
principally involved. Your rights and obligations under this Agreement may not
be assigned by you without the prior written consent of the Company.
(f) Benefit. All statements, representations, warranties, covenants and
-------
agreements in this Agreement shall be binding on the parties hereto and shall
inure to the benefit of the respective successors and permitted assigns of each
party hereto. Nothing in this Agreement shall be construed to create any rights
or obligations except among the parties hereto, and no person or entity shall be
regarded as a third-party beneficiary of this Agreement.
(g) Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be construed in accordance with and governed by the law
the State of Connecticut, without giving effect to the conflict of law
principles thereof.
(h) Severability. The parties intend this Agreement to be enforced as
------------
written. However, (i) if any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a duly authorized court having
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law; and (ii) if any provision, or part thereof, is
held to be unenforceable because of the duration of such provision or the
geographic area covered thereby, the Company and you agree that the court making
such determination shall have the power to reduce the duration and/or geographic
area of such provision, and/or to delete specific words and phrases ("blue-
penciling"), and in its reduced or blue-penciled form such provision shall then
be enforceable and shall be enforced.
(i) Headings and Captions. 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) Injunctive Relief. You hereby expressly acknowledge that any breach or
-----------------
threatened breach of any of the terms and/or conditions set forth in Section 4,
5 or 6 of this Agreement will
5
<PAGE>
result in substantial, continuing and irreparable injury to the Company.
Therefore, you hereby agree that, in addition to any other remedy that may be
available to the Company, the Company shall be entitled to injunctive or other
equitable relief by a court of appropriate jurisdiction in the event of any
breach or threatened breach of the terms of Section 4, 5 or 6 of this Agreement.
(k) No Waiver of Rights, Powers and Remedies. 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.
(l) Expenses. Should any party breach this Agreement, in addition to all
--------
other remedies available at law or in equity, such party shall pay all of any
other party's costs and expenses resulting therefrom and/or incurred in
enforcing this Agreement, including legal fees and expenses.
(m) Counterparts. This Agreement may be executed in one or more counterparts,
------------
and by different parties hereto on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
If the foregoing accurately sets forth our agreement, please so indicate by
signing and returning to us the enclosed copy of this letter.
Very truly yours,
COMMAND SYSTEMS, INC.
By: /s/ Stephen L. Willcox
---------------------------
Stephen L. Willcox
Executive Vice President
Accepted and Approved as of the date above:
/s/ Edward G. Caputo
- --------------------------
Edward G. Caputo
6
<PAGE>
Exhibit 10.13
Deutsche Bank
Aktiengesellschaft
Command International Software Ltd. Bangalore Branch
Brigada Champak
6/2 Union Street Postal Address:
Off Infantry Road Rahaja Towers
Bangalore 5600 01 Ground Floor, West Wing
26-27 M.G. Road
Bangalore 560 001
Tel: 559-4488 (10 lines)
Telex: 0845-3199 DBBG IN
FAX: (080) 559-4288
Kind Attn: Mr. Satish Bangalore, Chief Executive Officer
CBD/JR 14.07.1997
Dear Sirs,
Re: Credit Facility
Further to our facility letter dated 31.12.96, we are pleased to extend the
following credit facility (the facility") sanctioned to you, which shall be
subject to our General Business Conditions and the following further principal
terms and conditions:
1. Short Term Loan (STL) : Rs. 15.000.000.00 (Rupees Fifteen Million only).
Purpose : Purchase of capital equipment.
Tenor : Maximum 6 months from date of disbursement.
Rate of Interest : Banks' Prime Rate plus Interest tax as applicable
or
10.65% p.a. subject to availability of FCNR(B)
funds.
Security : Risk Take Over Agreement from Deutsche Bank AG,
New York for Rs. 15,000,000/- to cover the above.
facility plus interest/other charges at all times,
in a form acceptable to us.
The facility is valid until further notice and the bank will be entitled at any
time by a notice in writing and without assigning any reason to demand repayment
and/or cancel and/or decrease the facility. The rate of interest stated above
is valid until further notice and is subject to our internal review and subject
to changes of externally prevailing directives by authorities.
In case of irregularities (overdrawings, delayed payments etc.) in the account,
we reserve the right to charge penal rate of interest.
<TABLE>
<CAPTION>
For COMMAND INTERNATIONAL SOFTWARE For COMMAND INTERNATIONAL SOFTWARE
<S> <C> <C>
/s/ Satish Bangalore /s/ Edward G. Caputo /s/ John J.C. Herndon
Authorized Signatory Director
</TABLE>
Chairman of the Supervisory Board: F. Wilhelm Christians
Board of Managing Directors: Carl L. von Boehm-Bezing, Rolf E. Breuer,
Ulrich Cartelleri, Michael Dobson, Michael Endras, Hilmar Kopper, Jurgen
Krumnow, Georg Krupp, Ronaldo H. Schmitz, Ellen R. Schneider-Lanne, Ulrich
Weiss, Tessen von Heydebreck
Incorporated with limited liability in Frankfurt am Main HRB 30,000 Dist.
Court of Frankfurt am Main Federal Republic of Germany
<PAGE>
-2-
The following documents duly executed by the Company shall be submitted to us in
a form and substance satisfactory to us:
1 Certified true copy of the Board Resolution accepting the facility and
authorizing particular persons to deal with us in connection with it and
execute required documents under the common seal of the company.
2. Demand Promissory Note for Rs. 15,000,000/- to be executed under the common
seal, in terms of the Articles of Association of the Company (Re. 1/-
revenue stamp to be affixed) covering the Short Term Loan facility.
3. A Certificate from your Auditors stating credit facilities availed by the
company from the banking system, at present or future, as per Reserve Bank
of India guidelines. If no facilities are being availed from another bank,
a certificate to this effect to be given by you to us.
4. Annual audited balance sheet to be provided to the bank on a regular basis
with 6 months from the close of the financial year.
5. An auditor's certificate confirming that the proceeds of the subject loan
has been utilized for the purpose of capital equipment.
6. Such other documents as we may reasonably request.
The bank reserves the right to inspect the works/office premises of the company
at regular intervals.
Kindly return to us copy of this facility letter duly signed by authorised
official(s) of the company in token of having accepted the above terms and
conditions. Please also sign all the pages of this letter. All other terms and
---------------------------------------------
conditions mentioned in our facility letter dated 31.12.96 remain unchanged.
Yours faithfully,
Deutsche Bank AG,
Bangalore Branch
/s/ Sangeta C. Joshi /s/ Jyotl Rao
Sangeta C. Joshi Jyotl Rao
Head-Corporate - Banking Department Account Manager - Corporate Banking
Department
We accept the facility on the terms and conditions set out above. We hereby
consent to and authorise the disclosure by the Bank of Information relating to
us and the facility granted hereinabove to any offices or branches of Deutsche
Bank AG for credit evaluation and risk management purposes, and acknowledge that
any duties of secrecy or confidentiality owed by the Bank to us (howsoever
arising) will not be regarded as being breached by any such disclosure.
Authorised Signatory(ies)
Command International Software
Date of Acceptance:
For COMMAND INTERNATIONAL SOFTWARE For COMMAND INTERNATIONAL SOFTWARE
/s/ Satish Bangalore /s/ Edward G. Caputo /s/ John J.C. Herndon
Authorized Signatory Director
<PAGE>
EXHIBIT 10.14
COMMAND SYSTEMS
EMPLOYMENT AGREEMENT
Employment Agreement dated as of January 1, 1998 by and between Stephen L.
Willcox residing at 329 Tall Timbers Road, Glastonbury, CT 06033 ("Employee"),
and Command Systems, Inc., a Delaware corporation with its principal office
located at Pond View Corporate Center, 76 Batterson Park, Farmington, CT 06032
("Employer").
WITNESSETH:
WHEREAS, Employer is desirous of employing the Employee to work as an
Executive Vice President and Chief Operating Officer and Employee is desirous of
being so employed.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, the parties hereto agree as follows:
1. Employment. Employer hereby employs Employee for the services and
duties as required by an Executive Vice President and Chief Operating Officer
and Employee hereby accepts the employment upon the terms and conditions
hereinafter set forth.
2. Duties. Employee shall perform his/her duties and functions under this
Agreement in a manner satisfactory to the Employer. Employee's duties hereunder
shall include, but not be limited to, performing duties on behalf of the parent
corporation, if any, of Employer and Employer's affiliates and subsidiaries.
Employee's primary function shall be that of an Executive Vice President and
Chief Operating Officer. Employee shall devote his/her entire time, attention
and energies to the performance of his/her duties for Employer pursuant to this
Employment Agreement and shall not during the terms of this Employment Agreement
be engaged in any other same or similar business activity, whether or not such
business activity is pursued for gain, profit or other pecuniary advantage,
provided that the foregoing shall not prohibit investment activities by Employee
for his/her own benefit and account provided such investment activities by
Employee shall not require any services on Employee's part in any operations and
shall not interfere with the duties to be performed by Employee hereunder for
Employer. Employee shall not engage in any activities whatsoever which conflict
with the objectives of Employer's business or the business of Employer's parent
corporation and its affiliates and subsidiaries.
3. Term and Severance. This Employment Agreement shall not constitute an
agreement by the Employer to employ Employee for any specific period of time.
Employer does hereby agree that Employee shall be at all times an Employee at
will and the employment relationship may be terminated at any time by either
Employee or Employer. This Employment Agreement may be terminated by either
party for cause at any time upon written notice. "Cause" shall be defined to
mean any breach of this Employment Agreement, any willful or intentional act
having the effect of injuring the reputation, business or business relationships
of Employer, Employer's parent corporation if any, or its affiliates or
subsidiaries, or any criminal or fraudulent acts by either party. If during the
term of Employee's employment, the employment
<PAGE>
relationship is terminated for any reason other than for Cause, Employee shall
be entitled to a severance payment of one-half of his yearly salary as of the
date of termination (less appropriate deductions for federal, state and city
income taxes, FICA contributions and any other deductions required by law), but
in no event less than Eighty-Seven Thousand Five Hundred Dollars and Zero Cents
($87,500.00). This severance payment is payable at the discretion of Employer
either as a lump sum within thirty (30) days of termination or over the six (6)
months immediately following termination on a semi-monthly basis.
4. Compensation. Employer shall pay to Employee, in consideration of the
services to be rendered hereunder, compensation in the form of a annual salary
to equal the rate of One Hundred and Seventy Five Thousand Dollars and Zero
Cents ($175,000.00) (less appropriate deductions for federal, state and city
income taxes, FICA contributions and any other deductions required by law) and
incentive opportunities based on performance. In addition, Employee is entitled
to a monthly car allowance of Six Hundred Dollars and Zero Cents ($600.00). In
the event of termination for any reason whatsoever, Employee forfeits all
commissions and/or bonuses as of the last day of payroll.
5. Vacations. Employee shall be entitled to four (4) weeks vacation
annually at full compensation during the term of this Employment/Agreement,
which vacation shall be scheduled in consultation with the appropriate project
manager of the Employer.
6. Illness or Incapacity. In the event Employee is unable to perform the
services required hereunder as a result of illness or physical or mental
incapacity for a continuous period of one hundred eighty (180) days during the
term of this Employment Agreement, the Employer may terminate Employee's
employment under this Employment Agreement on thirty (30) days notice without
further obligation.
7. Fringe Benefits. Employee shall be entitled to participate in all
existing and future benefit programs that Employer establishes and makes
available to Employer's employees in general.
8. Expenses. Employer shall also reimburse the Employee for all
reasonable entertainment and other business expenses incurred or paid by the
Employee in performing his/her duties under this Agreement, upon presentation by
the Employee of expense statements or vouchers and such other supporting
information as Employer may from time to time request, provided Employer shall
have previously approved such expenditures.
9. Completion of Assignments. Employee acknowledges that Employer or
Employee on behalf of the Employer, will commit Employee to various Customer
assignments from time to time and that these assignments require the Employee to
complete certain projects within certain time parameters. In the event of
termination, for any reason whatsoever, Employee agrees to use his/her best
efforts to complete the assignment or provide a reasonable transition period
that will not jeopardize the completion of the Customer's project.
10. Non-Competition. To induce Employer to enter into this Employment
Agreement, Employee covenants and agrees as follows:
2
<PAGE>
(a) For so long as Employee shall be employed by Employer pursuant to this
Employment Agreement or otherwise, and for a period of one (1) year after the
date on which Employee is no longer employed by Employer, Employee shall not:
(i) solicit any Customers for the purchase of any Services and/or Products which
may be furnished or offered by Employer or any parent, subsidiary or affiliate
of the Employer, and: (ii) employ or engage as an Independent Contractor, or
enter into a business relationship with any person who at such time is an
Officer or Employee of Employer, or who then is a partner, Principal or Employee
of Employer or any parent, subsidiary or affiliate of Employer at any time
during the term of this Agreement (any such person hereinafter referred to as a
"Targeted Employee") or offer any Targeted Employee such employment, engagement
or relationship, or during the term of this Agreement, advise, urge or counsel
any other person or legal entity to employ, engage as an Independent Contractor,
or enter into a business relationship with, any Targeted Employee, and; (iii)
compete with Employer within the State of Connecticut directly or indirectly,
whether as an Officer, Director, Shareholder, Partner, Independent Contractor,
Agent or Employee of any person or entity which is engaged in a business similar
to that of the Employer and which relationship was created as a result of and/or
during employment with Employer, and (iv) enter into a business relationship of
any nature with any supplier of any products sold by the Employer or any Parent,
Subsidiary or Affiliate of the Employer on or before the Effective Date first
written above, for the sale or distribution of any such Products or Services
sold or offered by the Employer, directly or indirectly, to any Customer.
(b) Employee acknowledges (i) that his/her position with Employer will
require the performance of Services which are special, unique, extraordinary and
intellectual in character and place him/her in a position of Confidence and
Trust with Employer's Customers and Employer's Employees and it's affiliate,
and; (ii) that the goodwill of Employer will be generated among Employer's
Customers, Potential Customer's and Employer's Employees by Employee during the
course of Services performed by him/her for Employer; and (iii) that the
covenants set forth above are necessary in order to protect and maintain the
goodwill to be generated by Employee on behalf of Employer; and (iv) that
Employer would not have entered into this Employment Agreement unless Employee
agreed to the stated covenants.
(c) Employee acknowledges that the covenants set forth herein are
reasonable as to time and scope and that the enforcement of the covenants set
forth above will not prevent him/her from earning a livelihood.
11. Confidential Information. Employee is being employed by Employer and
will be receiving wages or salary, benefits and other compensation in connection
therewith. In consideration thereof and in recognition of the specialized,
unique and highly confidential aspects of Employer's business to which Employee
may be exposed or in which Employee may participate during the course of his/her
employment, Employee is willing to undertake the obligations to be undertaken on
his/her part as hereinafter more fully set forth. The Employer is
3
<PAGE>
likewise willing to undertake the obligations to be undertaken on it's part as
hereinafter more fully set forth.
(a) For all purposes of this Agreement, the following terms have the
meanings respectively set for them as follows: (i) "Proprietary Information"
shall mean any and all sales data, internal procedures, future strategies,
plans, automation strategies, organization, inventions, research, designs,
products, processes, formulae, know-how, customer lists, trade secrets and/or
other non-public information or data related, directly or indirectly, to the
business of the Employer or to the business of the Employer's Customers as the
same is carried on from time to time, and; (ii) "Proprietary Rights" shall mean
all computer systems, programs, software, and devices, including information in
regards to design, methodology, techniques, and documentation thereof, all
patents, copyrights, rights of creators and/or similar rights and privileges,
whether domestic or foreign, statutory or at common law, filed or not filed,
perfected or unperfected, otherwise, relating to any Proprietary Information,
and; (iii) "Proprietary Proceeds" shall mean all proceeds and products of any
Proprietary Information and/or Proprietary Rights, and; (iv) "Proprietary
Assets" shall mean Proprietary Information and/or Proprietary Rights and/or
Proprietary Proceeds, considered collectively or separately. Employee
acknowledges that any and all Proprietary Assets wholly or partially created,
completed and/or developed by Employee, acting alone or jointly with others at
any time during Employee's employment with the Employer or within a period of
one (1) year following the termination of Employee's employment with the
Employer, shall be deemed to be and to have been at all times, the sole and
exclusive property of Employer.
(b) Employee specifically agrees, confirms and acknowledges that (i) any
and all Proprietary Assets, however, whenever and from whomever acquired by
Employer, are and shall at all times remain the sole and exclusive property of
the Employer, and; (ii) Employee shall not use, possess, disclose, transfer
and/or otherwise deal with any such Proprietary Assets at any time during
his/her employment other than specifically within the scope of his/her
employment and in furtherance of the business and affairs of the Employer, and;
(iii) Employee shall not use, possess, disclose, transfer and/or otherwise deal
with any Proprietary Asset at any time after the termination of his/her
employment under any circumstances whatsoever, provided that following
termination of Employee's employment, these restrictions shall not apply to such
Proprietary Assets which are then in the public domain (provided the Employee
was not responsible, directly or indirectly, for such Proprietary Assets
entering the public domain), without the written consent of the Employer.
(c) Employee agrees that he/she shall not, throughout the term and/or
within the scope of his/her employment, use, possess, disclose, transfer and/or
otherwise deal with any information, rights, proceeds or other assets which are
in the nature of Proprietary Assets relating to the business or affairs of
Employer for any purpose other than the business of Employer.
(d) Employee agrees that he/she, both throughout the term of his/her
employment with Employer and at any and all times following the termination
thereof, execute and deliver all such further instruments and documents, and do
and perform all such further acts as may be necessary or helpful and/or may be
reasonably requested by Employer in furtherance of the purposes and intent of
this Agreement. By way of illustration and not by way of limitation of the
4
<PAGE>
foregoing, Employee specifically agrees that he/she shall: (i) immediately
communicate and thoroughly describe to Employer in writing any and all such
Proprietary Information, and (ii) promptly execute and deliver all such
instruments or agreements of assignment and/or transfer as the Employer may from
time to time request to carry out the purposes and intent of this Agreement,
and; (iii) assist the Employer, at such times and in such manner as Employer may
request in connection with Employer's efforts to secure, apply for, renew or
otherwise perfect Proprietary Rights with respect to any and all Proprietary
Assets, and; (iv) upon the termination of Employee's employment, immediately
deliver to Employer any and all written, recorded or other physical evidence of
any and all Proprietary Assets in his/her possession or under his/her control.
(e) Employee represents and covenants that he/she is not presently and
will not hereafter become a party to any contract or agreement which contravenes
any of the terms, provisions, purposes or intent of this Agreement.
12. Cost & Expenses. In the event Employer shall incur or sustain any
costs or expenses including attorney's fees, in connection with or arising out
of any breach, threatened breach or otherwise to obtain the full and prompt
performance of this Employment Agreement by Employee, Employee shall pay such
costs or expenses on Employer's demand.
13. Amendment & Modification. This Employment Agreement contains the
entire agreement between the parties with respect to the subject matter hereof.
Subject to applicable law, this Employment Agreement may be amended, modified
and supplemented by written agreement of Employer and Employee with respect to
any of the terms contained herein.
14. Waiver of Compliance. Any failure of either party to comply with any
obligation, covenant, agreement or condition on its part contained herein may be
expressly waived in writing by the other party but such waiver or failure to
insist upon strict compliance shall not operate as a waiver of any subsequent or
other failure. Whenever this Employment Agreement requires or permits consent
by or on behalf of any party, such consent shall be given in writing.
15. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand or mailed, certified or registered mail
with postage prepaid, return receipt requested, and properly addressed to the
other party at the addresses first above written.
16. Assignment. This Employment Agreement shall inure to the benefit of
Employee and Employer and be binding upon the successors and general assigns of
Employer and the heirs, executors and administrators of Employee. Except as
provided herein, this Employment Agreement shall not be assignable. Any
assignment or delegation made by Employee shall be void ab initio.
17. Enforceability. In the event that it is determined that this
Employment Agreement is unenforceable in any respect, it shall be construed to
apply and be enforceable to the maximum extent permitted by applicable law.
5
<PAGE>
18. Applicable Law. This Employment Agreement shall be construed and
enforced in accordance with the laws of the State of Connecticut.
19. Construction. This Agreement shall be deemed as regards each
reference contained herein to "he", "him", or "his", to refer to "she", "he", or
"hers", as the context may require, and as regards each reference to the
singular to include the plural and vice versa, as the context may require.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the day and the year first written above.
COMMAND SYSTEMS INCORPORATED
/s/ Edward G. Caputo 1/1/98
------------------------ --------------
Edward G. Caputo Date
President
/s/ Stephen L. Willcox 1/1/98
------------------------ --------------
Stephen L. Willcox Date
Executive Vice President
& Chief Operating Officer
6
<PAGE>
EXHIBIT 10.15
LOCK-UP LETTER
--------------
December __, 1997
CONFIDENTIAL
- ------------
Cowen & Company
Volpe Brown Whelan & Company, LLC
As Representatives of the Several Underwriters
c/o Cowen & Company
One Financial Square, 30th Floor
New York, NY 10005
The undersigned understands that you are contemplating entering into an
Underwriting Agreement (the "Underwriting Agreement") in connection with the
proposed public offering (the "Offering") of Common Stock, par value $.01 per
share (the "Common Stock"), of Command Systems, Inc. (the "Company"). The
undersigned recognizes the benefits to both the Company and the undersigned from
the broader distribution of the Common Stock of the Company that is expected to
result from the Offering. The undersigned further understands that you have
requested, as a condition to agreeing to purchase shares of the Common Stock as
part of the proposed Offering, that the undersigned agree to be restricted with
respect to sales or other transfers of securities of the Company as provided
below.
In order to induce the Company and you to enter into the Underwriting
Agreement and to proceed with the proposed Offering, the undersigned agrees, for
the benefit of the Company and you, that the undersigned will not, without the
prior written consent of Cowen & Company, (a) offer, sell or grant any option
for the sale, or otherwise dispose of (i) any shares of the Common Stock or (ii)
any securities convertible into or exercisable for shares of the Common Stock
(including, without limitation, any options, warrants, stock appreciation right,
or similar right with an exercise or conversion privilege at a price related to,
or derived from, the market price of the Common Stock) owned by the undersigned,
whether directly or indirectly (collectively, the "Lock-Up Securities"), or (b)
engage in any hedging transaction with respect to the Common Stock that may have
an impact on the market price of the Common Stock, for the period from the date
hereof until 180 days subsequent to the date of the Prospectus first filed by
the Company pursuant to Rule 424(b) under the Securities Act of 1933, as
amended, after the Registration Statement has been declared effective, except
for shares of Common Stock of the Company or securities exercisable for or
convertible into shares of Common Stock of the Company as to which the
undersigned acquires ownership in the public trading markets after the date of
the final prospectus filed with respect to the Offering.
Notwithstanding the foregoing, the undersigned may transfer any or all of the
Lock-Up Securities, either during his or her lifetime or on death, by gift, will
or intestate succession to his or her immediate family or to a trust the
beneficiaries of which are exclusively the undersigned and/or a member or
members of his or her immediate family; provided, however, that in any such
-------- -------
case it shall be a condition to the transfer that the transferee thereof execute
an agreement stating
<PAGE>
that the transferee is receiving and holding the Lock-Up Securities subject to
the provision of this letter agreement, and there shall be no further transfer
of such Lock-Up Securities except in accordance with this letter agreement. For
purposes of this paragraph, "immediate family" shall mean spouse, lineal
descendant, stepchildren, father, mother, brother or sister of the transferor.
The undersigned also agrees and consents to the entry of stock transfer
instructions with the Company's transfer agent against the transfer of Shares of
Common Stock issued or issuable to the undersigned.
This Agreement will terminate immediately on April 30, 1998 if on or before
such date: (i) the Registration Statement has not become effective; and (ii)
the Underwriting Agreement has not been executed.
Executed as an instrument under seal.
Very truly Yours,
--------------------------------
Authorized Signatory
--------------------------------
Print Name of Signatory
--------------------------------
Date
-2-
<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 reports dated February 9, 1998, in the Registration Statement
(Form S-1 No. 333-43877) and related Prospectus of Command Systems, Inc. for
the registration of 2,400,000 shares of its common stock.
/s/ Ernst & Young LLP
Hartford, Connecticut
February 12, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 391,687
<SECURITIES> 0
<RECEIVABLES> 4,463,134
<ALLOWANCES> 259,893
<INVENTORY> 0
<CURRENT-ASSETS> 5,001,902
<PP&E> 2,859,730
<DEPRECIATION> 825,562
<TOTAL-ASSETS> 14,425,087
<CURRENT-LIABILITIES> 4,924,026
<BONDS> 0
0
10,223,475
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,425,087
<SALES> 25,057,039
<TOTAL-REVENUES> 25,057,039
<CGS> 16,972,812
<TOTAL-COSTS> 7,254,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (309,657)
<INCOME-PRETAX> 552,489
<INCOME-TAX> (597,751)
<INCOME-CONTINUING> (45,262)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (496,693)
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
