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REGISTRATION NO. 333-94477
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTEGCOM CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 421600 22-3690168
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
JAMES E. HENRY, PRESIDENT
C/O INTEGCOM CORP.
280 MIDLAND AVENUE
SADDLE BROOK, NEW JERSEY 07663
(201) 794-6500
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE AND AGENT AND
TELEPHONE NUMBER INCLUDING AREA CODE)
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PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
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KENNETH T. CASCONE, ESQ. RICHARD FRIEDMAN, ESQ.
CASCONE & COLE SICHENZIA, ROSS & FRIEDMAN, LLP
711 THIRD AVENUE, SUITE 1505 135 WEST 50TH STREET, 20TH FLOOR
NEW YORK, NY 10017 NEW YORK, NY 10020
TELEPHONE NO. (212) 599-4747 TELEPHONE NO. (212) 664-1200
TELECOPIER NO. (212) 599-7909 TELECOPIER NO. (212) 664-7329
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of this 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT THE SOLICITATION OF AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED APRIL , 2000
PRELIMINARY PROSPECTUS
INTEGCOM
CORP.
1,000,000 UNITS
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[LOGO]
This is an initial public offering of 1,000,000 units of InTegCom Corp. Each
unit consists of one share of common stock and one redeemable common stock
purchase warrant. The common stock and the warrants will be separately tradable
immediately after the completion of this offering.
Prior to this offering, no public market for the units exists. We anticipate
that the initial public offering price will be between $5.20 and $7.50 per unit.
This amount includes $.10 for each warrant. The warrants run for three years,
have an exercise price of $7.50 and are subject to redemption.
-------------------
THIS INVESTMENT INVOLVES RISKS WHICH ARE DESCRIBED IN THE 'RISK FACTORS'
SECTION BEGINNING ON PAGE 6.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<CAPTION>
PER UNIT TOTAL
<S> <C> <C>
Public offering price..................................... $6.350 $6,350,000
Underwriting discounts and commissions.................... $ .635 $ 635,000
Proceeds to InTegCom Corp. ............................... $5.725 $5,715,000
</TABLE>
We have granted the underwriters the right to purchase an additional 150,000
units at the initial public offering price, minus the underwriting discount, to
cover over-allotments. The underwriters are offering the units on a firm
commitment basis.
MASON HILL & CO., INC.
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THE DATE OF THIS PROSPECTUS IS , 2000
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Risk Factors................................................ 6
Use of Proceeds............................................. 10
Dividend Policy............................................. 11
Capitalization.............................................. 12
Dilution.................................................... 13
Cautionary Note Regarding Forward-Looking Statements........ 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 19
Management.................................................. 31
Certain Transactions........................................ 39
Principal Stockholders...................................... 40
Description of Securities................................... 40
Shares Eligible For Future Sale............................. 43
Underwriting................................................ 43
Legal Matters............................................... 45
Experts..................................................... 45
How to Get More Information................................. 45
Change in Accountants....................................... 46
Financial Statements........................................ F-1
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PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, especially the risks of purchasing
our securities discussed under 'Risk Factors.'
OUR BUSINESS
We are a systems integrator and manufacturer of security and communication
devices. As an integrator, we primarily design, customize, install, connect and
maintain closed circuit television and access control systems for customers in
the private and public sectors. Either together or on a stand-alone basis, these
systems detect and reduce crime, prevent unauthorized entry, and record evidence
of infractions or accidents. They are also an effective tool in improving
building and facility management. In our smaller manufacturing operations, we
develop and fabricate a line of video, audio and control devices with hardware
and software elements that are used for our own integration efforts as well as
those of other integrators.
Our customers encompass transit authorities, airports, universities, office
buildings, hospitals, banks, brokerage firms, hotels, airlines, utilities and
other entities with security needs. Our current projects involve New York City
Transit Authority, Motorola, Delta Airlines, Qwest Communications Corp., Lucent
Technologies, Inc., Silverstein Properties, Ameritrade, Port Authority of New
York and New Jersey and Army, Air Force Exchange Services. For the year ended
December 31, 1999, these customers in the aggregate represented 62% of ITC's
business.
To keep our competitive edge, we consistently seek either to develop
in-house or to acquire from third parties advanced technologies applicable to
our customers' evolving needs.
Several new technological areas where we intend to focus are:
Mobile applications for our closed circuit television products on buses,
trains, armored cars, police vehicles and taxis, using digital recording
and high-level compression techniques.
Communication link-ups for surveillance systems with high-quality,
multi-media transmissions over long distances on existing networks applying
advanced compression so remote locations may be more easily connected to a
central station.
A programmable key, on a stand-alone basis or as one element in a system,
that via a dedicated computer chip keeps track of where it has been and
which lock is using it, replaces numerous keys with one key, restricts and
controls its usage as well as changes locks electronically.
Our management considers its forty-five-year relationship with Motorola to
be one of its most important assets. We sell to Motorola and its authorized
service shops closed circuit television devices that we distribute or
manufacture, and we support Motorola, its divisions and authorized service shops
with integration, consulting and maintenance services. From Motorola, we
purchase wireless technology products, including card readers and smart cards.
OUR STRATEGY
Our objective is to become a leading systems integrator in security and
communications that extends its customer base across the country. The key
elements of our strategy involve:
Continued application of new proven technological solutions for customer
problems.
Aggressive marketing to larger customers and projects regionally and
nationally.
Growth by acquisitions of, and joint ventures with, selected systems
integrators in other areas of the country.
Expansion of our work force in technical, marketing and managerial fields
as well as our dealer network to capitalize on emerging business
opportunities.
Establishment of additional offices in new regions.
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OUR OFFICES
Our headquarters are located at 280 Midland Avenue, Saddle Brook, New
Jersey, 07663; our telephone number is (201) 794-6500; and our web site, which
is still under development, can be accessed at www.viscomproducts.com.
Information to be contained in our web site is not part of this prospectus. We
also maintain an office for systems integration in Grand Prairie, Texas near the
Dallas - Ft. Worth airport.
CORPORATE BACKGROUND
Our current management began operations in the fall of 1989 when we
repurchased under the name of HBE Acquisition Corp., the original family
business of one of our principal officers and directors from Communications
Group, Inc., a publicly held company. Afterwards we established other
corporations, including HBE Central Management, Inc. and Viscom Products, Inc.
to operate different parts of our business acquired from others. See 'Business
History'. In mid-November, 1999, we organized InTegCom Corp. ('ITC') in Delaware
and in December of that year through an exchange of stock, those HBE and Viscom
companies became the wholly owned subsidiaries of ITC.
THE OFFERING
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Securities offered by us....................... 1,000,000 units, each consisting of one share of
common stock and one warrant to purchase one
share
Common stock outstanding after this offering... 5,000,000 shares, assuming the underwriters do
not exercise their over-allotment option
Warrants outstanding after this offering....... 1,000,000 warrants
Use of Proceeds................................ We intend to use the net proceeds of this
offering to:
Market systems integration, new products and
technologies
Expand our dealer and value-added reseller
network,
Open sales and services offices in targeted
regions
Make acquisitions of other systems integrators
and related businesses,
Hire upper/middle-level management and
marketing personnel,
Increase research and development on
proprietary products for identifiable markets
Use balance for working capital
As an indirect benefit, the infusion of equity
resulting from this offering should expand our
bonding capabilities and allow us to handle
larger projects and customers.
Proposed NASDAQ Symbol......................... 'ITCM' and 'ITCMW'
</TABLE>
Except as noted, all of the information in this prospectus assumes that
neither the warrants that we will issue to the representative of the
underwriters or the underwriters' over-allotment option are exercised, and does
not reflect the issuance of any of our 500,000 shares of common stock available
under our 1999 incentive stock option plan.
4
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SUMMARY FINANCIAL DATA
You should read the following summary financial data together with the
section in this prospectus entitled 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and our financial statements and
notes included elsewhere.
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<CAPTION>
YEAR ENDED DECEMBER 31,
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1997 1998 1999
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<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales............................................ $4,011,408 $6,783,267 $7,556,855
Cost of goods sold............................... 2,574,169 4,680,342 5,255,303
64.17% 69.00% 69.54%
Gross profit..................................... 1,437,239 2,102,925 2,301,552
35.83% 31.00% 30.45%
Selling, G&A..................................... 1,255,920 1,819,205 1,863,447
31.31% 26.82% 24.66%
Interest......................................... 159,672 106,939 122,340
3.98% 1.58% 1.62%
Income before taxes.............................. 21,647 176,781 315,765
Income tax....................................... 21,946 91,191 134,909
Net income (loss)................................ (299) 85,590 180,856
0.01% 1.26% 2.39%
Retained earning beginning....................... 410,818 370,857 456,447
Prior period adjustment.......................... (39,662)
Retained earning beginning as adjusted........... 371,156 370,857 456,447
Retained earnings end............................ 370,857 456,447 673,303
Basic and diluted earnings per share............. $ .00 $ .02 $ .05
</TABLE>
The pro forma as adjusted balance sheet below as of December 31, 1999, has
been adjusted to reflect the sale of common stock and warrants offered in this
prospectus at an assumed initial public offering price of $6.25 per share and
$.10 per warrant representing the mid point of the filing range, and the receipt
of the estimated net proceeds.
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<CAPTION>
AS OF DECEMBER 31,
-----------------------
HISTORIC PRO FORMA
1998 1999
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<S> <C> <C>
BALANCE SHEET DATA
Total working capital................................... $1,384,602 $6,400,153
Total assets............................................ 3,088,800 8,215,549
Total liabilities....................................... 2,421,053 2,366,946
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Total stockholder's equity.............................. $ 667,747 $5,848,603
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5
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RISK FACTORS
An investment in our common stock and warrants involves a high degree of
risk. In addition to the other information contained in this prospectus, you
should carefully consider the following risk factors before investing in our
securities.
RISKS RELATING TO OUR BUSINESS
WE MAY NOT BE ABLE TO DEVELOP OR ACQUIRE NEW TECHNOLOGICAL SOLUTIONS NECESSARY
FOR OUR CUSTOMERS' REQUIREMENTS
Our success depends on applying new technological developments to satisfy
customer needs either through purchases from outside vendors or internal
research. Any failure or delay to deliver these advances on our part could have
a negative impact on business and its prospects. While rapid technological
change does not typically occur in the security market, from time to time we or
other vendors develop superior technology. However, in the future we may fail to
develop or miss these applications through our own neglect or because the
vendors have made exclusive arrangements with competitors.
WE ARE CURRENTLY DEPENDENT UPON A SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION
OF OUR REVENUES.
In the year ended December 31, 1997 NYC Transit accounted for 21% of these
revenues, Motorola for 7% and Silverstein Properties for 6%. In 1998 NYC Transit
represented 34% of these revenues, Motorola represented about 14% and
Silverstein Properties represented 8%. In 1999, NYC Transit accounted for about
32% of these revenues, Motorola nearly 5% and Silverstein Properties 8%. The
loss of or diminution of business from NYC Transit or any other of these
customers could have a material adverse effect on our business, financial
condition and results of operations.
FOR KEY DEVICES AND SOFTWARE, WE ARE ALSO DEPENDENT ON ONLY A FEW VENDORS, AND
WE RELY ON TIMELY DELIVERIES OF EQUIPMENT FROM ALL OUTSIDE SOURCES
We obtain from sole sources devices and software for specific access control
and imaging, remote transmission, smart key and mobile applications. The loss of
any one of these companies as suppliers or our inability to develop or acquire
new technologies from other sources could have an adverse impact on our business
and its prospects.
Timely vendor deliveries of equipment meeting our stringent quality-control
standards from all suppliers are also important to our business because each
installed system requires a variety of elements to be fully functioning at once.
The failure to deliver any critical device or component, when needed in
operating condition, can delay a project, trigger vendor penalties, halt
progress payments or result in cancellation.
WE EXPERIENCE INTENSE COMPETITION FOR BUSINESS FROM A VARIETY OF SOURCES AND MAY
BE COMPELLED ON GOVERNMENT PROJECTS TO ENGAGE IN COMPETITIVE BIDDING OR
AFFIRMATIVE ACTION PROGRAMS WITH MINORITY CONTRACTORS
In system integration, ITC competes for new and existing businesses with
large construction firms, electrical contractors, consultants in the security
business and other systems integrators. In its manufacturing operations,
InTegCom vies with numerous manufacturers such as -- Vicon, Sensormatic, Pelco
and Phillips. Many are much larger than ITC with many more resources. Currently,
our integration operations and other dealers, including Motorola service shops
which we supply, consume substantially all our manufactured products.
Pursuit of government business typically involves competitive bidding under
an exacting set of varied rules, where the low bidder is generally awarded this
contract. Such business often means lower profit margins. Instead, we prefer to
specialize in design-build projects where ITC, in effect, writes the
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specifications due to its advanced technical expertise and then implements and
completes the project in a timely and economic manner. This is not always
feasible or possible.
In the government arena, a winning bidder may also be compelled to
subcontract to or hire minority enterprises for security projects to satisfy
public requirements of affirmative action programs. In that event, we may
encounter difficulties finding technologically qualified subcontractors that
comply with these requirements.
WE RELY ON ONLY A FEW KEY EXECUTIVES
James E. Henry, Irvin F. Witcosky and Louis Massad, our three top officers
and directors, are employees vital to our business operations. The loss of any
one of them could have an adverse impact on our business, financial condition or
results of operations.
We have recently entered into five (5) year employment contracts with
Messrs. Henry, Witcosky and Massad. See 'Management -- Employment Agreements.'
In addition, we maintain key man insurance policies on the lives of Mr. Henry
and Mr. Witcosky, each in the amount of $1,000,000 with InTegCom as the primary
beneficiary.
OUR BUSINESS AND GROWTH WILL SUFFER IF WE ARE UNABLE TO HIRE AND RETAIN HIGHLY
SKILLED PERSONNEL
Our future success depends on our ability to attract, train, motivate and
retain highly skilled employees. If we are unable to hire and retain skilled
personnel, our growth may be restricted, the quality of our products and
services diminished and our revenues and the value of your investment reduced.
Competition for highly skilled employees is intense in our industry. We may be
unable to retain our skilled employees or attract, assimilate and retain other
highly skilled employees in the future. From time to time in the past, we have
experienced, and we may experience in the future, difficulty in hiring and
retaining highly skilled employees with appropriate qualifications.
OUR LONG-TERM ANNUAL FINANCIAL RESULTS HAVE BEEN INCONSISTENT AND ARE NOT
PARTICULARLY IMPRESSIVE AND FUTURE RESULTS MAY BE SIMILAR OR WORSE.
For the year ended December 31, 1997, 1998 and 1999 our sales were
$4,011,408, $6,783,267 and $7,556,855, and our net income (loss) for those years
was ($299) $85,590 and $180,856. While these numbers demonstrate growth, they
also reveal one year in which there was a sales decline. Our annual
profitability has not been continuous, and we actually suffered a small loss in
the year in which the sales decline occurred. In profitable years, our net
income was small in actual dollar amounts as well as in relationship to total
sales, representing from 1.26% to 2.39% of sales. We cannot predict whether the
future offers better or worse financial results. This financial pattern, if it
persists, could negatively affect your investment.
ECONOMIC DOWNTURNS OR RECESSIONS MAY DAMPEN THE DEMAND FOR OUR SECURITY SYSTEMS
Our previous experience indicates that during economic declines, some
decisions to implement security programs and install systems are deferred or
cancelled. In other cases, customers may increase their purchases of security
systems because they fear more inventory shrinkage and theft will occur due to
peoples' increasing economic need. With nearly eight years of national economic
growth, it is reasonable to anticipate some slowdown in economic activity in the
foreseeable future. However, we are not able to predict whether a slowdown will
have a negative effect, and the extent, if any, on ITC's business, financial
condition and results of operations.
IF WE DO NOT DEVELOP A SUFFICIENT SALES AND MARKETING FORCE, WE MAY NOT BE ABLE
TO IMPROVE PROFITABILITY AND INCREASE REVENUES SUFFICIENTLY
Currently, we engage in limited marketing activities, conducted primarily by
our senior management. We have obtained leads for new business mainly through
recommendations from existing clients and general word of mouth rather than
extensive marketing and sales campaigns. After the completion of this offering,
we will hire an in-house sales and marketing staff, but our efforts to develop
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a sufficient sales and marketing campaign may prove to be inadequate. Our
inability to develop an effective sales and marketing group could have a
negative effect on our planned growth and profitability.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE ACQUISITIONS OR FORM JOINT VENTURES AS A
MEANS OF FOSTERING OUR GROWTH
We may not be able to identify suitable candidates for acquisitions or joint
ventures or consummate transactions with them. Since we are relying on acquiring
other companies and forming joint ventures with independent integrators to
promote a portion of our growth, our opportunities may be limited in this
regard.
If we make an acquisition of a company or form a joint venture, we could
have difficulty assimilating the acquired company's operations and personnel or
working with the joint adventurer which could increase our expenses and reduce
the value of your investment. These difficulties could disrupt our ongoing
business, distract our management and employees, increase our expenses and
charges as well as materially and adversely affect our revenues and the value of
your investment.
WE HAVE NO PATENTS, PATENTS PENDING OR COPYRIGHTS, AND WE MAY NOT BE ABLE TO
PROTECT OUR REMAINING PROPRIETARY RIGHTS AND MAY INFRINGE ON THE PROPRIETARY
RIGHTS OF OTHERS
We have no patents, patents pending or copyrights, but we regard our trade
secrets and similar intellectual property as important to our success. However,
our efforts to establish and protect our proprietary rights may be inadequate to
prevent misappropriation or infringement of our proprietary property. If we are
unable to safeguard our intellectual property rights, our business, operating
results and financial condition could be materially harmed. Third parties may
bring claims of copyright or trademark infringement against us or claim that our
use of certain technologies violates a patent. Third parties may also claim that
we have misappropriated their technology or otherwise infringed on their
proprietary rights. At present, we are not aware of any claims. Any claims of
infringement, with or without merit, could be time-consuming to defend, result
in costly litigation, divert management attention, require us to enter into
expensive royalty or licensing arrangements or prevent us from using important
technologies or methods. These eventualities, together or alone, could damage
our business and financial condition.
WE NEED TO MANAGE OUR GROWTH EFFECTIVELY
Our growth has placed, and will continue to place, a significant strain on
our managerial, operational and financial resources. Failure to manage our
growth effectively could have a material adverse effect on our business.
Eventually, we need to:
hire an administrative head and more project managers;
improve our financial and management controls, reporting systems and
procedures;
expand, train and supervise our work force for manufacturing, installation,
marketing and sales, and research and development; and
manage multiple relationships with key customers, strategic partners and
other third parties
To finance our growth, we may require additional funding sooner than
anticipated. Moreover, unplanned acquisition and development opportunities and
other contingencies may arise, which could require us to raise more capital.
Additional financing may not be available on commercially reasonable terms, if
at all.
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RISKS RELATING TO THIS OFFERING
OUR MANAGEMENT WILL CONTROL ALMOST 80% OF OUR COMMON STOCK AFTER THIS OFFERING
AND THEIR INTERESTS MAY BE DIFFERENT FROM AND CONFLICT WITH YOURS
The interests of management could conflict with the interests of our other
stockholders. After this offering, Mr. Henry, Mr. Witcosky and Mr. Massad will
beneficially own a total of approximately 80% of our outstanding common stock if
the underwriters' over-allotment option is not exercised in full. Accordingly,
if they act together, they will have the power to control the election of all of
our directors and other issues for which the approval of our shareholders is
required. If you purchase shares of our common stock and warrants, you may have
no effective voice in our management.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS OF THIS
OFFERING AND MAY NOT APPLY THEM EFFECTIVELY
Our management will have flexibility in applying the net proceeds of this
offering and may apply the proceeds in ways with which you do not agree. The
failure of our management to apply these funds effectively could materially harm
our business. The proposed allocation of this offering's net proceeds represents
our management's best estimate of the expected utilization of funds to finance
our activities in accordance with its current objectives and market conditions.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
You will experience an immediate and substantial dilution of $5.10 per share
in the net tangible book value per share of common stock from the initial public
offering price, assuming an initial public offering price of $6.25 per share,
representing the mid point of the filing range. You may also experience dilution
if future stock options to purchase our shares, or if the warrants issued to the
public or to be issued to the representative of the underwriters, are exercised.
Accordingly, existing shareholders will benefit disproportionately from this
offering. If we raise additional capital through the sale of equity, including
preferred stock or convertible securities, your percentage ownership will be
diluted.
UNLESS A PUBLIC MARKET DEVELOPS FOR OUR SECURITIES, YOU MAY NOT BE ABLE TO SELL
YOUR SHARES
Prior to this offering, there has been no public market for our common
stock. Although we have applied to register or list our shares of common stock
and warrants on NASDAQ small cap market list and the Boston Stock Exchange, an
active trading market may not develop or be maintained. Failure to develop or
maintain an active trading market could negatively affect the price of our
securities.
OUR STOCK PRICES MAY FLUCTUATE, WHICH MAY MAKE IT DIFFICULT TO RESELL YOUR
SHARES AT ATTRACTIVE PRICES
The market price of our common stock may be highly volatile. The market
prices of securities of other technologically oriented companies of similar size
have been extremely volatile. Factors that could cause volatility in our stock
price include:
fluctuations in our quarterly operating results;
changes in the market valuations of other security or technology companies
and stock market prices and volume fluctuations generally;
economic conditions specific to the security industry;
announcements by us or our competitors relating to new services or
technologies, significant acquisitions, strategic relationships, joint
ventures or capital commitments;
applicable regulatory developments; and
additions or departures of our key personnel.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $5,000,000
from our sale of the securities in this offering, based upon an initial public
offering price of $6.35 for the unit. If the underwriters exercise their
over-allotment option in full, we will receive net proceeds of approximately
$5,857,000. These amounts are derived after deducting estimated underwriting
discounts, commissions, fees and expenses of approximately $1,350,000 and
$1,445,000 payable by us. We currently intend to utilize the net proceeds of
this offering substantially as follows:
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<CAPTION>
PERCENT
AMOUNT (%)
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<S> <C> <C>
Market systems integration services, new products and
technologies.............................................. $ 900,000 18%
Expand dealer and Value-Added Resellers ('VAR') network..... 500,000 10
Open additional offices for sales and services.............. 500,000 10
Make acquisitions of other systems integrators and related
businesses................................................ 750,000 15
Hire management and marketing personnel..................... 600,000 12
Increase research and development on proprietary products
for identifiable markets.................................. 600,000 12
Repay bank loan in part..................................... 500,000 10
Use balance for working capital............................. 650,000 13
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Total................................................... $5,000,000 100%
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MARKET SYSTEMS INTEGRATION SERVICES AND NEW PRODUCTS
We intend to actively solicit new customers and business by exhibiting at
trade shows, advertising in trade magazines and setting up a sales group to
solicit prospective customers.
EXPAND DEALER AND VAR NETWORK
We must obtain and support additional dealers and VAR's to market more of
our products and services. To do so, we will identify experienced and qualified
resellers and dealers, send our representatives into the field to discuss
relationships with InTegCom and demonstrate our products, then enroll them.
OPEN ADDITIONAL SALES AND SERVICE OFFICES
In selected areas of the country, we intend to open new offices. These
locations have not been determined as yet, but the primary factors in their
selection will be the extent of business prospects and qualified personnel
available there. Having a presence in specific geographic markets should
increase our chances to develop new or additional business.
MAKE ACQUISITIONS OF OTHER SYSTEMS INTEGRATORS AND RELATED BUSINESSES
Although none have been identified, we anticipate acquiring other systems
integrators in the security industries of similar or smaller size than us and
related businesses. These concerns will in all probability be located in
geographic areas other than our current offices and will enable us to compete
for business in those areas or on a more national basis.
HIRE MANAGEMENT AND MARKETING PERSONNEL
We expect to hire additional management and marketing personnel in order to
grow our business. Management personnel will assist in directing existing and
new personnel for projects and overall business. We need to more actively market
our services and manufactured products. Since we have not done so in the past,
it is necessary to hire qualified personnel with marketing and sales experience
in selling security or technical devices.
10
<PAGE>
INCREASE RESEARCH AND DEVELOPMENT
Our research and development needs to be expanded. Work has already started
on a new specialized network application for our Matrix Switch product and
customized camera housings, and we seek to initiate other projects, such as a
graphic user interface. This interface presents information in easily
recognizable form for computer operators on their monitors while the housings
cover and shield cameras so they blend appropriately into the decor of a
building or structure.
Initially we shall focus on completing products in the final phase of our
research and development, including a networking applications, as well as
network integration of digital video recording devices manufactured by other
vendors.
USE BALANCE FOR WORKING CAPITAL
We anticipate that our working capital needs will increase substantially as
we grow the business. Consequently, we will utilize more funds to pay for, among
other things, increased purchases from vendors, additional salaries and wages,
professional fees and expenses and other operating costs.
The increase in our equity and improvements in our balance sheet resulting
from this offering should also enable us to increase our bonding capabilities in
order to win larger projects. Keep in mind these allocations are estimates only
and may be revised from time to time to meet our requirements; any excess will
be added to working capital and any shortage will be deducted from working
capital. Allocations may also be changed in response to unanticipated
developments in InTegCom's business. Based upon our management's judgments, we
may re-allocate such amounts from time to time among these categories or to new
categories if we believe this to be in our best interest. In the event that the
underwriters' over-allotment option is exercised, we will realize additional net
proceeds which will be added to working capital.
Pending full utilization of the net proceeds of this offering, we intend to
make temporary investments in United States government or federally insured
securities. We believe that the net proceeds from this offering plus working
capital from operations and other sources of funds will be adequate to sustain
our operations for the foreseeable future. It is anticipated that such proceeds
will be utilized over the first 36 months after this offering.
DIVIDEND POLICY
We have never declared or paid any cash or stock dividends on our capital
stock. We presently intend to reinvest earnings to fund the development and
expansion of our business and hence do not anticipate paying cash dividends on
our common stock in the foreseeable future. The declaration of dividends will be
at the discretion of our board of directors and will depend upon our earnings,
capital requirements and financial position, general economic conditions and
other pertinent factors.
11
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1999 and
as adjusted gives effect to the issuance and sale of the 1,000,000 shares of
common stock and 1,000,000 warrants and the initial application of the estimated
net proceeds.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
ACTUAL ADJUSTED
------ --------
<S> <C> <C>
Indebtedness
Short-term debt, due to bank and others, including
current portion of long term debt..................... $ 55,566 $ 55,566
Long-term debt due to bank and third parties............ 1,556,092 1,056,092
Stockholder's equity
Preferred Stock, par value $.01 per share; 2,000,000
shares authorized, none issued
Common Stock, par value $.01 per share; 10,000,000
shares authorized, 5,000,000 shares issued and
outstanding as adjusted............................... 40,000 50,000
Additional paid-in capital.............................. 233,800 5,223,800
Deferred stock-based compensation....................... (62,500) (62,500)
Retained earnings....................................... 637,303 637,303
---------- ----------
Total stockholder's equity.......................... $ 848,603 $5,848,603
---------- ----------
---------- ----------
</TABLE>
The above table includes our:
bank debt in the aggregate of $1,429,912 with interest at the bank's prime
rate, which will vary plus 1/2% under a credit agreement dated
September 8, 1999. Under this arrangement ITC may borrow up to $2,000,000,
for working capital and up to $250,000 for equipment purchases. Repayment
of the credit line for working capital must be made by June 1, 2001 and for
equipment in monthly installments starting October 1, 2000 and ending
September 1, 2005. Interest payments on existing notes are due monthly from
September or October 1, 1999. All our assets and the personal guarantees of
two of our top officers are used to secure these notes but upon completion
of this offering we expect our bank to eliminate the security and guarantee
arrangements.
settlement of debt aggregating $128,685, including deferred interest, owed
to a third party for money lent to us in October, 1989 under two promissory
notes due December 1, 2003 at 10% interest per year. This debt is
personally guaranteed by Mr. Henry and Mr. Witcosky.
recapitalization in which we organized InTegCom Corp., issued an aggregate
of 4,000,000 shares of its common stock to Mr. Henry and Mr. Witcosky in
exchange for all the common stock they held in the following corporations:
HBE Acquisition Corp, Viscom Products Inc., HBE Central Management Inc. As
a result, all these companies are now wholly owned subsidiaries of
InTegCom.
However, the above table does not cover our:
1,000,000 shares of common stock issuable upon exercise of the warrants to
be sold in this public offering;
up to 150,000 shares of common stock and 150,000 warrants to be issued on
their exercise to purchase the same number of shares under the
underwriters' over-allotment option;
500,000 shares of common stock reserved for issuance under our incentive
stock option plan;
100,000 shares of common stock to be issued on the exercise of the
representative's warrants.
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<PAGE>
DILUTION
As of December 31, 1999, our net tangible book value was $626,000, or
approximately $.16 per share of common stock. Net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock issued and outstanding after
giving effect to the recapitalization described in this prospectus under
'Capitalization', 'Business -- Corporate History', 'Certain Transaction' and
Note 1 to the financial statements included elsewhere.
After giving effect to the sale of the 1,000,000 shares of common stock at
$6.25 per share and 1,000,000 warrants in this public offering at $.10 per
warrant, and after deducting estimated underwriting discounts and offering
expenses, our pro forma as adjusted net tangible book value at December 31, 1999
would have been $5,626,000 or $1.13 per share of common stock. This represents
an immediate increase in net tangible book value of $.97 per share of common
stock to existing stockholders and an immediate dilution in net tangible book
value of $5.12 per share of common stock, or approximately 82%, to new
investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share of
common stock.......................................... $6.25
Net tangible book value per share prior to the
offering.............................................. $ .16
Increase in net tangible book value per share
attributable to the offering.......................... $ .97
Pro forma, as adjusted, net tangible book value per
share after the offering.............................. $1.13
Dilution of net tangible book value per share to
investors in the offering............................. $5.12
</TABLE>
If the underwriters' over-allotment option is exercised in full, our pro
forma as adjusted net tangible book value after the offering would have been
approximately $6,483,000 or $1.26 per share of common stock. This represents an
immediate increase in net tangible book value of $1.10 per share of common stock
to existing stockholders and an immediate dilution in net tangible book value of
$4.99 per share of common stock, or approximately 80%, to new investors.
The following table summarizes on a pro forma basis, as of December 31,
1999, the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by existing stockholders
of common stock and the investors in this offering, assuming the sale of
1,000,000 shares and 1,000,000 warrants at the prices indicated above and
offered by this prospectus. The calculations are based upon the total
consideration given by new investors and existing stockholders before any
deduction of underwriting discounts and offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................ 4,000,000 80% $ 211,000 3% $ .05
New investors........................ 1,000,000 20 6,350,000 97 6.35
--------- --- ---------- --- -----
Total............................ 5,000,000 100% $6,561,000 100% $6.40
--------- --- ---------- --- -----
--------- --- ---------- --- -----
</TABLE>
13
<PAGE>
SELECTED FINANCIAL INFORMATION
The historical selected financial data as of December 31, 1998 and 1999 and
for the years ended December 31, 1997, 1998 and 1999 are derived from and should
be read in conjunction with our audited financial statements and their notes
included elsewhere in the prospectus. The data presented below should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and the financial statements and accompanying notes
appearing elsewhere.
Shares of common stock outstanding have been restated to reflect the
recapitalization described in Note 1 to the accompanying financial statements
and elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales............................................. $4,011,408 $6,783,267 $7,556,855
Cost of goods sold................................ $2,574,169 $4,680,342 $5,255,303
64.17% 69.00% 69.54%
Gross profit...................................... $1,437,239 $2,102,925 $2,301,552
35.83% 31.00% 30.45%
Selling, G&A...................................... $1,255,920 $1,819,205 $1,863,447
31.31% 26.82% 24.66%
Interest.......................................... $ 159,672 $ 106,939 $ 122,340
3.98% 1.58% 1.62%
Income before taxes............................... $ 21,647 $ 176,781 $ 315,765
Income tax........................................ $ 21,946 $ 91,191 $ 134,909
Net income (less)................................. $ (299) $ 85,590 $ 180,856
0.01% 1.26% 2.39%
Retained earning beginning........................ $ 410,818 $ 370,857 $ 456,447
Prior period adjustment........................... $ (39,662)
Retained as adjusted.............................. $ 371,156 $ 370,857 $ 456,447
Retained earnings end............................. $ 370,857 $ 456,447 $ 637,303
Basic and diluted earnings per share.............. $ .00 $ .02 $ .05
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1998 1999
---- ----
<S> <C> <C>
BALANCE SHEET DATA:
Total working capital....................................... $1,384,602 $1,900,153
Total assets................................................ 3,088,800 3,715,549
Total liabilities........................................... 2,421,053 2,866,946
Total stockholder's equity.................................. $ 667,747 $ 848,603
</TABLE>
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<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements are
not historical facts, but rather are based on our current expectations,
estimates and projections about our industry, our beliefs and assumptions. Words
including 'may,' 'could,' 'would,' 'will,' 'anticipates,' 'expects,' 'intends,'
'plans,' 'projects,' 'believes,' 'seeks,' 'estimates' and similar expressions
are intended to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and other factors, some of which remain beyond our control, are difficult to
predict and could cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements. These risks and uncertainties
are described in 'Risk Factors' and elsewhere in this prospectus. We caution you
not to place undue reliance on these forward-looking statements, which reflect
our management's view only as of the date of this prospectus. We are not
obligated to update these statements or publicly release the result of any
revisions to them to reflect events or circumstances after the date of this
prospectus or to reflect the occurrence of unanticipated events.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of the financial
condition and results of operations should be read in conjunction with our
financial statements and their notes appearing elsewhere in this prospectus. In
addition to historical information, the management's discussion and analysis of
financial condition and results of operations as well as other parts of this
prospectus contain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of factors, including but not
limited to, those set forth under 'Risk Factors' and elsewhere.
OVERVIEW
We were incorporated in 1989 under the name HBE Acquisition Corp. ('HAC')
initially to repurchase the Closed Circuit Television ('CCTV') division of
Communications Group, Inc. and to provide customers with systems integration
services in the security area. HAC presently manages and operates such services,
general administration and the assets concerned. Other affiliated companies were
formed to handle related activities from 1990 to 1991. The companies also
include Viscom Products Inc., which oversees and controls the manufacturing and
assembly operations of CCTV equipment and related assets, and HBE Central
Management, Inc. ('HCM'). This subsidiary handles alarm monitoring which
represents less than 1% of ITC business.
HAC's principal assets consist of accounts receivable, inventory and fixed
assets consisting mainly of demonstration and testing equipment, computers and
service vehicles. Viscom's major assets are accounts receivable, inventories and
computer software product cost. The following table presents the percentage of
assets in the corporate consolidation attributed to each subsidiary:
<TABLE>
<S> <C>
HAC......................................................... 79.0%
Viscom...................................................... 20.5
HCM......................................................... 0.5
-----
100.0%
-----
-----
</TABLE>
In November, 1999, we organized InTegCom Corp. ('ITC') in the state of
Delaware in preparation for this public offering. Immediately afterwards, Mr.
Henry and Mr. Witcosky exchanged the common stock that they held in the three
affiliated companies which we mentioned above, with InTegCom for its common
stock. Consequently, these companies are now all wholly owned subsidiaries of
ITC. The value of the underlying assets of such affiliated companies, owned by
ITC, remained the same after the exchange of stock.
Our largest customer, NYC Transit, accounted for 32%, 34% and 21% of
revenues in each of the fiscal years ended December 31, 1999, 1998 and 1997. We
anticipate that NYC Transit will continue to
15
<PAGE>
account for a significant portion of our revenues in the future. Four other
customers each accounted for from 3% of our revenues to 8% during the same
periods.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998
Sales
Sales increased to $7,556,855 for the year ended December 31, 1999 from
$6,783,267 for the year ended December 31, 1998. The $773,588 or 11.4% increase
in sales was derived principally from sales both to new customers and increased
business from existing customers. Our five largest customers accounted for 61%
of revenues for the year ended December 31, 1999 compared with 68% for the year
ended December 31, 1998.
Cost of Sales
Cost of sales increased to $5,255,303 or 69.5% of sales, for the year ended
December 31, 1999 from $4,680,342 or 69% of sales, for the year ended December
31, 1998. This increase was primarily due to normal yearly fluctuations in
sales, costs and margins.
Operating Costs and Expenses
Selling, General and Administrative Expenses. Selling, general and
administrative increased to $1,863,447 or 24.6% of sales, for the year ended
December 31, 1999, from $1,819,205, or 26.8% of sales, for the year ended
December 31, 1998. A cost savings of 2.2% was attributable primarily to better
management controls and improvements in training of the labor force.
Interest Expense, Net of Interest Income. Interest expense increased to
$122,340 or 1.6% of sales for the year ended December 31, 1999 from $106,939 or
1.6% of sales for the year ended December 31, 1998. ITC's borrowing pattern for
both years was essentially the same.
Net Income. For the year ended December 31, 1999, Integcom's net income
totaled $180,856 or 2.4% of sales, as compared to $85,590 or 1.3% of sales for
the year ended December 31, 1998. This increase is the result of improvements in
sales volume and overall cost controls.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
Sales
Sales increased to $6,783,267 for the year ended December 31, 1998 from
$4,011,408 for the year ended December 31, 1997. The $2,771,859 or 69% increase
in revenues was mainly attributable to increased sales from new customers and
additional business from existing customers. Our five largest customers
accounted for approximately 68% of revenues for the year ended December 31, 1998
compared to 40% of revenues for the year ended December 31, 1997.
Cost of Sales
Costs of sales for the year ended December 31, 1998 were $4,680,342 or 69%
of revenues, compared to $2,574,169 for the year ended December 31, 1997, or 64%
of sales. A 5% increase in cost occurred because of increased subcontract work
required for the projects and the introduction of new digital technology that
required more personnel training and integration effort.
Operating Costs and Expenses
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $1,819,205 or 27% of sales for the year
ended December 31, 1998 from $1,255,920 or 31% of sales for the year ended
December 31, 1997. This 1998 increase of $563,285 stemmed from increased sales
volume.
16
<PAGE>
Interest Expense, Net of Interest Income. Interest expenses decreased to
$106,939 or 2% of sales for the year ended December 31, 1998, from $159,672 or
4% of sales for the year ended December 31, 1997. The $52,733 savings was the
result of better cash management, coupled with reduced interest rates prevalent
in the general economy.
Net Income. For the year ended December 31, 1998 InTegCom's net income
totaled $85,590 or 2% of sales, as compared to a net loss of $(299) of sales for
the year ended December 31, 1997. The difference can be attributed to higher
sales volume and better cash flow management.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through bank debt,
loans and equity from principals, loans from third parties and funds generated
by our business. As of December 31, 1999, we had $140,063 in cash.
Net Cash Provided by Operating Activities. The 1999 operations used $277,761
in cash compared to the $10,989 provided in 1998. The principal cause involved
an increase in trade accounts receivable of $767,732 at December 31, 1999
compared to December 31, 1998. This increase was due to the completion of a
large number of contracts during the fourth quarter of 1999.
Net Cash Used in Investing Activities. Net cash used in investing activities
increased to $171,785 for the year ended December 31, 1999 from $142,515 for the
year ended December 31, 1998. Because of the expansion of our business, the
increase was primarily attributed to additional purchases of new computer
software and equipment.
Net Cash Provided From Financing Activities. Net cash generated from
financing activities increased to 392,838 for the year ended December 31, 1999
from $142,528 for the year ended December 31, 1998, a net increase of $250,000
caused by additional borrowings to meet the increase in sales volume and to
cover expenses related to this offering.
Under a settlement arrangement, we owe $128,685 to a former joint
adventurer. The terms of this settlement call for monthly installments of $3,264
to cover principal and interest at the rate of 10% per annum. We have made the
necessary payments to date, and expect to make the remainder from working
capital.
In September, 1999, InTegCom changed banks. On September 8, 1999 we
refinanced our bank debt with the Hudson United Bank ('HUB') This not only
improved our working capital position by approximately $884,000 by restructuring
all bank debt as non-current. The HUB financing consists of two credit lines, a
working capital line of $2,000,000 and equipment financing line of $250,000,
which aggregates to $2,250,000. The $2,000,000 line is due on June 1, 2001.
However, all borrowings under the equipment line are payable in monthly
installments until September 1, 2005. As of December 31, 1999, the balance owed
on these lines was $1,423,749 and $6,163, respectively. At that date we had
available to us $576,251 and $243,837, respectively. By refinancing we not only
increased our available lines of credit by $1,250,000 in the aggregate, but
reduced the cost of our working capital by 1/2%, from prime plus 1% to prime
plus 1/2%.
Due to our increased sales in 1999, accounts payable and accrued expenses
increased $149,055 to $1,043,821 in 1999 from $894,770 in the prior year. In
1998, most income taxes were prepaid by estimated payments. However, in 1999,
due to our rapidly expanding business, sales increased to approximately
$7,557,000 in 1999 from $6,783,000 in 1998 and income before taxes rose to
$316,000 from $176,781, thereby resulting in a Federal and local tax liability
of $102,000. At December 31, 1999, we were current with all our obligations.
At December 31, 1999 accounts payable increased to $830,581, a $171,807 or
26% increase over the balance at December 31, 1998 of $658,774. Part of the
increase related to our increased sales volume in 1999. Also, there were a
number of large projects completed in the fourth quarter for which invoices were
still open. During 1998, we started to do business with several new vendors for
which we had no credit history and required cash on delivery. During 1999, those
vendors gave us terms ranging from 45-60 days from delivery. At December, 1999,
all our vendors were being paid in accordance with terms.
In 1998 we requested a $150,000 deposit from a customer that did not meet
our credit criteria. We returned the deposit in 1999. We continue to request
deposits from new customers that fail to meet our
17
<PAGE>
credit criteria. Inventories at December 31, 1999 were at $702,268, a decrease
of $106,941 from the balance of $809,209 at December 31, 1998. Some of the
decrease was due to the large number of contracts completed in December, 1999
together with tighter inventory controls instituted during the year.
Our capital requirements have grown since our inception consistently with
the growth of our operations and staffing. We expect our capital requirements to
continue to increase in the future to expand and maintain our growth and to
remain a competitive force in our industry. We intend to use approximately
$3,850,000 of the net proceeds from this initial public offering for expansion
and improvements. See the section in this prospectus entitled 'Use of Proceeds.'
We believe that the cash flow from operations, combined with our borrowing
capabilities and the net proceeds from this offering will be sufficient to meet
our anticipated working capital and capital expenditure requirements for at
least the foreseeable future after this offering.
Integcom adopted an incentive stock option plan on December 23, 1999. Under
this plan we granted options covering 100,000 shares of our common stock to 44
employees at an exercise price equal to 90% of the initial public offering price
for such stock. These options vest at the rate of 33 1/3% for each year of
continuous employment the optionee has with ITC.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective October 1, 1997, we adopted the provisions of SFAS No. 130,
'Reporting Comprehensive Income.' SFAS No. 130 establishes standards for
reporting comprehensive income, defined as all changes in equity from non-owner
sources. Adoption of SFAS No. 130 did not have a material effect on our
financial position or net income.
Effective October 1, 1997, we adopted the provisions of SFAS No. 131,
'Disclosures About Segments of an Enterprise and Related Information.'
SFAS No. 131 establishes standards for the way the public enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to stockholders. Adoption of SFAS No. 131 did
not have a material effect on our financial position or net income.
Effective October 1, 1997, we adopted American Institute of Certified Public
Accountants Statement of Position 97-2, 'Software Revenue Recognition.'
SOP 97-2 generally requires revenue earned on software arrangements involving
multiple elements, such as software products, upgrades, enhancements,
post-contract customer support, installation and training to be allocated to
each element based on the relative fair values of the elements. The adoption of
SOP 97-2 does not have an effect on our financial position or net income.
Effective December 29, 1997, we adopted Statement of Financial Accounting
Standards (SFAS) No. 132, 'Employers' Disclosures About Pensions and
Post-retirement Benefits,' which standardizes the disclosure requirements for
pensions and other Post-retirement benefits. The Statement addresses disclosure
only. It does not address liability measurement or expense recognition. There
was no effect on our financial position or net income as a result of adopting
SFAS No. 132.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, 'Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use,' which revised the accounting for software development costs
and will require the capitalization of certain costs. The adoption of SOP 98-1
did not have an effect on our financial position or net income.
Seasonality
Our business tends to be seasonal in that most of the orders are usually
submitted by customers in the latter half of the calendar year.
18
<PAGE>
BUSINESS
OVERVIEW
In the commercial marketplace InTegCom furnishes its customers with
integrated electronic security systems which include technologically advanced
Closed Circuit Television ('CCTV') and access control systems to secure and
regulate their sites and locations. Access control systems electronically govern
the entry of authorized persons to facilities and restricted spaces. ITC
designs, integrates, manufactures, installs, maintains and purchases these
systems and their related devices and software. Our integrated systems encompass
CCTV's, intercoms, alarm-monitoring, video and audio recording, card access
controls and personnel identification devices, plus facility equipment sensors
and building controls. ITC security systems are often integrated with the
client's building and facility management systems.
INTEGRATED ELECTRONIC SECURITY SYSTEMS
CCTV systems for security applications provide video surveillance of many
locations on a continuous basis and extend the visual reach of human personnel
from central locations. These systems replace guards and watchmen, thereby
reducing labor costs, and at the same time improve and up-grade security. They
permit operators at a central location to survey the pictures and the activities
transmitted from multiple sites on a set of television monitors in their
presence and to record them automatically on analog video tape or digital
storage media. Recordings in digital format can be archived, transmitted to
other locations and retrieved for analysis. They can be useful in resolving
insurance claims, as evidence in legal proceedings, to train and manage
employees, or in verifying events and checking faculty status.
Access control systems can incorporate several card reader technologies. For
example, control systems rely on magnetic-stripped, proximity and/or smart cards
issued to select individuals to allow them to gain access to a secure area or
office. The holder presents the card at a card reader. If the card is authentic
and authorized, the holder is then admitted.
At times biometrics such as fingerprint reading, eye imaging, voice
verification and hand geometric devices or keypads, are used in these systems to
identify the correct person for entry and bar the unauthorized one. Some
customers employ both card and biometric systems for greater protection.
Frequently, a customer relies on video badging to identify its employees or
students. Under this technique, the badge with his or her picture is attached to
the front of the authorized person or is contained digitally in the computer.
When linked to a CCTV system, the security controller or the system itself views
the pictures on the badge or in the computer and matches it to the face of the
individual seeking entrance. If the picture matches the face, the controller or
system lets him in. If it does not, entry is barred.
Communication remains vital to the operational effectiveness of these
systems. For CCTV applications the obvious communications involve the video
component where pictures are transmitted to the monitoring personnel. These
transmissions can be in black and white or in color, must be clear and properly
focused without distortion. Today most customers select color cameras to obtain
better identification and clarity.
In both CCTV and access control systems, an audio component is often present
that allows voice communication between the controller and the individual under
video surveillance or seeking access. This may consist of a telephone, radio,
pager, or intercom hook-up or even a public address system. At the very least, a
controller can talk to this individual and in a two-way or multiple setup the
individual and others may speak with him.
Another element in the system may be alarms which signal unauthorized entry
or break-ins to monitoring personnel. Usually linked to motion detectors or door
contact switches, they discover the presence of an intruder and relay that event
to monitoring personnel or the alarm monitoring system. When connected to alarm
sensors, CCTV permits monitoring personnel to identify intruders and document
the intrusion.
Within these systems an array of sensors frequently gauge the physical
condition of equipment, such as computers, air conditioning, heating,
ventilation devices, as well as spaces themselves. These
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<PAGE>
sensors include temperature gauges, smoke detectors, humidity and air-quality
testing devices. They usually function to detect emergencies and prevent
equipment breakdown or damage and result in better and more efficient building
and facility management.
Besides the video and audio aspects of the transmission, these systems also
move data from one location to another, and they must do it quickly, reliably
and without interruption. This data includes the pictures and accompanying voice
elements and needs to be stored in an organized fashion so that it can be easily
retrieved, analyzed and perhaps applied as evidence in a legal proceeding or to
resolve insurance claims.
Of course, these systems are comprised of many different devices involving
various technologies under computer control that are linked to one another,
sometimes over long distances. They are often hooked together over cables, which
consist of copper wire or fiber optics (standard telephone lines). However, in
today's rapidly evolving environment, wireless (radio) link-ups have been widely
used to reduce installation time and cost.
The devices in these systems each have different functions but are designed
and linked to work together. To that end dedicated computer hardware and
specially written software for the application concerned control them. Systems
integrators, like InTegCom, customize and tailor this equipment in light of the
requirements of each project and integrate the differing technologies and
disparate devices fabricated by many manufacturers, including its own in ITC's
case.
Security systems can be set up to communicate over networks -- local area
networks or wide area ones through standard telephone lines, fiber optics, the
internet, or special leased telephone lines with rapid transmission
capabilities. The method of communication selected for a network will depend on
the needed bandwidth to support videos from multiple sites. Bandwidth refers to
the network's capacity to carry data and the speed of transmission. Networks
permit the transmission of digitized pictures, voice and data to many more
locations over longer distances, and, depending on its bandwidth, at faster
speeds and in larger amounts.
The system integration specialists in the commercial arena remain highly
fragmented, and the industry is populated by many small and medium-sized
companies with only a few larger players. These companies tend to do business in
the geographic areas where their offices are physically located. It is unusual
when any one company can offer its services on a national basis. Outsiders, such
as large construction firms and electrical contractors, often seek to furnish
simplified integration services.
In contrast, manufacturers of security devices and systems come in many
different sizes. Their businesses are often national in scope, and their
products are distributed throughout the country and even abroad. Rarely, do they
encounter competition from companies outside the security industry selling
similar products.
As people's concerns about security grow, the customer base for CCTV and
access control systems has broadened in the commercial marketplace over the
years. Federal and state government agencies and large corporations have
frequently led the charge for greater security. However, smaller businesses,
local governments, schools and universities are not far behind in adopting these
systems to their special needs.
CCTV systems, for example, have become increasingly common fixtures in
today's society. Covert or overt, their high-resolution cameras, fixed or with
pan and tilt and zoom lens features, survey casinos, department and drug stores,
malls, office buildings, parks, factories, warehouses, banks, parking lots and
garages, transit operations and many other commercial, academic, and industrial
realms. More recently, these systems have also been incorporated into downtown
centers, vehicular traffic regulation and toll collection efforts.
Similarly, access control applications have infiltrated a wider territory
with many more varied types of customers. Once operative only in the domain of
highly security-conscious concerns like government intelligence agencies or
money-counting centers, access control systems now regulate and restrict the
internal movements of employees in a host of industries and government agencies
as well as students, faculty and administrators in school and university
settings. The rash of recent shootings at schools and churches throughout the
country merely heightens security concerns for those in charge of areas where
20
<PAGE>
people gather in sufficient numbers and accelerates the drive for solutions
involving CCTV and access control systems.
On the supply-side of the commercial security equation loom various trends
as well. In earlier phases, manufacturers of devices and related software
specialists tended to create proprietary products that locked customers into
their particular systems. This tendency made it more difficult for systems
integrators to meld different technical elements from separate manufacturers
into one fully functioning system. Recently, a propensity towards open
architecture in security devices and their software, allowing flexible sharing
of information between diverse systems, as well as upgrading and expanding
security systems without dismantling older installed devices, has gained
acceptance. Now neither customer nor the integrators are trapped into purchasing
a particular device, system or add-ons from a sole manufacturer or software
supplier. It has also become easier to marry disparate systems, devices and
software.
In card access, proximity cards permit access control by communicating the
identity of the card via a wireless link to a specialized reader. Smart cards
with their multi-applications have also entered the marketplace, utilizing
similar wireless technology. Smart cards usually contain a computer chip and may
be scanned by a contactless reader. This speeds up their usage and reduces wear
and tear on the cards and their readers. Because smart cards are harder to
counterfeit than magstripped ones, the incidence of fraud are also lowered.
But perhaps even more crucial is smart cards' diverseness of functionality
though more expensive. By performing several functions at the same time, they
appear to have greater utility. For example, a debit transit card for riding
subways and buses can be used as an access card for transit employees. A student
card which controls entry to classrooms and dormitories at the same time can
serve as a debit card for purchases in a campus cafeteria or bookstore.
Security systems are more frequently designed to be linked to the customer's
own internal information management networks called virtual private networks.
This trend has accelerated as companies and agencies incorporate and meld
conventional copper wire installations with fiber optics to create these
networks for wider-area coverage. It reflects the further integration and
centralization of separate systems into a single overall communication network.
Customers for security applications, particularly larger ones, are seeking
systems integrators with national and even international capabilities. While a
local presence has always been critical in rendering effective service, bigger
customers with more extensive geographic needs are driving the market for
security systems beyond traditional local and regional boundaries. Accordingly,
this trend has spurred the management of InTegCom to seek acquisitions of system
integrators in different sections of the country, to enter into joint ventures
or other cooperative business arrangements with them and to open new offices
elsewhere.
CORPORATE HISTORY
In the early 1950's John Henry, the father of James E. Henry, the current
President of InTegCom, started a small television repair business in Paramus,
New Jersey that focused on retail consumers. Soon afterwards, John's oldest
brother, Ray Henry, joined him, and they both worked full time servicing
television sets. In mid 1950's, the health-care division of Motorola assigned or
subcontracted its hospital service business in the New York-New Jersey area to
the Henry Brothers who began to repair television sets in patient rooms as well
as the nurse call systems. This assignment initiated their entry into the
commercial marketplace and expanded their expertise to radio communications.
In 1960 they became an authorized Motorola Service Shop ('MSS'). This
relationship grew when Motorola encouraged them to enter the CCTV business. As a
result, they designed, installed, integrated and maintained CCTV and audio
systems. By 1965, the commercial side of their business exceeded their consumer
activities.
During the 1950's, Hartford Henry, another brother, served as an informal
business advisor to them. But as the business expanded, he also came on board on
a full-time basis as the chief financial officer and administrator. In the early
1960's, the business was incorporated in New Jersey under the name of Henry
Bros. Electronics, Inc. ('HBE').
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By 1975, HBE had developed three separate divisions -- CCTV, two-way
radio/paging and consumer (sales and service of television sets). As part of the
radio-paging services, HBE owned and operated repeating towers in New Jersey,
and in the mid-1980's they began selling and servicing cellular telephones.
As the brothers got older and sought retirement, they sold HBE to
Communications Group, Inc. ('CGI'), a publicly-held company, in July, 1986. At
the time of the sale, HBE had annual revenues of approximately $10,000,000 with
a history of profitability.
In October 1989, James E. Henry, who had worked continuously for HBE since
1978 and Irvin F. Witcosky, who had joined HBE in 1987, arranged a buy-back of
its CCTV division from CGI and the HBE name through HBE Acquisition Corp.
('HAC') currently an ITC wholly owned subsidiary. In a separate transaction,
other employees of CGI repurchased the radio-paging division from CGI about the
same time.
In 1990, Mr. Henry and Mr. Witcosky purchased the assets of a former
Motorola CCTV factory, then owned by another company. These assets, under a new
corporation named Viscom Products, Inc., now a wholly-owned subsidiary of
InTegCom, were transferred from Chicago, Illinois to ITC's headquarters in
Saddle Brook, New Jersey. After the acquisition, Viscom provided support of
parts and maintenance for its older installed devices to the MSS's. Viscom also
redesigned and upgraded their aging products with the latest digital technology.
These products were sold to MSS's, as well as other ITC integration customers.
In 1991, HAC became a distributor for Motorola's two-way commercial radio
products, which it later sold in 1996. Also in 1991, HAC acquired the assets of
Advantage Security, Inc., a small Long Island-based company that specialized in
security system integration and alarm monitoring. Incorporated on December 18,
1991, HBE Central Management Inc. supervised alarm monitoring after the
acquisition of Advantage Security by HAC. In July 1995 HAC purchased the assets
of the security systems integration office of Ogden Allied, Inc., near Dallas,
Texas. Through this acquisition, ITC supports the expanding Motorola business in
the southwest as well as other commercial and government accounts.
In November, 1999, InTegCom was incorporated in Delaware. Soon afterwards
Mr. Henry and Mr. Witcosky exchanged the common stock held in three related
companies for an aggregate of 4,000,000 shares of the common stock of ITC. As a
consequence, these companies are currently wholly-owned subsidiaries of
InTegCom.
The following table shows the number of outstanding shares of common stock
in these three corporations that Mr. Henry and Mr. Witcosky exchanged for their
shares in ITC.
<TABLE>
<CAPTION>
HAC VISCOM HCM
--- ------ ---
<S> <C> <C> <C>
Mr. Henry............................................. 500 shares 505 shares 50 shares
Mr. Witcosky.......................................... 500 shares 505 shares 50 shares
------------ ------------ ----------
Total:............................................ 1,000 shares 1,010 shares 100 shares
</TABLE>
SERVICES
In consultation with our customers we strive to identify their security
needs and then design, customize, install and maintain an appropriate system for
them. Because each customer's needs ordinarily differ, the CCTV and access
control systems designed by us will vary from project to project. As part of the
design phase, we typically evaluate and select equipment to be purchased from
third party vendors. We also manufacture CCTV devices in our own factory for
sale to customers of our systems integration services and other authorized
MSS's. Our emphasis in selecting equipment for a project is to provide each
customer with the most advanced proven technology. In this regard, we stress
speed and quality of communications, recording, storage and transmission
capacities, media presentation, including formatting, as well as equipment
reliability for cost-effective security solutions.
When in search of new technologies to apply, InTegCom personnel continually
reviews the technical literature, attends major trade shows, engages in research
and development, and plies an array of personal contacts in relevant industries.
On the supply side, InTegCom is quick to establish
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relationships with key vendors, especially those with applicable advanced
technologies, and earn their loyalties. ITC also exploits its membership in PSA,
an industry purchasing co-op that offers members the opportunity to buy
equipment at discounts, to train personnel, and to exchange new business
concepts.
After the design is completed, our engineers and technicians install,
customize and integrate the selected devices and related software. As part of
our services, we sell our customers devices and software purchased from other
vendors as well as those manufactured by us. Where off-the-shelf equipment and
software are not available or applicable, we create the missing link and
incorporate it into the system. At the end we present the customer with a
turn-key operation that performs to its needs and specifications. Often we
connect and integrate systems to create networks for our customers. In addition,
we train their personnel to use the systems properly and to maintain them to
deliver maximum performance.
We currently maintain a tiny alarm monitoring operation for several
customers in which we track and communicate alarm warnings from their locations
to the appropriate authorities. Over time we intend to phase out this type of
business.
The systems designed and installed by us consist of:
video surveillance (CCTV) with remote monitoring and numerous cameras
public address, intercom call stations and wireless radio with remote
monitoring
video, audio and data transmission gateways over networks
digital video recording and video badging
magnetic-stripped, proximity and smart card access control
alarm sensors monitoring unauthorized activity in restricted area with
remote/response
remote sensors and controls for interior environmental and computer
facility purposes
Many of our projects represent first-time installations; others represent
upgrades where new equipment is added to an already installed system or new
equipment replaces obsolete or malfunctioning devices. For example, we may add
20 to 30 new video cameras, substitute color for black and white cameras,
install new monitors or control features at a location or simply replace
existing equipment with a newer set of devices. In dollar volume, it is
estimated that for the year ended December 31, 1999 approximately 75% to 80% of
our work involved initial installations and the remainder upgrades.
After initial installations and upgrades, customers usually require
maintenance services. Under our standard maintenance contract, we provide repair
services during the normal work day or on 7 day, 24 hour-basis at the customer's
request. Typically, we charge a small percentage of the total equipment sales,
and we bill the customer either monthly or quarterly. We also bill non-contract
customers for repair services at fixed hourly rates plus the cost of materials.
Contracts for design and installation of systems vary widely, depending on
the customer and the project. Most contracts are at a fixed price, including
mark-up for profit, which represents the cost of the bonding, equipment,
installation, sub-contracting, labor and warranty. Change orders, in which the
customer opts for additional or different devices or configurations during the
project, generally add to the project's scope and increase the price. A
mobilization charge, which involves payments for preparatory efforts, such as
scaffolding, cranes, office trailers, insurance and bonding, when applicable,
may be billed and collected initially. Bonding requires the installer to post
financial security to assure project completion.
On longer-term jobs we bill monthly to reflect the extent of our work, and
the customer makes progress payments each month until the project is completed.
Ordinarily, a percent of the contract price (between 2% and 15%) is withheld to
guarantee satisfactory completion. Cost overruns on government and other
projects have been avoided or minimized by meticulously applying cost estimates
at the beginning of a project and convincing customers to alter the scope of the
work and terms of the contract when necessary.
On certain projects, ITC is a prime contractor and for others a
subcontractor. When the installation is large in scope or must be performed by
union labor, this work is subcontracted to independent
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<PAGE>
electrical installers. On government projects, minority enterprises frequently
have mandated preferences by law for this type of work.
PRODUCTS
In our manufacturing and assembly operations, we produce equipment related
primarily to CCTV installations. The devices set forth below comprise the
standard products that we manufacture in-house.
Keyboard Encoders -- Basic Control, Full Function Control with Audio Option
in either Desktop or Rackmount -- Encoders send control and routing signals
to the Digital Decoders, Audio Call Stations and Matrix Switchers. These
devices come in three different models and allow the operator to select
many cameras from a remote viewing location and present their pictures on
monitors and control cameras to pan, tilt or zoom. In two models the
operator can speak to, and hear from, persons being viewed by the camera if
the audio option is selected.
Digital Decoder -- This device permits the Encoder operator to operate
pan/tilt motors and to move the camera and adjust its lens. It acts upon
the signal from the Encoder.
Audio Call Station -- This device is a two-way intercom that allows the
Encoder operator to respond to a person seeking entry from a remote
location who has signaled by pushing a call button. The operator, if
certain the individual is authorized, can open a door in or outside the
restricted area to let him in. It must be remotely controlled by the
keyboard encoder.
Matrix Switches -- These switches route camera signals to monitors
according to instructions from keyboard encoders. The small system model
can accept up to 64 cameras and route their pictures onto 8 monitors
sequentially or automatically when an alarm signals an unauthorized entry.
The largest system model has a minimum capacity of up to 128 cameras routed
to 32 monitors which can be expanded in increments of 128 cameras or 32
monitors.
Distribution Amplifier -- Video signals from cameras are often required to
feed numerous devices in the system. The amplifier, while maintaining
signal integrity, accepts up to 16 camera inputs for distribution to a
programmable number of outlets (32).
Video Cameras and Housings -- The cameras produce video images in low-light
or demanding environments. Housings cover, support and protect the cameras
in their positions or movements. These housings are primarily used in
environmentally or architecturally demanding applications and, as a
consequence, meet special customer requests for rough treatment or
aesthetics.
Mobil DVR Interface -- This product provides the electrical interface
between the mobil transit Digital Video Recorder ('DVR') and the CCTV
devices, such as -- cameras, microphones and operator display unit.
MANUFACTURE AND SUPPLY
We design and engineer all of these devices, purchase their components from
third parties and assemble and test the final products. Given our limited
in-house production needs, we design our own printed circuit boards for
fabrication at outside shops. Components are then manually inserted on the
boards with our personnel doing the soldering. Typically, these boards are of
multi-layered design for both space efficiency and signal integrity. At present,
we do not envision the need for surface-mount production equipment that will
automatically place the chips on the board because the quantities we manufacture
are limited and our applications do not require it.
We do not assemble our products on a continuous mass-production basis.
Instead they are usually assembled on a batch basis in which products in
different forms move irregularly from station to station. Further testing of
products is generally accomplished at the end of the assembly process as part of
our extensive quality control procedure. The manufacture of devices is done in
response to specific customer purchase orders either from outside dealers or for
our own HBE project installations.
We utilize modern equipment for the design, engineering, assembly and
testing of our products. We intend to expand our manufacturing capacity only to
supply the needs of our system integration activities and the MSS's that we
currently supply.
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<PAGE>
We usually purchase hardware, supplies and components from vendors under
written purchase orders of both individual and blanket variety. Blanket purchase
orders entail the purchase of a larger amount at fixed prices for delivery and
payment on specific dates. We rarely issue blanket orders without supporting
customer purchase orders.
We rely on many manufacturers of different sizes and capabilities located
throughout the United States. Certain equipment and software used in our systems
are obtained from sole sources. We have occasionally experienced delays in
deliveries of equipment and may experience similar problems in the future. In an
attempt to minimize these problems, we constantly monitor new orders to justify
investment in an inventory of equipment that are generally more difficult to
obtain. However, any interruption, suspension or termination of component
deliveries from our suppliers could have a material adverse effect on our
business and cause our redesign and resourcing to minimize the impact on
installation schedules.
Although we believe that there will be alternate sources and redesigns,
inevitably time would be required to find substitutes. During any interruption
in supplies, we may have to curtail the production and sale of our equipment for
an indefinite period. Any interruption could have a negative impact on our
systems integration business and prevent us from meeting project deadlines on a
timely basis. However, we consider this to be a remote possibility.
Our design, engineering and assembly facilities are located in the Saddle
Brook, New Jersey headquarters. At present we have not secured Underwriters'
Laboratory approval of our manufactured products or met the quality management
and assurance standards of an international rating organization (ISO 9000) due
to our low production volume. As volumes increase and customers' needs require,
we intend to obtain UL approval as well as qualifying under ISO 9000.
The Company has not taken any substantial measures to qualify under these
standards. Meeting such criteria involve a long, complicated process of new
planning, documentation and other factors. Qualification may improve our
marketing opportunities internationally or with certain domestic customers. But
we may not achieve these standards or may not increase the sales of our products
in the future even if they are met.
PURCHASED PRODUCTS
InTegCom has entered into licensing or reselling arrangements for certain
hardware and software elements contained in, or used in conjunction with, its
devices. These agreements are usually non-exclusive, sometimes provide for
volume purchases, charge fixed prices to be paid by us to the particular
licensor or supplier, run for a limited term and encourage sales for specific
territories.
Some devices and components purchased from third party manufacturers, we
insert in our products or place our name and label on; others we resell under
the name of its manufacturer.
We are a member/owner of Professional Security Alliance ('PSA') based in
Denver, Colorado. In addition, Mr. Witcosky has been a founding member and past
president of PSA. A buying co-op for the security industry, PSA has about 140
members that generate approximately $60,000,000 in annual purchases. Established
in 1974, PSA provides central purchasing, training, marketing and other support
for its membership. PSA allows us to achieve 10% to 15% discounts on equipment
purchased under its auspices and grants us patronage dividends related to our
annual purchasing volume and its own profitability. Typically, we purchase from
30% to 40% of our outside requirements through PSA. Along with our MSS
affiliations, membership in PSA furnishes contacts so we can team with other
member integrators in different regions for customers operating on a national or
sectional basis.
The following table reflects primary suppliers of products and related
technology which we consider important to our current business and prospects.
The loss of any one of these suppliers could have a material adverse impact on
our growth:
25
<PAGE>
<TABLE>
<CAPTION>
NAME OF BRIEF DESCRIPTION TYPE OF EXPIRATION OF TERM
SUPPLIER OF PRODUCTS SUPPLY CONTRACT AND TERRITORY
-------- ----------- --------------- -------------
<S> <C> <C> <C>
Lenel Systems Software and hardware Non-exclusive Annual, terminable on
International, Inc. for video badging, resale/licensing with 90 days prior notice
(Rochester, NY) access control, alarm fixed pricing New York & Dallas
monitoring, network Metropolitan Area
communications,
Mavix Ltd. (Israel) Audio, video and data Master distributor Annual U.S.
network interface non-exclusive sales
products for fast, resale agreement
remote transmissions
(software and
hardware)
Sungjin C&C Ltd. Digital video OEM exclusive for Annual U.S.
(Seoul, Korea) recording and transit;
transmission products non-exclusive for
for mobile and fixed fixed sites
applications
Intellikey Smart programmable Non-exclusive resale Annual U.S.
Corporation key arrangement without a
(Melbourne, written agreement
Florida)
</TABLE>
WARRANTIES AND MAINTENANCE
We offer warranties on all our products, including parts and labor, that
range from one year to four years depending upon the type of product concerned.
For products made by others, we pass along the manufacturer's warranty to the
end-user. For years ended December 31, 1997, 1998 and 1999 net expenses
attributable to warranties were approximately $50,591, $42,624 and $55,892.
On non-warranty items, we perform repair services for our products sold
either at our New Jersey or Texas facilities or at customer locations. In regard
to maintenance services for years ended December 31, 1997, 1998 and 1999, we
generated revenue of approximately $482,686, $521,280 and $550,882. For those
years, the percentage of our revenues attributable to maintenance services are
12%, 8%% and 7%. Our devices generally have a long operating life.
NEW PRODUCTS FROM THIRD PARTIES
DIGITAL VIDEO RECORDER
Over the years, we have specialized on mass transit applications and private
commercial sites. Generally, we install security systems at fixed sites like
money-counting centers, badging operations or metro card printing facilities.
Our prime customers for this emerging technology have been Silverstein
Properties, New York City Transit Authority, Port Authority and several other
public transit agencies.
Now we are extending our security expertise and equipment sales for CCTV to
the mobile transit operations -- the buses and trains themselves as well as
armored cars, police cars and wagons, fire engines and taxis. Until recently,
attempts to harness existing analog cameras and VCR's to on-board vehicles were
crude and only marginally reliable. However, in our opinion, one manufacturer,
Sungjin of Seoul, Korea, has developed an advanced digital video recording
system, ruggedized enough for mobile operations.
Sungjin products have demonstrated high-quality performance with proven
stability and reliability as well as unmatched storage and transmission
efficiency. The key to Sungjin technology involves the application of
compression techniques that minimize file size, thereby enhancing storage
capacity and maximizing transmission speed.
In December 1999 we entered an exclusive OEM arrangement with Sungjin
covering the United States for mobile applications, which we anticipate will be
shortly memoralized in writing. Initially, we plan to introduce this device into
the market through the MSS network. For fixed sites, we have a non-exclusive
reselling arrangement with Sungjin and its primary distributor.
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<PAGE>
INTELLIKEY
In access control, as in CCTV, we have actively sought to keep up with new
technological developments and products. Intellikey represents a relatively new
vendor for us. It produces a smart key and lock with dedicated computer elements
that can operate on a stand-alone basis or as an integral part of a central
access control system.
The key can be programmed to restrict its use to specific locks and entry
points as well as specific days and hours. If an unauthorized key is used to
access a restricted area, entry is barred. Instead of having to carry a bundle
of keys on one chain to unlock multiple doors, with Intellikey, a single key
will do. In the smart lock, the key itself and its controllers, a record is kept
by time and date where each key has been. Locks can be changed electronically
and keys can be aborted without the need and expense of a locksmith. By just
replacing the mechanical lock cylinder with an intelligent one and attaching a
small electronic controller to the door, Intellikey can be installed into
existing doors and locks.
Both the keys and the lock contain a microprocessor, which is programmed
with a unique digital code. When the key is inserted, this code and the
customer's parameters restricting users and entry points are transmitted via
secure encrypted infra-red optics. If the controller recognizes the code and
parameters, the door opens. If an unauthorized key is utilized, the door remains
firmly locked, and the key can be disabled.
We are currently purchasing Intellikey devices on a non-exclusive basis
without a written contract. These devices are being incorporated into our
systems and sold to customers. At present, we are negotiating with Intellikey
for a written exclusive agreement to develop and market a new integrated
application of its product. However, we cannot predict the outcome of these
negotiations.
DIGITAL NETWORK INTERFACE
In July 1999, we entered into a non-exclusive distribution agreement with
Mavix, Ltd., an Israel company to distribute its digital transmission products
and software in the U.S. This device and its special software interface and
control other security and monitoring equipment and communicate video, audio and
data rapidly back to a central station over a variety of transmission media.
The product digitizes and compresses analogue information gathered from
remote sites and then packages and routes this information through standard
communication systems using its special TCP/IP protocol. At a monitoring
station, the data is then recorded, decompressed and viewed or converted to
analogue signals. Flexible and easily modified for customization or expansion,
the product offers the customer a cost-effective means of connecting remote
locations to central stations over long distances quickly through internet,
intranet, virtual private network, telephone lines or dedicated fiber cables.
THE MOTOROLA RELATIONSHIP
We have a long-standing, professional relationship with Motorola, Inc..
Initially, Motorola encouraged HBE's entry into the commercial CCTV and two-way
communications markets. Now involved in a more multi-faceted arrangement, we
provide installation, repair, maintenance and consulting services for specific
contracts with several Motorola divisions. We also furnish Motorola with devices
manufactured by us and others for integration into complex communication
systems.
In addition, we purchase from Motorola wireless products incorporating card
readers and smart cards. For authorized Motorola service shops and selected
systems integrators servicing older Motorola equipment, we repair, install and
upgrade Motorola-originated devices manufactured by us or equipment, including
software, purchased from others. Moreover, we encourage the MSS's to adopt
integrated systems generally in their operations and to seek mobile CCTV
applications. Currently, we do not have any overall written contract with
Motorola; instead a series of purchase orders governs our relationship.
The most recent project awarded to us by Motorola in competition with other
bidders involves a world-wide integrated badging system using Lenel's software.
We have developed and installed the main equipment at Motorola headquarters.
Systems for another twenty sites are scheduled to be ordered this year. Smart
card access and alarm features are also planned in this system for later
installation.
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<PAGE>
BONDING
Many projects require InTegCom to provide performance and payment bonds from
an established surety company. This means that ITC must perform to pre-set
specifications of the customer within a specific time frame and to assure
payment of its employees, suppliers and subcontractors on that project, and if
InTegCom fails to meet these obligations, the surety company must assume
responsibility to complete the commitments.
Bonds are usually required in all government-related projects and private
construction or capital improvement projects above $100,000. These bonds insure
that when the project is completed, it is free and clear of any liens for the
customer. To date, no claims have been filed against us or our insurance
coverage regarding the services we have performed on these projects.
Presently, we carry an umbrella bonding policy of $5,000,000 issued by the
Reliance Insurance Company. Should our business continue to grow, we anticipate
the need to increase our bonding capabilities to assume larger projects and
customers. The capital infusion resulting from the completion of this offering
should improve our financial condition to permit higher levels of bonding.
Insurance companies, which offer bonding of system integrators on these projects
consider, among other things, the net worth of applicants in providing varying
bond amounts. Generally, the higher the net worth of a qualified applicant, the
bigger the bond possible.
MARKETING AND SALES
In the past, we have done little direct marketing of our services and
products. Nearly all of our business is generated by referrals from customers,
PSA or others in the security industry. InTegCom develops, maintains and
distributes product literature for its own devices and those manufactured by
others. It also publishes and distributes an extensive catalogue listing its own
equipment as well as the devices manufactured by others. In the past, our
advertising has been limited. While our personnel attend relevant trade shows on
a regular basis to keep up industry contacts and investigate new technology, we
usually do not exhibit products and services at these shows.
After this offering, we plan to apply a portion of the proceeds to mobilize
an industry-specific sales and marketing program. Accordingly, we will hire
additional sales and marketing personnel, advertise in trade magazines, exhibit
at selected trade shows, expand our dealer and VAR network and open new sales
and service offices in targeted regions.
CUSTOMERS
We sell our products and services directly to end-users in the public and
private sectors. These are often state and city government agencies in transit
and transportation, owners and operators of urban office buildings, public
utilities, universities, large industrial and technology corporations, airlines,
banks, oil, insurance and telecommunications companies, brokerage houses and
retailers.
The table below sets forth the approximate percentage of total revenues done
with each of our six largest customers for the years ended December 31, 1997,
1998 and 1999.
<TABLE>
<CAPTION>
1997 1998 1999
NAME OF CUSTOMER % OF TOTAL REVENUES % OF TOTAL REVENUES % OF TOTAL REVENUES
---------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
New York City Transit............ 21% 34% 32%
Motorola......................... 7% 14% 5%
Silverstein Properties........... 6% 8% 8%
New York State DOT............... 2% 6% 3%
Army/Air Force Exchange
Services....................... 5% 6% 2%
Port Authority................... 1% 2% 5%
</TABLE>
BACKLOG
As of April 10, 2000, our backlog was approximately $3,423,265 as compared
with a backlog of approximately $3,395,986 as of April 10, 1999. One customer
Naby, accounted for more than 29% of
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<PAGE>
such backlog as of April 10, 2000 and another, Silverstein Properties, for
aproximately 19%. We presently expect to manufacture and/or deliver most of the
devices and systems and perform the installation services recorded in our
backlog within the next 12 months.
Nearly all our backlog figures are based on written purchase orders or
contracts executed by the customer and involve product deliveries and
engineering services. All orders or contracts may be cancelled. Because we
usually participate in larger projects than most systems integrators in this
field, our backlog typically runs higher than industry averages.
ENGINEERING, RESEARCH AND DEVELOPMENT
InTegCom maintains an engineering staff consisting of 4 individuals whose
functions include the improvement of existing products, modification of products
to meet customer needs and the engineering, research and development of new
products and applications. Engineering and research and development expenses
were approximately $145,500 in the year ended December 31, 1997, $194,400 in
1998 and $200,000 for 1999. Usually, we only perform research and development in
response to a purchase order or contract from a specific customer. However, we
typically retain all rights to the products developed and may use it again at no
additional cost in other applications. Currently, we are working to complete a
specialized network controller, a graphical user interface and customized camera
housings with call station and control features. The controller has the capacity
to integrate numerous diverse security systems and meld them together into a
single network. The interface, in contrast, is a combined software/hardware
package that enables interrelated computers to more easily manage, control and
monitor multiple arrays of security devices. The customized camera housings are
designed to match architecturally the up-scale lobbies and spaces where they are
installed.
COMPETITION
We compete for systems integration business in the security area with
electrical contractors, large construction firms, consultants and other systems
integrators. Some of these concerns are much larger than we and have greater
financial, marketing, personnel and other resources. While many companies
manufacture similar security devices to ours, we generally compete with them
only on a limited basis because the products we make fulfill the in-house needs
of our systems integration group and those of the MSS's with which we have had a
long relationship. Moreover, because these products are often upgraded versions
of former Motorola-supplied devices which can be easily integrated with older
Motorola systems, we possess a competitive advantage when dealing with the
MSS's.
In the public sector in which competitive bidding procedures frequently
apply, we have concentrated on design-build projects where specifications for
our equipment and technology are prescribed for the job ahead of time. This too
gives us a competitive advantage.
We compete for systems integration business on the basis of reputation,
technological sophistication, overall know-how, local presence and understanding
of customers' needs. In the manufacturing arena, performance, features and
special interconnections and software represent the primary determinants. Price
is usually a lesser consideration than features for currently targeted customers
and markets. However, price may become a critical factor in the foreseeable
future as we seek to penetrate new markets.
EMPLOYEES
As of March 31, 2000, we had 47 full time employees including our officers,
of whom 4 were engaged in manufacturing, 26 in systems installation and repair
services, 8 in administration and financial control, 4 in engineering and
research and development, and 5 in marketing and sales.
None of our employees are covered by a collective bargaining agreement or
are represented by a labor union. We consider our relationship with our
employees to be satisfactory.
The design and manufacture of our equipment and the installation of our
systems require substantial technical capabilities in many disparate disciplines
from mechanics and computer science to electronics and advanced software. While
we believe that the capability and experience of our technical
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employees compares favorably with other similar systems integrators and
manufacturers, we may not be able to retain existing employees or attract and
hire the highly capable technical employees necessary in the future on terms
deemed favorable to us, if at all.
However, we do emphasize continued training for new and existing technical
personnel. Accordingly, we conduct training classes and seminars in-house, send
select employees to technical schools and avail ourselves of training
opportunities offered by equipment manufacturers and other specialists on a
regular basis.
PROPERTIES AND FACILITIES
Since July 15, 1990, we have leased a 17,055 square foot facility in Saddle
Brook, New Jersey, for our corporate headquarters, integration operations and
later for our manufacturing plant. This facility is a one-story, modern brick
building in a commercial-industrial area. The lease on this space which has been
extended twice, terminates on June 30, 2001, and provides for a fixed annual
rent of $88,800 until that date, payable in equal monthly installments of
$7,400. We are also responsible for the cost of property taxes, utilities,
repairs, maintenance, alterations, cleaning and insurance. These facilities
should meet our operational needs for the foreseeable future.
We also lease a 3,500 square foot office facility, in Grand Prairie, Texas,
between Dallas and Ft. Worth. A single-story, cinder block building in an office
complex, this space is leased until January 31, 2001 at a fixed annual rental of
$31,500, payable in equal monthly installments of $2,625 with additional costs
to us for insurance, repairs and alterations, utilities, taxes and cleaning.
In addition, we lease several automobiles, truck, office, production and
testing equipment and expect to continue to lease this equipment after the
offering.
LEGAL PROCEEDINGS
We know of no material litigation or proceeding, pending or threatened, to
which we are or may become a party.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our current directors and officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James E. Henry............... 46 President, Chief Executive Officer and Director
Irvin F. Witcosky............ 61 Executive Vice President, Secretary and Director
Louis Massad................. 61 Vice President, Treasurer, Chief Financial Officer
and Director
Theodore Gjini............... 34 Vice President of Operations
Leroy Kirchner............... 57 Director
C. Jay Pelliconi............. 67 Director
</TABLE>
BACKGROUND INFORMATION ABOUT EXECUTIVE OFFICERS AND DIRECTORS
JAMES E. HENRY
Mr. Henry co-founded InTegCom in 1989 with Mr. Witcosky and has served as
its president, chief executive officer and director since that date.
A graduate of the University of New Hampshire with a bachelor of science
degree in electrical engineering, he worked on a part-time basis for Henry Bros.
Electronics, Inc. ('HBE') as a technician from 1968 to 1978 servicing and
installing CCTV, audio and radio communication systems. A full time employee
starting in 1978, Mr. Henry continued to work for HBE as a systems engineer
until 1989. During this period, he designed, integrated and installed extensive
and sophisticated communication and control systems in microwave, laser, fiber
optic and infra technologies for larger corporations, utilities and government
agencies in the New York Metropolitan Area.
Then in 1989 he and Mr. Witcosky arranged the repurchase of HBE from CGI,
and Mr. Henry has continued to design, install, integrate and market security
and communications systems as well as manage the research and development while
serving as InTegCom's chief executive officer and a director.
IRVIN F. WITCOSKY
A co-founder of InTegCom, Mr. Witcosky has served as its executive vice
president, secretary and director to date. Previously, he had also acted as its
treasurer and general manager.
A graduate of California Polytechnic University with a bachelor of science
degree in aeronautical engineering, Mr. Witcosky entered the workforce at the
Naval Weapons Center as a civilian engineer. There, from 1960 to 1974, he became
involved in research, development, testing and production of rocket-assisted
projectiles for naval guns and guided missiles, including the Agile missile. As
a recipient of a special Michelson Laboratories Award of Fellow in Ordinance
Science and co-inventor on a Navy patent for a new rocket propellant, Mr.
Witcosky managed and coordinated six Navy laboratories and upwards of 100
engineers on various projects along with the civilian contractor's personnel at
Thiokol and Hughes Aircraft.
From 1974 to 1983, Mr. Witcosky founded and ran Photoscan, a CCTV company
for security systems in Salt Lake City, Utah and from 1977 to 1981 he formed
another corporation, Beehive Video, a video specialty concern for industrial and
retail markets, where he acted as president.
From 1978 to 1981 Mr. Witcosky served as president of PSA, the security
industry buying co-op in which ITC is a member/owner. He later worked for VCS,
Inc., the former Motorola CCTV factory, now a subsidiary of InTegCom, in the
capacity of vice president of marketing from 1981 through 1986.
In 1987 Mr. Witcosky joined HBE and became a vice president and general
manager. There to the present he has supervised, coordinated, performed and
managed designs, sales, quotations, operations and administration.
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LOUIS MASSAD
Mr. Massad joined InTegCom in 1997 as a financial advisor and became a vice
president, treasurer and chief financial officer in 1999. He holds bachelor of
science and masters degrees in accounting from Cairo University in Egypt and a
masters in business administration in finance from Long Island University. From
1960 to 1970, Mr. Massad worked as an auditor for a large foreign certified
public accounting firm in its overseas offices.
During 1970 and 1971, he was employed as a senior auditor at First Fidelity
Bank of Newark, New Jersey. From 1971 to 1974, he served as a controller to
Magnus Organ Corp., a manufacturer of electronic organs. During the 1974-1976
period, Brunswick Corporation, a large manufacturer of many products and
equipment, employed him as a controller of one of its divisions. In 1976 to 1981
he held the positions of vice president of finance and treasurer of Mediscience
Technology Corp., a publicly held company that manufactured medical equipment.
From 1981 to 1982, the Beattie Manufacturing Company, a carpet manufacturer,
employed Mr. Massad as its controller, chief financial officer and a director.
Then in 1982 he began a lengthy involvement with Computer Power Inc., a publicly
held manufacturer of power supply equipment for computers and emergency lighting
equipment. There, he worked continuously until 1996 as vice president of
finance, controller, and director. From 1996 to 1999 he functioned as an
independent accountant and financial advisor to several companies, including
ITC.
Since 1995 Mr. Massad has been a director of Conolg Corporation, a
publicly-held company that manufactures electronic components and subassemblies
for communication equipment.
THEODORE GJINI
Elected Vice President in December, 1999, Mr. Gjini also serves as
operations manager and supervises the coordination of ITC personnel and their
activities in sales and marketing, project installations and maintenance. He has
acted in that capacity as well as sales engineer and project manager for
InTegCom since 1988.
A graduate of New Jersey Institute of Technology with a bachelor of science
degree in electrical engineering and William Paterson College with a masters in
business administration, he previously worked for Allied Signal Corporation as a
research technician during 1986 and as a security officer for Nabisco from 1985
to 1988.
LEROY KIRCHNER
Mr. Kirchner was elected to our board of directors in December, 1999. Having
earned bachelor of science and masters in business administration degrees from
Fairleigh Dickinson University, he had continuously worked in various capacities
for Motorola Inc., primarily in sales and marketing from 1966 through 1998.
Between 1992 to 1996, he served as a Motorola vice president in charge of dealer
sales for the eastern U.S. where he managed over 300 dealers and successfully
directed a nation-wide task force to increase specialized mobile radio sales.
From 1996 through 1998, he also functioned as vice president and strategist for
a Motorola subsidiary engaged in sales of related radio equipment and systems.
Afterwards to date, Mr. Kirchner has acted as an independent consultant to the
communications industry.
C. JAY PELLICONI
Mr. Pelliconi was also elected to our board in December, 1999 and holds a
bachelor of arts degree in economics from Wagner College. Since 1959, he has
been actively engaged in commercial and investment banking. During that time he
served as a vice president of public finance with a major New York Stock
Exchange member firm, secretary of the metropolitan loan committee of a New York
money center bank, manager of the municipal bond department of another member
firm and a municipal bond trader at two other investment concerns.
More recently, he has worked as a vice president in charge of office sales
for another member firm from 1986 to 1989, vice president for corporate finance
at Jesup Josephthal & Co., Inc. from 1989 to 1991, manager of private placements
at Jay Partners Holding, Inc. and registered representative of
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Du Pasquier & Co. Inc., both from 1991 to 1997. Starting in 1997 to the present,
he has acted as an administrative manager and a leading member of the corporate
finance group at Mason Hill & Co., Inc., the representative of the underwriters
in this offering.
BACKGROUND INFORMATION ABOUT CERTAIN KEY EMPLOYEES
EMIL J. MARONE
Since 1965 Mr. Marone has worked continuously for HBE and ITC as a hospital
communication system specialist, security systems supervisor, systems engineer
and quality control specialist.
In his current position, he is responsible for the development of special
products and testing procedures as well as quality assurance and management. He
holds an associate science degree from Bergen County Community College and has
attended New Jersey Institute of Technology and Fairleigh Dickinson University
taking courses in mathematics, computer sciences and engineering.
GERARD ROMOLO
Mr. Romolo joined our company in 1994 and has continuously worked for us as
a technician, manufacturer's liaison, project manager and quality control
specialist. Since then, he has attended Orange and Ulster Counties Boces taking
courses in electronics and Orange County Community College studying accounting
and business administration. He has received other training and certification
from the National Burglar Fire Alarm Association, Edicon, PSA, Lenel, Mavix,
Sungjin, Intellikey and MDI in alarms, computers and software.
From 1988 to 1994, he worked for Prontronics Fire & Alarm Company, Inc. as a
quality control manager, trouble-shooter and installer. In 1986 to 1988, he was
employed by Rickel Home Center as a department manager supervising employees,
ordering products and maintaining all other aspects of his department.
CARL J. ERICKSON
Mr. Erickson joined InTegCom as chief systems engineer in December, 1999.
From 1998 through 1999, he served as a project manager for Lockheed Martin on
the new Austin/Bergstrom International Airport in Texas. In this position, he
supervised the design and installation of the power distribution, access
control, CCTV, gate control and control center systems. He also coordinated and
managed the subcontractors, the local Lockheed team, negotiated contracts and
administered and supervised the construction effort.
Between 1987 and 1998, Texas Instruments/Raytheon employed him as a project
manager. In this capacity, he managed the development, design and installation
of fire detection, CCTV, Intercom, card access, paging and other systems for a
wide variety of corporate and government projects. A graduate of Brigham Young
University with a bachelor of science degree in electrical engineering, Mr.
Erickson has in prior years acted as a consultant to architectural and
engineering firms, contractors and owners for communications, electronic control
and security systems located in airports, hotels, hospitals, penal institutions,
malls and corporate.
ROBERT H. GREENQUIST
Mr. Greenquist joined us in 1991 and has continuously worked for ITC as a
production and engineering manager. In these capacities, he has been in charge
of electro-mechanical and analogue designs of equipment and oversees
engineering, manufacturing and quality control activities.
From 1986 to 1991, he served as president of Alpha-Tronics, an engineering
consulting firm specializing in analogue designs. During 1976 to 1986, he owned
and operated Research Development Corp., an R&D consulting firm to manufacturers
of high-end assemblies for echo cardiology and medical imaging equipment as well
as avionics equipment in large commercial jet aircrafts. Between 1965 and 1976,
he owned and operated GHV Electronics, Inc., a manufacturer of audio/visual
products, where he also functioned as a design engineer for new products.
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ALBERTO SID
Mr. Sid has acted as an engineering manager with ITC since early 1995.
Before that he held positions of director of R&D and hardware engineering
manager at Graphex Imaging Systems, Inc., a manufacturer of imaging, plotter and
scanner products, from 1991 until his employment by IntegCom. In 1989 to 1991,
he served as president of Telec Research and Engineering, a start-up
manufacturer of products using robotic controls, high-resolution positioning
devices, multiprocessors and smart light fixtures.
From 1984 to 1989, he was a senior technical specialist at Scitex America
Corp., where he lent technical, maintenance and marketing support to customers.
A graduate of Technion Israel Institute with a bachelor of science degree in
electrical engineering, Polytechnic University of New York with a masters degree
in computer science, and New York Institute of Technology with an MBA, he worked
for several Israel companies from 1978 to 1984 as a technical specialist,
project leader, design engineer and electronic technician.
CHARLES R. ADAMS, JR.
Mr. Adams started working for ITC in 1995 and has continued until the
present. In our Texas office, he oversees service and installation projects,
interfacing with customers, general contractors, architects and vendors.
From 1993 to 1995, he was employed as a service and installation supervisor
for Ogden Government Services. During 1984 to 1993, he worked for Walker
Engineering as foreman on projects involving security conduits, hook-ups for
airport lighting, power distribution, lighting and wiring. Previously, he held
positions as a wirer and electronic technician at Cal Electric, Tristar Electric
and Western Electric from 1971 to 1984.
DAVID R. JONES
Mr. Jones has been in ITC's employ as a general manager since 1995. He
oversees sales, marketing, and customer relations in our Texas office, reviews
blueprints for new projects and performs financial analysis for them. From 1993
to 1995 he worked for Ogden Security Services as an operations manager where he
supervised personnel, scheduled manpower on projects and interfaced with
customers.
In 1981 to 1993, Kastle Security Systems employed Mr. Jones as a general
manager. There he prepared and handled budgets and other financial reports. From
1979 to 1981, he served as an installation and service supervisor at SETEC
Protection Service and worked for the Federal Bureau of Investigation from 1977
to 1979, specializing in and coordinating telecommunications between regional
offices and headquarters. Mr. Jones holds a bachelor of arts degree in business
administration from the University of Kentucky.
INGE FOLEY
Ms. Foley has served as our office manager from 1989 to the present. In this
position, she has supervised the office staff, acted as a controller and
overseen the purchase of equipment and parts for us.
Having attended Rutgers University in business administration, she had
worked previously, starting in 1966 to 1989, as a sales administrator and an
operations manager for Tele-Measurement, Inc., another security systems
integrator.
JANE MCCALLUM
From 1998 to date, Ms. McCallum has managed our Texas office where she is
responsible for the administration, finance, budgeting and purchasing. In 1996
to 1998, she served as a staffing manager for Personal Touch Home Care, Inc., a
concern that provides nursing service to patients in their homes. In 1995 to
1996, she acted as business service manager of RedBird Health, Inc., another
health care company, where she supervised the office and clerical staff, billing
and accounts payable and receivable.
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From 1990 to 1995, she was employed by Techcord Consulting Group, Inc., a
security consultant, as office manager in charge of marketing, public relations,
payroll, collections and invoices. Starting in 1982 to 1989, she acted as a
clerical and collection supervisor for GTE directories and oversaw public
relations, training and office finances.
Potential investors should consider the backgrounds of our officers,
directors and key employees whether or not they have the necessary experience
and capabilities to operate our business and develop it effectively.
Management's experience and ability are often deemed to be the most significant
factors in the success of any business. ITC's management believes that it
currently possesses the necessary ability and experience to operate its business
effectively. Should either Mr. Henry or Mr. Witcosky leave our employ, we would
be operating at a definite disadvantage. While ITC may be in a position to
replace them with comparable personnel, that would not necessarily be the case,
and in any event delays in locating suitable replacements are likely to occur.
BOARD COMPOSITION
At each annual meeting of our stockholders, all of our directors will be
elected to serve from the time of election and qualification until the next
annual meeting election. In addition, our bylaws provide that the authorized
number of directors, which is a minimum of three and a maximum of fifteen, may
be changed only by resolution of the board of directors.
Each officer is elected by, and serves at the discretion of, our board of
directors. Each of our officers and directors, other than non-employee
directors, devotes his full time to our affairs. Our non-employee directors
devote such time to our business as is necessary to discharge their duties.
There are no family relationships among any of our directors, officers or key
employees.
BOARD COMMITTEES
We have established both a compensation committee and an audit committee, a
majority of which is composed of independent, outside members of our board of
directors. The audit committee reviews with our independent public accountants
the scope and adequacy of the audit to be performed by the independent public
accountants, the accounting practices, our procedures and policies, and all
related party transactions. The compensation committee recommends to our board
of directors the compensation to be paid to our officers and directors,
administers our stock option plan and approves the grant of options under the
plan. We have appointed Mr. Pelliconi, Mr. Witcosky and Mr. Kirchner as the
members of both committees.
DIRECTORS' COMPENSATION
Directors who are also our employees receive no additional compensation for
attendance at board meetings. Non-employee directors will receive $500 for
attendance at each board meeting or any committee of the board that they attend
unless the board and committee meetings are held on the same day, in which case
they should be considered as one and paid accordingly. Also, these directors
will be reimbursed for their travel, lodging and other out-of-pocket expenses
related to their attendance at board and committee meetings. Additional
compensation for these directors may be arranged for special projects. No
directors' fees have been paid to date. We anticipate that our board of
directors will hold regularly scheduled meetings on a quarterly basis.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to our president
and chief executive officer and each other executive officer whose 1999
compensation equaled or exceeded $60,000.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SALARY AND
NAME AND PRINCIPAL POSITION YEAR BONUSES
- --------------------------- ---- -------
<S> <C> <C>
James E. Henry ............................................. 1999 $60,000
President and CEO 1998 $60,000
1997 $60,000
Irvin F. Witcosky .......................................... 1999 $60,000
Executive Vice President 1998 $60,000
1997 $60,000
</TABLE>
The aggregate compensation paid to all persons who served in the capacity of
director or executive officer during our fiscal year ended December 31, 1999 (2
persons) was approximately $120,000.
In December, 1999, Mr. Gjini became an executive officer of ITC. His annual
1999 compensation was $86,000.
EMPLOYMENT AGREEMENTS
Messrs. Henry and Witcosky are each serving as ITC's President and Executive
Vice President under written employment contracts for five years commencing
January 1, 2000. These agreements provide for an initial annual compensation of
$135,000, unspecified bonuses approved by the board of directors and the
compensation committee, an increase of 10% in compensation in each of the third,
fourth and fifth years and a one-year non-competition covenant covering the
security business that commences after termination of employment.
Mr. Massad has entered into a five year written employment contract with ITC
commencing January 1, 2000. His initial annual compensation under such contract
is $110,000, and it also provides for unspecified bonuses, a 10% increase per
annum in each of the third, fourth and fifth years. All these contracts may be
terminated or modified by us if we fail to complete our initial public offering
of securities by June 30, 2000.
INCENTIVE STOCK OPTION PLAN
On December 23, 1999, our directors and shareholders approved the adoption
of our Incentive Stock Option Plan. Under the Plan, options to purchase a
maximum of 500,000 shares of its common stock may be granted to officers and
other key employees of ITC. Options granted under the Plan are intended to
qualify as incentive stock options as defined in the Internal Revenue Code of
1986, as amended.
ADMINISTRATION
Our board of directors has appointed three of its members as the
compensation committee to administer the Plan. This committee determines which
persons are to receive options, the number of options granted and the options'
exercise prices. The compensation committee may also prescribe the rules and
regulations for administering the Plan, and it is this committee which decides
questions arising under the Plan or any of its rules and regulations.
OPTION TERM AND PRICE
The maximum term of any option is ten years, and the option price per share
may not be less than the fair market value of our shares at the date the option
is granted. However, options granted to persons owning more than 10% of our
voting shares (or a combination of our voting shares and those of any subsidiary
of ours) will have a term not in excess of five years, and the option price per
share will not be less than 110% of fair market value.
An optionee may exercise these options only if and to the extent that these
options are vested at that time. Unless otherwise determined by our compensation
committee, vesting generally occurs at the rate of 33 1/3% per year of
continuous employment with InTegCom.
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OPTION GRANTS
As of the date of this prospectus, we have granted options covering a total
of 100,000 shares to 44 employees at an exercise price per share equal to 90% of
the initial offering price per share of the shares offered in this prospectus
under the Plan.
TRANSFERABILITY AND ANTI-DILUTION
Options granted under the Plan are not transferable other than by will or by
the laws of descent and distribution. Options granted under the Plan are
protected by so called anti-dilution provisions which both modify the number of
shares issuable under it and adjust the exercise price of an option to account
for stock dividends, stock splits and the like.
TERMINATION OF EMPLOYMENT
Despite the term of an option, it will expire when an optionee's employment
ends. The precise timing depends on the reason for the termination of
employment. In the event of retirement or disability, his right extends for
three (3) months afterwards. In the case of death it runs for a year after
termination, while in the case of voluntary termination it occurs upon
termination. When an optionee's employment is terminated involuntarily, his
option runs for 30 days, except if the involuntary termination is for cause.
Then the right expires as of the date of the event which triggers the
termination.
PLAN TERMINATION
The Plan will terminate on December 23, 2009 or on such earlier date as the
board of directors may determine. Any option outstanding at the termination date
will remain outstanding until it expires or is exercised in full, whichever
occurs first.
TAX TREATMENT
If shares are treated as being received under a Plan qualified as an
Incentive Stock Option within the meaning of the Internal Revenue Code of 1986,
as amended, and if the shares acquired are not disposed of by the optionee
within two years from the date of the grant of the option nor within one year
from the transfer of the shares to the optionee, then no income is recognized by
the optionee upon his receipt of the option or its exercise. If the shares are
disposed of within either the first two years of the option's grant or one year
from the acquisition of the shares, then compensation income in the amount of
the difference between the value of the shares at the time they were acquired
and the price actually paid for them will be recognized by the optionee in the
year of the disposition, and an equal deduction will be allowed to ITC.
If the aggregate fair market value of the shares of common stock (determined
at the time the option is granted) with respect to which incentive stock options
are exercisable for the first time by such optionee during any calendar year
(under all such plans) exceeds $100,000, then only the first $100,000 of such
shares so purchased will be treated as exercised under the Plan and any excess
over $100,000 so purchased shall be treated as options which are not incentive
stock options. This rule is applied by taking options into account in the order
or sequence in which they are granted.
SIMPLE IRA PLAN
On October 1, 1999, we adopted a Simple IRA Plan for our employees to
accommodate their pension needs. Under this plan, we shall contribute on behalf
of each participant for the plan year an amount equal, dollar for dollar, to
that amount which these participants contribute to their retirement accounts
under the plan.
Our matching contributions are limited to 3% of each participant's
compensation or $6,000, as adjusted, whichever is less. Each employee may elect
to make contributions to his retirement account by means of reductions from his
salary or his personal contribution of a specific dollar amount not to
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exceed $6,000. From time to time, the U.S. Secretary of the Treasury may adjust
these limitations on both our matching contributions and the employees'
contributions for cost of living increases. The employees' portion of his
account vests immediately in full and cannot be forfeited. Our contributions
under this Plan are generally deductible for taxable year for which they were
made.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation and bylaws limit the liability of directors
and officers to the maximum extent permitted by Delaware law. We will indemnify
any person who was or is a party, or is threatened to be made a party to, an
action, suit or proceeding, whether civil, criminal, administrative or
investigative, if that person is or was our director, officer, employee or agent
or serves or served any other enterprise at our request.
In addition, our certificate of incorporation provides that a director shall
not be personally liable to us or our stockholders for monetary damages for
breach of the director's fiduciary duty. However, the certificate does not
eliminate or limit the liability of a director for any of the following reasons:
breach of the director's duty of loyalty to us or our stockholders;
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law;
the unlawful payment of a dividend or unlawful stock purchase or
redemption; and
any transaction from which the director derives an improper personal
benefit.
We intend to purchase and will maintain directors' and officers' insurance
in the amount of $2,000,000. This insurance will insure directors against any
liability arising out of the director's status as our director, regardless of
whether we have the power to indemnify the director against the liability under
applicable law.
We have been advised that in the opinion of the Security Exchange Commission
insofar as the indemnification provisions referred to above may be invoked to
disclaim liability for damages arising under the Securities Act, these
provisions are against public policy as expressed in the Act and are, therefore,
unenforceable.
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CERTAIN TRANSACTIONS
In October, 1989, as part of the repurchase of HBE assets and name,
Mr. Henry lent us approximately $100,000 to finance this acquisition. This loan
was converted to equity in December, 1993. From 1989 until 1994, Mr. Witcosky
lent us an aggregate of about $100,000 to finance our business which was
converted into equity in December, 1994. No common stock was issued to
Mr. Henry or Witcosky in connection with such conversions; instead they were
treated as contributions to paid-in capital.
On November 19, 1999, InTegCom was organized as a corporation in the State
of Delaware. Later that month, Messrs. Henry and Witcosky exchanged the shares
of common stock they held in three corporations that owned and operated their
system integration and manufacturing operations for shares of ITC. These shares
represented all the outstanding stock of those three corporations. Before the
exchange Mr. Henry and Mr. Witcosky each owned 50% of the shares of the old
corporations and immediately after the exchange they each owned 50% of the
shares of ITC, the new holding company. The value of the underlying assets did
not change as a result of the exchange, and only the form, not the substance, of
principals' corporate ownership changed.
In the early 1990's, we had orally agreed to settle an open matter with
Alfred Albrecht, and Security Management System, Inc. ('SMS') a privately held
company which he owns and controls, both of which are former joint adventurers
of Mr. Henry and Mr. Witcosky. The settlement related to the joint venture's
asset acquisition from CGI. In the settlement Messrs. Henry and Witcosky agreed
to repay Albrecht's $50,000 loan with accrued interest, to resolve product and
component sales between SMS and ITC and to extinguish any Albrecht equity
claims. That agreement was finally memoralized in writing in December, 1999.
Under these arrangements, we are obligated to repay an aggregate of
$128,685, plus accrued interest to Mr. Albrecht at the rate of 10% per annum
until December 1, 2003 in monthly installments under two promissory notes. Mr.
Henry and Mr. Witcosky are also obligors under these notes. In addition, Mr.
Witcosky paid Mr. Albrecht $40,000 to extinguish any possible equity claim
regarding an InTegCom subsidiary, HBE Acquisition Corp.
On December 30, 1999, Messrs. Henry and Witcosky each sold 80,000 shares of
their InTegCom common stock for a total of 160,000 shares to Mr. Massad for an
aggregate of $24,000 under restrictive conditions involving his continued
employment with ITC. On or about the same date, Messrs. Henry and Witcosky each
also transferred 20,000 of their InTegCom shares, totaling 40,000 shares, to
John, Ray and Hartford Henry as a gift to them in appreciation of a
long-standing loan on extremely favorable terms to Mr. Henry and Mr. Witcosky,
which enabled them to buy back the original CCTV business from CGI.
Under a bank loan agreement between us and Hudson United Bank dated
September 1, 1999, Mr. Henry and Mr. Witcosky have personally guaranteed up to a
possible $2,250,000 of our potential indebtedness to the bank, plus accrued
interest. Upon completion of this offering, we anticipate that these guarantees
and subordinations will be eliminated.
POLICY REGARDING LOANS AND OTHER AFFILIATED TRANSACTIONS
Nearly all of the affiliated transactions and loans described above were
entered into when there were less than two disinterested independent directors
on our board of directors, and accordingly we lacked sufficient disinterested
independent directors to approve or ratify such transactions and loans at the
time they were initiated. However, we believe that all such transactions and
loans were made on terms that are as favorable to us as those which were
generally available from unaffiliated third parties at that time.
We currently have and will maintain at least two independent directors on
our board of directors. All future material affiliated transactions and future
loans and loan guarantees with our officers, directors, 5% shareholders, or
their respective affiliates, will be on terms that are as favorable to us as
those generally available from unaffiliated third parties; and all such future
transactions and loans, and any forgiveness of such loans, shall be approved or
ratified by a majority of our independent directors who do not have an interest
in the transactions and who will have access, at our expense, to ITC's
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<PAGE>
attorneys or an independent legal counsel. We do not intend to make any future
loans to or guarantee loans on behalf of our officers, directors and employees,
other than (i) advances for travel, business expense, and similar ordinary
operating expenditures; (ii) loans or loan guarantees made for the purchase of
our securities; and (iii) loans for relocation.
PRINCIPAL STOCKHOLDERS
The table below sets forth information with respect to the beneficial
ownership of our common stock, as of the date of this prospectus for the
following persons:
each person known by us to be the beneficial owner of more than 5% of our
common stock;
each of our directors;
each of our executive officers; and
our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules and
regulations of the Securities and Exchange Commission and includes voting or
investment power with respect to the shares. Unless otherwise indicated, the
persons named in the table have sole voting and investment power with respect to
the number of shares indicated as beneficially owned by them. The number of
shares of common stock outstanding used in calculating the percentage ownership
for each person listed below includes shares of common stock, underlying options
or warrants held by the person that are exercisable within 60 days of the date
of this prospectus, but excludes shares of common stock underlying options or
warrants held by any other person. Common stock beneficially owned and
percentage ownership are based on 4,000,000 shares outstanding before this
offering and 5,000,000 shares to be outstanding after the completion of this
offering, assuming no exercise of the underwriters' over-allotment option.
Unless otherwise indicated, the address of each beneficial owner is c/o ITC,
280 Midland Avenue, Saddle Brook, New Jersey 07662.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
NUMBER OF BENEFICIALLY OWNED
SHARES -------------------
NAME, ADDRESS AND TITLE BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------- ----- -------- --------
<S> <C> <C> <C>
James E. Henry, CEO, President and Director(1)........... 1,900,000 47.5% 38.0%
Irvin F. Witcosky, Executive Vice President, Secretary
and Director........................................... 1,900,000 47.5% 38.0%
Louis Massad, CFO, Principal Accounting Officer,
Treasurer and Director(2).............................. 160,000 4.0% 3.2%
Theodore Gjini(3)........................................ 12,000 0.3% 0.2%
Leroy Kirchner........................................... -- -- --
C. Jay Pelliconi......................................... -- -- --
All executive officers and directors as a group
(6 persons)............................................ 3,972,000 99.3% 79.4%
</TABLE>
- ---------
(1) Disclaims beneficial ownership of 40,000 shares owned by John, Ray and Henry
Hartford, his father and uncles.
(2) Holds 40,000 shares currently but the remaining 120,000 shares are held in
escrow and will ordinarily be released to him at the rate of 40,000 shares
per year of continuous employment with InTegCom.
(3) Represents shares of common stock issuable upon exercise of unvested options
under the incentive stock option plan.
40
<PAGE>
DESCRIPTION OF SECURITIES
SECURITIES OFFERED
The 1,000,000 Units offered by the prospectus are comprised of 1,000,000
shares of common stock and 1,000,000 warrants to purchase an equal number of
shares of common stock. These shares and warrants will be traded separately upon
the effectiveness of this offering.
Our authorized capital stock consists of 10,000,000 shares of common stock,
par value $.01 per share, and 2,000,000 shares of preferred stock, par value
$.01 per share, the rights and preferences of which may be established from time
to time by our board of directors. Assuming no exercise of the underwriters'
over-allotment option, upon completion of this offering, there will be 5,000,000
shares of our common stock issued and outstanding, no preferred stock
outstanding, and excluding the representative's warrants, there will be
1,000,000 public warrants outstanding.
The description of our securities are summaries and do not contain all the
information that may be important to you. For more complete information, you
should read our certificate of incorporation, and the forms of representative's
warrants, public warrant agreement and the public warrant which are filed as
exhibits to the registration statement of which this prospectus forms a part.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of our common
stock entitled to vote in any election of directors may elect all of the
directors standing for election. Apart from preferences that may be applicable
to any shares of preferred stock outstanding at the time, holders of our common
stock are entitled to receive dividends ratably, if any, as may be declared from
time to time by our board of directors out of funds legally available therefor.
Upon the liquidation, dissolution or winding up of ITC, the holders of our
common stock are entitled to receive ratably, our net assets available after the
payment of all liabilities and liquidation preferences on any outstanding
preferred stock. Holders of our common stock have no preemptive, subscription,
redemption or conversion rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The outstanding shares of our common
stock are, and the shares offered in this offering will be, when issued and paid
for, validly issued, duly authorized, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which we may designate and issue in the future.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to 2,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of these shares,
including dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences, and to fix the number of shares constituting any
series and the designations of these series. These shares may have rights senior
to our common stock. The issuance of preferred stock may have the effect of
delaying or preventing a change in control of us. The issuance of preferred
stock could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely affect the rights
and powers, including voting rights, of the holders of our common stock. At
present, we do not intend to issue any shares of our preferred stock in the
foreseeable future. No preferred stock will be issued for two years from the
date of this prospectus without the consent of the representative, which shall
not be unreasonably withheld.
WARRANTS
We are authorized to issue three-year warrants to purchase an aggregate of
1,000,000 shares of common stock (exclusive of 150,000 warrants issuable upon
exercise of the underwriters' over-allotment option). We have reserved an
equivalent number of shares for issuance upon exercise of these warrants. Each
warrant represents the right to purchase one share of common stock, commencing
on the effective
41
<PAGE>
date of this offering and until the expiration of three years from the date of
this prospectus. The exercise price of the warrants is $7.50 per share, until
May , 2003 and during their term. After expiration, the warrants will be void
and of no value.
From May , 2001 until the close of business on May , 2003, the warrants
are subject to earlier redemption as follows: If the average of the closing bid
prices of the common stock (if the common stock is then traded in the over-the
counter market) or the average of the closing prices of the common stock (if the
common stock is then traded on a national securities exchange or the NASDAQ
National Market or Small Cap System) exceeds $6.25 for any consecutive 20
trading days, then upon at least 30 days prior written notice, given within 60
days of the period, we will be able to call all (but not less than all) of the
warrants for redemption at a price of $.25 per warrant.
The warrants contain provisions that protect their holders against dilution
by adjustment of the exercise price and number of shares issuable upon exercise
on the occurrence of specific events, such as stock dividends or other changes
in the number of outstanding shares except for shares issued under any ITC stock
option plans for the benefit of its employees, directors and agents, the
warrants offered hereby, the representative's warrants, the underwriters'
over-allotment option and any equity securities for which adequate consideration
is received. We are not required to issue fractional shares. In lieu of the
issuance of fractional shares, we will pay cash to holders of the warrants. In
computing the cash payable to holders, a share of common stock will be valued at
its price immediately prior to the close of business on the expiration date. The
holder of a warrant will not possess any rights as a stockholder of ITC unless
he exercises his warrant.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW
Section 203 of the Delaware General Corporation Law contains provisions that
may make the acquisition of control of our company by means of a tender offer,
open market purchase, proxy fight or otherwise, more difficult. We must comply
with the provisions of this law. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a 'business combination' with an
'interested stockholder' for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner.
A 'business combination' includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An 'interested
stockholder' is a person who, together with affiliates and associates, owns, or,
in some cases, within three years prior, did own, 15% or more of the
corporation's voting stock. Under Section 203, a business combination between
InTegCom and an interested stockholder is prohibited unless it satisfies one of
the following three conditions:
our board of directors must have previously approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder.
upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, shares owned by (1) persons who are directors and also
officers and (2) employee stock plans, in some instances; and
the business combination is approved by our board of directors and
authorized at an annual or special meeting of the stockholders by the
affirmative vote of the holders of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
LISTING ON NASDAQ SMALL CAP SYSTEM AND BOSTON STOCK EXCHANGE
After the offering we anticipate that the common stock and warrants will be
quoted on the National Association of Securities Dealers, Inc. (NASDAQ), Small
Cap System and the Boston Stock Exchange ('BSE') under the symbols 'ITCM' and
'ITCMW'. Applications to list such securities on these system and exchange will
be filed shortly.
We cannot assure that the prices of our securities will be so quoted or that
a trading market for our securities will develop or be sustained, or at what
price the securities will trade. In addition, even if
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<PAGE>
these securities are listed and traded initially on NASDAQ and BSE, we may fail
to meet subsequently certain minimum standards for continued listing. In that
event, these securities will consequently be delisted, and their price will no
longer be quoted in this system. These results may make it extremely difficult
to sell or trade our securities.
TRANSFER AND WARRANT AGENT AND REGISTER
Jersey Transfer & Trust Co. is the transfer and warrant agent and registrar
for our securities.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our shares could drop as a result of sales of
substantial amounts of them in the public market after this offering or the
perception that these sales may occur. This set of circumstances could also make
it more difficult for us to raise funds through future offerings of stock.
The 1,000,000 shares and 1,000,000 warrants that we are offering will be
freely tradable without restriction except for any shares held by our
'affiliates' as defined in Rule 144 under the Securities Act or those otherwise
restricted under the Act. In addition, if the underwriters exercise their over-
allotment option, in part or in full, up to 150,000 additional shares and
150,000 additional warrants will be issued and freely tradable.
Our remaining 4,000,000 outstanding shares are 'restricted securities' as
defined in Rule 144. Those shares may only be resold if there is an effective
registration statement under the Securities Act covering those shares or an
exemption from registration under Rule 144 or otherwise is available. The
primary holders of all currently outstanding 4,000,000 shares have agreed that
they will not sell any shares without the prior consent of the representative of
the underwriters for a period of 365 days from the effective date of this
offering. Shares covered by such registration will be eligible for resale in the
public market, subject to Rule 144 limitations applicable to 'affiliates' and to
the lock-up agreements previously described. Furthermore, we will be issuing
warrants to the representative of the underwriters at the closing of this
offering which, if exercised in full, will yield another 100,000 shares. After
this offering, we eventually intend to register all 500,000 shares reserved for
issuance under our stock option plan.
Our stock options and warrants are likely to be exercised, if at all, at a
time when we otherwise could obtain a price for the sale of our shares that is
higher than the exercise price per share of the options or warrants. Any
exercise or the possibility of an exercise may impede our efforts to obtain
further financing through the sale of additional securities or make that
financing more costly.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement between
the Company and Mason Hill & Co., Inc., the representative of the several
underwriters, a copy of which agreement is filed as an exhibit to the
registration statement of which this prospectus forms a part, we have agreed to
sell to the underwriters named below, and the underwriters have agreed to
purchase all 1,000,000 shares of common stock and 1,000,000 warrants to purchase
shares of common stock offered.
<TABLE>
<CAPTION>
NUMBER OF
---------------------
UNDERWRITER NUMBER OF ADDRESS SHARES WARRANTS
- ----------- ----------------- ------ --------
<S> <C> <C> <C>
Mason Hill & Co., Inc......... 110 Wall Street
New York, NY 10005............
--------- ---------
Total..................................................... 1,000,000 1,000,000
--------- ---------
--------- ---------
</TABLE>
The representative has advised us that the underwriters will offer the
shares and warrants as set forth on the cover page of this prospectus, which
includes the underwriting discount indicated there, and
43
<PAGE>
that the underwriters will initially allow concessions not in excess of
$ per share and $ per warrant on sales to certain dealers.
After the initial public offering, concessions to dealers terms may be changed
by the representative.
The representative has advised us that the underwriters do not intend to
confirm sales of the shares and warrants to any account over which they exercise
discretionary authority in an aggregate amount in excess of five (5%) percent of
the total securities offered hereby.
We have granted to the underwriters an option which expires 45 days after
the date of this prospectus, exercisable as provided in the underwriting
agreement, to purchase up to an additional 150,000 shares and 150,000 warrants
at a net price of $6.25 per share and $.10 per warrant (90% of the public
offering price) which option may be exercised only for the purpose of covering
over-allotments, if any, in the sale of 1,000,000 shares and 1,000,000 warrants
offered in this prospectus.
The underwriting agreement provides that upon the closing of the sale of the
securities offered, the representative will be paid a non-accountable expense
allowance equal to 3% of the aggregate public offering price (including the
over-allotment option) of which $50,000 has been paid to date. The underwriting
agreement provides for reciprocal indemnification between us and the
underwriters against certain liabilities in connection with the registration
statement, including liabilities under the Securities Act of 1933, as amended.
The underwriting agreement further provides that we and each of our directors
individually will, upon completion of the public offering, for a period of no
less than three years, support for election a designee of the representative to
our board of directors.
In connection with this public offering, we have agreed to sell to the
representative or its designees, at a price of $10, representative's warrants
covering 100,000 shares which may not be transferred before May , 2001, except
to officers of the representative or to other members of their underwriting
group or to partners or officers of these members. The exercise price of these
warrants will equal 120% of the initial offering price of the shares of common
stock. The representative's warrants are exercisable for a period of four years
beginning one year after the date of this prospectus. These warrants will
contain certain anti-dilution provisions and have also been included in the
registration statement of which this prospectus forms a part but may not be
publicly offered unless and until a post-effective amendment or new registration
statement with respect thereto has been filed and becomes effective. We have
agreed to prepare and file one post-effective amendment (or registration
statement, if required) during this four-year period if requested by the
representative and to bear its expense, and in addition, the representative has
certain rights to include these warrants, and the underlying stock in any other
registration statement filed by us during the four-year period. Any profit
realized from the sale of these warrants or underlying stock may be deemed
additional underwriting compensation. The exercise of the underwriters'
over-allotment option will not result in increasing the securities underlying
the representative's warrants or in the granting of any additional warrants to
the representative.
Our officers and directors, who are current shareholders of our outstanding
shares, have agreed not to sell any shares of common stock owned by them,
without the prior written consent of the representative, for a period of 12
months after the effective date of the registration statement of which this
prospectus forms a part. In addition, we have granted the representative the
right for three years to name a member of its choice to our board of directors
which it has exercised with the selection of C. Jay Pelliconi to the board.
Mason Hill commenced operations in March 1995. It has co-managed or managed
only four public offerings of securities although it has participated in
numerous public offerings as a member of the underwriters' and dealers' groups.
Accordingly, the representative has limited experience as a managing underwriter
of public offerings.
Its lack of experience as lead underwriter may impair our ability to develop
a public market for our securities. The representative may not be able to
participate as a market maker of our common stock and warrants should our
securities trade below the minimum prices set by the NASDAQ for small cap
listings. Nor can we be certain that any broker-dealer will become a market
maker for our common stock and warrants. If there are no market makers, our
common stock and warrants may be delisted from NASDAQ.
44
<PAGE>
The representative may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and 'passive' market making in
accordance with Regulation M under the Securities Exchange Act of 1934.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
shares of common stock or warrants in the open market after the distribution has
been completed in order to cover syndicate short positions. Penalty bids permit
the representative to reclaim a selling concession from a syndicate member when
the shares of common stock or warrants originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. In 'passive' market making, market makers in the securities who are
underwriters or prospective underwriters may, subject to certain limitations,
make bids for or purchases of the securities until the time, if any, at which a
stabilizing bid is made. these stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock or
warrants to be higher than they would otherwise be in the absence of these
transactions. These transactions may be effected on the over-the-counter
Bulletin Board or otherwise and, if commenced, may be discontinued at any time.
Prior to this offering, there has been no public market for common stock or
warrants. Consequently, the public offering prices of our securities have been
determined by negotiation between us and the representative. Factors considered
in determining the public offering prices of these securities and the exercise
price of the warrants included our net worth and earnings, the amount of
dilution per share of common stock to the public investors, the estimated amount
of proceeds believed necessary to accomplish our proposed goals, prospects for
our business and the industry in which we operate, the present state of our
activities and the general condition of the securities markets at the time of
the offering.
The underwriters intend to reserve approximately ten (10%) percent of the
securities offered by this prospectus to our employees, directors, their friends
and relatives as well as our vendors and customers.
LEGAL MATTERS
The legality of the securities offered in this prospectus will be passed
upon for us by Cascone & Cole, 711 Third Avenue, New York, New York 10017.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by Sichenzia, Ross & Friedman, LLP, 135 West 50th Street, 20th
Floor, New York, NY 10020.
EXPERTS
Our financial statements of December 31, 1999, and 1998 and for each of the
three years in the period ended December 31, 1999 appearing in this prospectus
and registration statement have been included herein and in the registration
statement in reliance upon the report of Demetrius & Company, LLC, independent
certified public accountants, and upon the authority of this firm as experts in
accounting and auditing.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all the information set forth in the
registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the exhibits for a complete
statement of their terms and conditions. The registration statement and other
information may be read and copied at the Commission's Public Reference Room at
450 Fifth Street, N.W., Washington, DC 20549, and at the Commission's Regional
45
<PAGE>
Offices located at 7 World Trade Center, Suite 1300, New York, New York, 10048,
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The public may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issues that file electronically with the Commission.
Upon effectiveness of the registration statement, we will be subject to the
reporting and other requirements of the Securities Exchange Act of 1934 and we
intend to furnish our shareholders annual reports containing financial
statements audited by our independent auditors and to make available quarterly
reports containing unaudited financial statements for each of the first three
quarters of each year.
We have applied for the listing of our common stock on the NASDAQ Small Cap
Market and BSE under the symbol ' ' and ' W'. After this offering is
effective, you may obtain certain information about us on NASDAQ Internet Site
(http://www.Nasdaq-Amex.com) and BSE Internet site (www.bostonstock.com).
CHANGE IN ACCOUNTANTS
In September 1999 our prior auditors, Schwack and Katz resigned solely
because we had decided to pursue an initial public offering, and Schwack and
Katz had no public offering experience. On or about the same time, we engaged
Demetrius & Company, LLC to audit our financial statements for the fiscal years
ended December 31, 1997 and 1998. The decision to change accountants was made
with the approval of our board of directors.
We believe and we have been advised by Schwack and Katz that it concurs in
such belief that, during its tenure with us, we did not have any disagreement on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Schwack and Katz would have caused it to make reference in
connection with its report on our financial statements to the subject matter of
the disagreement.
No report of Schwack and Katz on our financial statements for either of the
past three fiscal years contained an adverse opinion, a disclaimer of opinion or
a qualification or was modified as to uncertainty, audit, scope or accounting
principles. During such fiscal periods, there were no 'reportable events' within
the meaning of Item 304(a)(1) of Regulation S-B promulgated under the Securities
Act of 1933.
46
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets as of December 31, 1998 and 1999
(unaudited)............................................... F-4
Consolidated Statements of Operations and Retained Earnings
for the Years Ended December 31, 1997, 1998 and 1999...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Financial Statements............................... F-7 - F-16
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
INTEGCOM CORP.
We have audited the accompanying consolidated balance sheets of InTegCom
Corp. and Subsidiaries at December 31, 1999 and 1998, and the related
consolidated statements of operations and retained earnings and cash flows for
the three year period ended December 31, 1999, in accordance with standards
established by the American Institute of Certified Public Accountants. 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 audit.
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 InTegCom and
Subsidiaries as of December 31, 1999 and 1998, and the consolidated results of
their operations and cash flows for each of the years in the three year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
DEMETRIUS & COMPANY, L.L.C.
Wayne, New Jersey
February 8, 2000
F-3
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 140,063 $ 196,771
Accounts receivable -- net of allowance for doubtful
accounts of $65,600 and $52,544....................... 2,143,518 1,375,786
Inventory............................................... 702,268 809,209
Other current assets.................................... 136,158 96,881
---------- ----------
Total current assets................................ 3,122,007 2,478,647
Property and equipment, net of depreciation of $609,258 and
$501,708.................................................. 270,774 319,486
Computer software product cost -- net of amortization of
$213,322 and $135,442..................................... 222,849 207,181
Other Assets................................................ 99,919 83,486
---------- ----------
$3,715,549 $3,088,800
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 830,581 $ 658,774
Accrued taxes and expenses.............................. 213,244 235,996
Income taxes payable.................................... 101,695 --
Long-term debt current portion.......................... 27,536 --
Capitalized lease obligations, current portion.......... 28,030 32,898
Loans payable........................................... 16,377
Customer deposits held.................................. 20,768 150,000
---------- ----------
Total current liabilities........................... 1,221,854 1,094,045
Capitalized lease obligations, less current portion......... 25,031 54,631
Long-term debt, less current portion........................ 1,531,061 1,191,475
Deferred tax liability...................................... 89,000 80,902
Stockholders' equity:
Preferred stock -- par value $.01
Authorized 2,000,000 shares
Issued None
Common stock -- par value $.01
Authorized 10,000,000 shares
Issued and outstanding 4,000,000 shares.............. 40,000 40,000
Additional paid-in capital.................................. 233,800 171,300
Deferred Compensation....................................... (62,500)
Retained earnings........................................... 637,303 456,447
---------- ----------
Total shareholders' equity.......................... 848,603 667,747
---------- ----------
$3,715,549 $3,088,800
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the statements.
F-4
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales.................................................... $7,556,855 $6,783,267 $4,011,408
Cost of sales............................................ 5,255,303 4,680,342 2,574,169
---------- ---------- ----------
Gross profit............................................. 2,301,552 2,102,925 1,437,239
---------- ---------- ----------
Operating expenses
Selling, general and administrative.................. 1,863,447 1,819,205 1,255,920
Interest expense..................................... 122,340 106,939 159,672
---------- ---------- ----------
Total operating expenses......................... 1,985,787 1,926,144 1,415,592
---------- ---------- ----------
Income before income taxes........................... 315,765 176,781 21,647
Provision for income taxes............................... 134,909 91,191 21,946
---------- ---------- ----------
Net income (loss)........................................ 180,856 85,590 (299)
Retained earnings -- beginning....................... 456,447 370,857 410,818
Prior period adjustment.............................. -- -- (39,662)
---------- ---------- ----------
Adjusted retained earning -- beginning................... 456,447 370,857 371,156
Retained earnings -- end......................... $ 637,303 $ 456,447 $ 370,857
---------- ---------- ----------
---------- ---------- ----------
Basic and diluted earnings per common share:
Basic earnings per common share...................... $.05 $.02 $.00
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares....................... 4,000,000 4,000,000 4,000,000
Diluted earnings per common share.................... $.05 $.02 $.00
---------- ---------- ----------
---------- ---------- ----------
Weighted average diluted shares outstanding.......... 4,000,247 4,000,000 4,000,000
</TABLE>
The accompanying notes are an integral part of the statements.
F-5
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) for the year.......................... $ 180,856 $ 85,590 $ (299)
Adjustments to reconcile net income to net cash
Provided by (applied to) operating activities:
Depreciation and amortization....................... 204,829 170,977 151,230
Changes in operating assets and liabilities:
Accounts receivable................................. (767,732) (234,233) 171,900
Inventory........................................... 106,941 (51,921) (342,636)
Other assets........................................ (12,025) (37,357) (27,953)
Accounts payable.................................... 171,807 (137,543) 21,674
Accrued taxes and expenses.......................... 78,943 (22,436) (113,120)
Deferred interest payable........................... (120,246) 7,010 --
Other liabilities................................... 8,098 80,902 1,342
Customer deposits held.............................. (129,232) 150,000 65,046
--------- --------- ---------
Net cash used in operating activities........... (277,761) 10,989 (72,816)
--------- --------- ---------
Cash flows from investing activities:
Computer software development costs..................... (93,548) (82,327) (76,091)
Purchase of property and equipment and leasehold
improvements.......................................... (78,237) (60,188) (78,907)
--------- --------- ---------
Cash used in investing activities............... (171,785) (142,515) (154,998)
--------- --------- ---------
Cash flows from financing activities
Proceeds of bank credit lines........................... 1,423,749 822,177 125,554
Proceeds of equipment loan facility..................... 6,163 -- --
Repayments against bank credit lines.................... -- (300,000) --
Proceeds of term loan bank.............................. -- 250,000 --
Scheduled payments on term loan......................... (29,167) (45,833) --
Refinancing of term loan................................ (175,000) -- --
Repayments of bank lines refinanced..................... (522,177) (572,177) --
Repayment of loans from officers and others............. (232,577) -- --
Increase in loans from officers and others.............. -- 1,084 45,169
Capitalized lease obligation payments................... (71,852) (9,068) (58,912)
Equipment loan.......................................... (6,301) (3,655) --
Purchase of treasury stock in subsidiary................ -- -- (500)
--------- --------- ---------
Cash provided by financing activities........... 392,838 142,528 111,311
Net cash increase (decrease)................................ (56,708) 11,002 (116,503)
Cash -- beginning........................................... 196,771 185,769 302,272
--------- --------- ---------
Cash -- ending.................................. $ 140,063 $ 196,771 $ 185,769
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the statements.
F-6
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NATURE OF OPERATIONS
InTegCom Corp. ('ITC') was incorporated under the laws of the State of
Delaware on November 19, 1999. Also, on November 30, 1999 the Company acquired
all the outstanding shares of HBE Acquisition Corp. ('HAC') (T/A Henry Bros.
Electronics) Viscom Products, Inc. ('VPI') and HBE Central Management, Inc.
('HCM') Also, VPI owns all the outstanding shares of HBE Communications, Inc.,
an inactive company at December 31, 1999. InTegCom is a systems integrator
providing design, installation and support services for a wide variety of
security, communications and control systems. ITC specializes in turnkey systems
that integrate many different technologies. Systems are customized to meet the
specified needs of the client. ITC markets nationwide with an emphasis on the
New York and Dallas metropolitan areas. Customers are primarily Fortune 500
companies and government agencies. HAC owns and operates the systems integration
business, providing overall administration for all subsidiaries and holds the
related assets. VPI, on the other hand, supervises and controls the
manufacturing and assembly of the CCTV equipment and the assets concerned. HCM
handles the alarm monitoring which represents less than 1% of the business.
The Company's headquarters and manufacturing facility is located in Saddle
Brook, New Jersey. A sales and service facility is located near Dallas, Texas.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The Company acquired all the HBE Acquisition
Corp., Viscom Products, Inc. and HBE Central Management, Inc. through an
exchange of 4,000,000 shares of common stock for all the outstanding stock of
the acquired companies. The business combination has been accounted as a pooling
of interest.
The accompanying consolidated financial statements have been restated to
give effect to the combination. All significant transactions and balances have
been eliminated in consolidation.
Because the various companies included in this consolidation were under
common control throughout the reporting period, there were no differences in
accounting practices or differences in fiscal year ends.
Income Recognition -- Sales revenues from systems installations are
generally recognized on the completed-contract method, in which revenue is
recognized when the contract is substantially complete. Most contracts are
completed in less than a year. Contracts that are expected to be completed in
more than a year are accounted for on the percentage of completion method. This
method recognizes revenue on a proportional basis as work on the contract
progresses. Mobilization charges are accounted for as a direct contract cost and
included in the estimated cost to complete for determination of revenue
recognition on the percentage of completion method.
Service contracts are billed either monthly or quarterly on the first day of
the month covered by the contract. Accordingly, revenue from service contracts
is recognized on the straight line method.
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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash and cash equivalents includes cash on
hand, demand deposits and short term investments with initial maturities of
three months or less.
Inventories -- Inventories are stated at the lower of cost or market. Cost
has been determined using the first-in, first-out method.
F-7
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
Property and Equipment -- Property and equipment are stated at cost, net of
accumulated depreciation. Depreciation is computed on a straight-line basis over
estimated useful lives of five to ten years. Leasehold improvements are
depreciated over the shorter of related lease terms or the estimated useful
lives. Upon retirement or sale, the costs of the assets disposed and the related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the determination of income. Repairs and maintenance costs
are expensed as incurred.
Computer Software Product Cost -- The Company accounts for software
development costs in accordance with Statement of Financial Accounting Standards
No. 86 'Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed' ('FAS 86') under which certain software development costs
incurred subsequent to the establishment of technological feasibility are
capitalized and amortized over the estimated lives of the related products.
Technological feasibility is established upon completion of a working model. All
costs incurred prior to demonstrating technical feasibility have been charged to
cost of sales. To date, costs incurred subsequent to the establishment of
technological feasibility were $436,171 and $342,623, respectively at December
31, 1999 and 1998. These costs are capitalized and amortized over the estimated
product life using the straight line method. Amortization expense charged to
operations for the years ended December 31, 1999, 1998 and 1997 is $77,880,
$60,292 and $44,450, respectively.
Impairment of Long Lived Assets -- Long-lived assets consist of intangible
assets and certain capital assets. The carrying value of these assets is
regularly reviewed to verify that they are valued properly. If the facts and
circumstances suggest that the value has been impaired, the carrying value of
the assets will be reduced appropriately. The Company has identified no such
impairment losses.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of cash,
cash equivalents and accounts receivable. At December 31, 1999 and 1998, the
Company had cash balances at certain financial institutions in excess of
federally insured limits. However, the Company does not believe that it is
subject to unusual credit risk beyond the normal credit risk associated with
commercial banking relationships.
At December 31, 1999 and 1998 31% and 52% of accounts receivable were due
from Federal and local government agencies respectively. Also, at December 31,
1999 and 1998 approximately 92% and 96% of accounts receivable were concentrated
in customers located in the Dallas, Texas and New York City metropolitan areas.
Income Taxes -- The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under the asset and liability method
of SFAS No. 109, deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using statutory tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Fair Value of Financial Instruments -- The carrying amounts of the Company's
financial instruments, which include cash equivalents, accounts receivable,
notes receivable, accounts payable, accrued expenses and notes payable
approximate their fair values at December 31, 1999 and 1998.
Advertising Costs -- The Company expenses advertising costs when the
advertisement occurs. Total advertising expense amounted to approximately
$15,000, $19,000 and $18,000 for the years ended December 31, 1999, 1998 and
1997.
Comprehensive Income -- The Company adopted SFAS No. 130, Reporting
Comprehensive Income (SFAS 130), effective January 1, 1998. SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. Comprehensive income is
the change in equity of a business enterprise during a period from certain
F-8
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
transactions and the events and circumstances from non-owner sources. For the
periods presented in the accompanying combined statements of operations,
comprehensive income equals the amounts of net income reported on the
accompanying combined statements of operations.
Stock Based Compensation -- Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ('FS 123'), encourages, but
does not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has elected to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Accordingly, compensation cost for stock
options issued to employees is measured as the excess, if any, of the fair
market value of the Company's Common Stock at the date of grant over the amount
the employee must pay to acquire the stock. Pro forma disclosure of net income
based on the provisions of FAS 123 is discussed in Note 8.
Research and Development Costs -- Costs of research and development for new
products are charged to operations as incurred and amounted to approximately
$145,000, $194,000 and $200,000 for the years ended December 31, 1997, 1998 and
1999.
Warranty -- The Company offer warranties on all products, including parts
and labor, that range from one year to four years depending upon the type of
product concerned. For products made by others, the Company passes along the
manufacturer's warranty to the end user. The Company charges operations with
warranty expenses as incurred. For the years ended December 31, 1999, 1998 and
1997 net warranty expense was $58,268, $42,624 and $58,268, respectively.
Historical Net Income Per Share -- The Company computes net income per
common share in accordance with SFAS No. 128, 'Earnings per Share' and SEC Staff
Accounting Bulletin No. 98 ('SAB 98'). Under the provisions of SFAS No. 128 and
SAB 98, basic and diluted net loss per common share is computed by dividing the
net income available to common shareholders for the period by the weighted
average number of shares of common stock outstanding during the period.
Accordingly, the number of weighted average shares outstanding as well as the
amount of net income per share are the same for basic and diluted per share
calculations for all periods reflected in the accompanying financial statements.
Reclassifications -- Certain reclassifications to the 1997 and 1998
financial statements have been made to conform to the 1999 presentation.
Segment Information -- In June 1997, Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 131, 'Disclosure
About Segments of an Enterprise and Related Information' ('Statement 131'),
effective for financial statements for fiscal years beginning after
December 15, 1997. Statement 131 establishes standards for the reporting by
public business enterprises of financial and descriptive information about
reportable operating segments in annual financial statements and interim
financial reports issued by shareholders. The Company primarily provides
installation services for companies in need of closed-circuit television and
access control systems that are located throughout the United States and
considers all of its operations as one segment because expenses support multiple
products and services. Management uses one measurement of profitability and does
not separate or segment its business for internal reporting.
Sales to local government agencies were 40%, 34% and 21% of sales for the
years ended December 31, 1999, 1998 and 1997, respectively.
F-9
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
2. INVENTORIES
Inventories at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Parts........................................... $388,609 $562,288
Work-in Process................................. 313,659 246,921
-------- --------
$702,268 $809,209
-------- --------
-------- --------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Office equipment........................................ $143,906 $109,756
Demo and testing equipment.............................. 229,122 227,830
Warehouse equipment..................................... -- 46,515
Vehicles................................................ 204,274 204,274
Computer equipment...................................... 281,730 211,819
Leasehold improvements.................................. 21,000 21,000
-------- --------
880,032 821,194
Accumulated Depreciation............................ 609,258 501,708
-------- --------
$270,774 $319,486
-------- --------
-------- --------
</TABLE>
4. LONG-TERM DEBT
As of December 31, 1998, the Company had a credit facility with PNC Bank
(PNC) for $750,000 dated January 23, 1997 at a prime rate plus 1%. This credit
line was to expire on April 30, 1999, but was extended until it was refinanced
by Hudson United Bank (HUB) on September 8, 1999. In addition, PNC granted the
Company a convertible line of credit in the amount of $250,000 at prime rate
plus 1%. On January 26, 1998 this line was converted into a five year term loan
due February 26, 2003 with interest at 8.818%. On September 8, 1999, both PNC
loans were refinanced from the proceeds of a new credit line of $2,000,000 from
HUB, which is not due until June 1, 2001. Accordingly, all amounts due on the
PNC loans have been classified as long-term debt. Under the terms of the HUB
revolving line of credit, the Company may borrow up to $2,000,000 at 1/2% above
the bank's prime interest rate through June 1, 2001. The aggregate principal
amount of the advances up to $1,500,000 shall not exceed 80% of the face amount
of qualified accounts receivable. In addition, the Company may borrow up to
$500,000 against the line for the purchase of inventory and expenses related to
large contracts awarded the borrower.
Also on September 8, 1999, HUB granted the Company an equipment line of
credit in the amount of $250,000. This is not a revolving line. Advances under
the line will converted into monthly installments payable until September 1,
2005. Interest is at the prime rate of the bank plus 1/2% until September 1,
2000. At that time the rate will be fixed at the rate then being paid on five
year U.S. Treasury Notes plus 250 basis points. No advances will be permitted
under this loan after August 31, 2000.
As of December 31, 1999 these lines are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT OF FACILITY BALANCE DUE UNUSED LINE
------------------ ----------- -----------
<S> <C> <C> <C>
Revolving line.............................. $2,000,000 $1,423,749 $ 576,251
Equipment line.............................. 250,000 6,163 243,837
</TABLE>
F-10
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
Substantially all the Company's assets are pledged as collateral for this
loan. Among other provisions the loan agreement requires the Company to maintain
net tangible networth, as defined, and maintain appropriate insurance coverage
on tangible and intangible assets. In addition, the agreement prohibits the
Company from, among other things, purchasing or making capital improvements in
excess of defined limits in any one year, merge or consolidate with or into any
corporation or acquire more than 5% of the shares of any corporation or
substantially all of the assets of any other person, firm or corporation and
sell, assign, transfer or dispose of any assets without obtaining the bank's
consent in writing. As of December 31, 1999, the Company was in compliance with
its loan covenants.
In addition, at December 31, 1998, the Company had loans payable to
officers, shareholders and others in the amount of $282,577 plus accrued
interest of $155,246 (see note 10). Because some of these amounts were paid off
from the proceeds of the HUB line of credit in December, 1999, the amounts due
at December 31, 1998 have been reclassified as long-term debt.
As of December 31, 1999 and 1998 long-term debt consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Credit facility with Hudson United Bank dated
September 8, 1999, at 1/2% above bank's prime rate.
All borrowing under this line are due June 1, 2001.... $1,423,749
Equipment loan facility with Hudson United Bank dated
September 8, 1999, at 1/2% above bank's prime rate.
All borrowing under this line are due September 1,
2005.................................................. 6,163
Notes payable, due in monthly installments of $3,264 a
month, including interest at 10% per annum with final
payment to be made on December 1, 2003 (see
note 12).............................................. 128,685
Credit facility with PNC Bank dated January, 1998, at 1%
above prime rate. This was refinanced on September 8,
1999 by HUB........................................... $ 522,177
PNC Bank term loan dated January, 1998, payable in
monthly installments of $4,167 plus interest at the
rate of 8.818%. Final payment due February, 2003. The
balance due at September 8, 1999, was financed at this
date by the proceeds from HUB......................... 204,167
---------- ----------
1,558,597 726,344
Less: current portion................................. 27,536
---------- ----------
1,531,061 726,344
Short term debt refinanced with long-term debt reclassified
as latter:
Loans payable to officers, shareholders and others...... 309,885
Deferred interest payable to above group................ 155,246
---------- ----------
$1,531,061 $1,191,475
---------- ----------
---------- ----------
</TABLE>
Annual maturities over the next five years for long-term debt as of
December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000................................................. $ 27,536
2001................................................. 1,454,169
2002................................................. 33,605
2003................................................. 37,124
2004................................................. --
</TABLE>
F-11
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
5. COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company leases its facilities under operating leases expiring through
2002. The Company also leases certain equipment under capital lease. The future
minimum rental payments under noncancelable leases and equipment loans as of
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- -------
<S> <C> <C>
2000..................................................... $120,300 $35,034
2001..................................................... 47,025 20,186
2002..................................................... -- 12,385
Thereafter...............................................
-------- -------
Total................................................ $167,325 67,605
--------
--------
Interest expense......................................... 14,544
-------
Net present value of future payments..................... 53,061
Current portion of capital lease obligations............. 28,030
-------
$25,031
-------
-------
</TABLE>
Rent expense under operating leases was approximately $140,000, $126,000 and
$111,000, for the years ended December 31, 1999, 1998 and 1997.
(b) EMPLOYMENT AGREEMENTS
In December 1999, the Company entered into five-year employment agreements
with three of its officers. The employment agreements provide for minimum
aggregate annual compensation of $380,000 for the years 2000 through 2004, as
well as unspecified annual bonuses. The contracts increase 10% in each of the
third, fourth and fifth years. Also, there is a one-year non-competition
covenant that commences after termination of employment. All these employment
contracts may be terminated or modified by the Company if it fails to complete
an initial public offering of securities by June 30, 2000.
6. INCOME TAXES
The years ended December 31, 1999, 1998 and 1997 includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal
Current............................................. $ 96,070 $52,056 $ 8,277
Deferred............................................ 16,205 16,089 (1,614)
State
Current............................................. 24,957 16,046 15,283
Deferred............................................ (2,323) 7,000 --
-------- ------- -------
$134,909 $91,191 $21,946
-------- ------- -------
-------- ------- -------
</TABLE>
The components of the deferred tax asset (liability) as of December 31, 1999
and 1998 are as follows:
F-12
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Total deferred tax assets:
Allowance for uncollectible accounts.................... $ 26,200 $ 21,000
Accrued absences........................................ 21,145 16,000
Accrued warranty........................................ 28,356 4,882
-------- --------
75,691 41,882
Deferred tax liability (non-current)
Capitalized software development.......................... (89,000) (80,902)
-------- --------
Net Deferred Tax Liability.............................. $(13,309) $(39,020)
-------- --------
-------- --------
</TABLE>
The reconciliation of estimated income taxes attributed to operations at the
United States statutory tax rate to reported provision for income taxes is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Provision for taxes computed using statutory rate....... $107,400 $60,100 $ 3,200
State taxes, net of Federal benefit..................... 19,000 10,600 1,700
Depreciation and amortization........................... 14,275 9,191 16,246
Other................................................... (5,766) 11,300 800
-------- ------- -------
Provision for Income Taxes.......................... $134,909 $91,191 $21,946
-------- ------- -------
-------- ------- -------
</TABLE>
7. SHARE OFFERING
In December 1999, pursuant to a letter of intent with Mason Hill & Co. to
underwrite an initial public offering of its securities, the board of Directors
authorized management to file a registration statement with the Securities and
Exchange Commission to permit the Company to offer 1,000,000 units consisting of
one share of common stock and one warrant to purchase one share of common stock
(the 'Offering').
8. INCENTIVE STOCK OPTION PLAN
On December 23, 1999, the directors and shareholders approved the adoption
of an Incentive Stock Option Plan (the 'Plan'). Under the Plan, options to
purchase a maximum of 500,000 shares of its common stock may be granted to
officers and other key employees of the Company.
The maximum term of any option is ten years, and the option price per share
may not be less than the fair market value of the Company's shares at the date
the option is granted. However, options granted to persons owning more than 10%
of the voting shares will have a term not in excess of five years, and the
option price will not be less than 110% of fair market value. Options granted to
an optionee will usually vest 33 1/3% of each full year beginning on the first
anniversary of the options grant subject to the discretion of the Compensation
Committee of the Board of Directors.
The plan will terminate at December 23, 2009 or on such earlier date as the
board of directors may determine. Any option outstanding at the termination date
will remain outstanding until it expires or is exercised in full, which ever
occurs first.
As of December 23, 1999, options to acquire an aggregate of 100,000 shares
of common stock, all at an exercise price of 90% of the public offering price
(see Note 8), had been granted under the Plan to key employees of the Company.
None have been granted to Messrs. Henry, Witcosky and Massad, the three top
executive officers. An optionee may exercise these options only if and to the
extent that these options are vested at that time. At December 31, 1999,
deferred compensation cost was recorded in the amount of the difference between
the expected public offering price of $6.25 a share and $5.625 the
F-13
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
expected exercise price or $0.625 per share. The deferred compensation cost of
$62,500 will be charged against income over the three year vesting period.
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant. The following weighted average assumptions were used for grants
under the Plan in 1999 to allow for the computation of pro forma results of
operations: volatility of 0%, dividend yield of 0%, risk-free interest rate of
6% and expected lives of 3 years. The fair value of the options granted during
1999 was $1.55 with an estimated exercise price of $6.25.
If compensation cost for stock option grants had been determined based on
the fair value on the grant dates for the year ended December 31, 1999
consistent with the method prescribed by SFAS No. 123, there would be no effect
on net income. However, deferred compensation would have been $155,160.
9. EMPLOYEE BENEFIT PLAN
As of October 1, 1999, the Company began a 'Simple IRA' plan for all
eligible employees wishing to contribute. An eligible employee is one that has
$1,000 or more in compensation. The Company will match the employees
contribution up to 3% of salary to a maximum of $6,000. The employee's
contribution cannot exceed $6,000 in any one year.
10. RELATED PARTY TRANSACTIONS
As of December 31, 1998, officers, shareholders and other related parties
were owed $193,577, plus accrued interest of $100,346. During December, 1999
these loans plus accrued interest were repaid from the proceeds of the HUB bank
line. (See note 4) Interest had been charged to income at the rate of 10% per
annum. In the three years ended December 31, 1999, operations were charged
$22,800, $23,000 and $23,000, respectively.
In the 1990's, the Company orally agreed with former joint adventurer to
repay his $50,000 loan to the Company, plus accrued interest of $35,000 and net
repayments for product purchases and to extinguish any equity claims. It is
ITC's position the joint adventurer was not entitled to nor demanded any equity.
That agreement was finally memorialized in writing in December, 1999. Under this
arrangement, two promissory notes were issued to that party totaling $128,685 at
10% interest due on December 1, 2003. (See Notes 4 and 12). Payments of these
notes were guaranteed by Mr. Henry and Mr. Witcosky. In addition Mr. Witcosky
paid the joint adventurer $40,000 to extinguish any equity claim despite the
fact no shares were issued, paid for or demanded.
On December 30, 1999, the two shareholders, Messrs. Henry and Witcosky each
sold 80,000 shares of their InTegCom common stock for a total of 160,000 shares
to Mr. Massad, an employee of the Company, for an aggregate of $24,000 under
restrictive conditions involving his continued employment. 120,000 shares of Mr.
Massad's purchase are being held in escrow to assure his continued employment
with the Company. 40,000 shares will be released on each anniversary date of
employment (December 31st). In case Mr. Massad resigns or is terminated for
cause before his contract expires, he will forfeit whatever shares are still in
escrow or in the event of death, his estate will receive that year's stock
portion and 50% of what remains in escrow and the balance will revert equally to
Mr. Henry and Witcosky.
On or about the same date, Messrs. Henry and Witcosky each also transferred
20,000 of their InTegCom shares, totaling 40,000 shares to, John, Ray and
Hartford Henry as a gift in appreciation of a favorable long-standing loan which
has been repaid in full.
Under a bank loan agreement between us and Hudson United Bank dated
September 1, 1999, Mr. Henry and Mr. Witcosky have personally guaranteed up to
$2,250,000 of ITC's potential indebtedness to the bank, plus accrued interest.
F-14
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
Loans made by Messrs. Henry and Witcosky to ITC from 1989 to 1994 were
converted into equity without the issuance of shares of common stock. Instead,
these amounts were credited to paid-in-capital.
11. STOCKHOLDERS' EQUITY
Common Stock -- Holders of common stock are entitled to one vote for each
share held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Apart from preferences that may be applicable to any
shares of preferred stock outstanding at the time, holders of our common stock
are entitled to receive dividends ratably, if any, as may be declared from time
to time by our board of directors out of funds legally available therefor. Upon
the liquidation, dissolution or winding up of the Company, the holders of common
stock are entitled to receive ratably, the net assets available after the
payment of all liabilities and liquidation preferences on any outstanding
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights, and there are no redemption or sinking fund
provisions applicable to the common stock.
Additional Paid-In Capital and Deferred Compensation
During 1999 there were changes in this account as follows:
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN DEFERRED
CAPITAL COMPENSATION
------- ------------
<S> <C> <C>
Balance December 31, 1998............................ $171,300 --
Deferred stock-based compensation.................... 62,500 $(62,500)
-------- --------
Balance December 31, 1999........................ $233,800 $ 62,500
-------- --------
-------- --------
</TABLE>
12. SUPPLEMENTAL CASH FLOW DISCLOSURE
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash paid for:
Taxes paid......................................... $132,200 $29,254 $ 50,873
Interest paid...................................... $269,148 $93,537 $129,826
</TABLE>
<TABLE>
<CAPTION>
During 1999 the Company had the following non-cash transactions:
<S> <C>
Fixed assets that were fully depreciated were written off
against accumulated depreciation........................ $ 19,399
A promissory note was issued in exchange for the following:
Loan payable.............................................. 50,000
Accrued interest.......................................... 35,000
Joint venture liquidating damages......................... 43,685
--------
$128,685
--------
--------
During 1998 the Company financed the following equipment:
Computer equipment by a capitalized lease................. $ 38,002
Equipment financed by installment loan.................... 20,457
--------
$ 58,459
--------
--------
</TABLE>
F-15
<PAGE>
INTEGCOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
13. PRIOR PERIOD ADJUSTMENT
The Company's financial statements as of December 31, 1998 and 1997 have
been restated to reflect liabilities that existed for probable product warranty
claims and compensated absences. The effect of the restatement is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AS PREVIOUSLY
DECEMBER 31, 1998 REPORTED AS RESTATED
----------------- -------- -----------
<S> <C> <C>
Balance sheet:
Other current assets.................................... $ 62,881 $ 96,881
Accrued taxes and expenses.............................. 207,590 235,996
Deferred tax liability.................................. 31,902 80,902
Retained earnings....................................... 456,447 499,853
Statement of operations:
Provision for income taxes.............................. 76,191 91,191
Net Income.............................................. 105,475 85,590
Earnings per share, basic and diluted................... $ .03 $ .02
-------- --------
-------- --------
</TABLE>
Additionally, the shareholders' equity reflects a decrease in the Company's
retained earnings of $39,662 at January 1, 1997.
F-16
<PAGE>
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on unauthorized information. This prospectus does not offer to sell or buy
any shares in any jurisdiction where it is unlawful. The information in this
prospectus is current only as of the date of this prospectus.
INTEGCOM CORP.
1,000,000 UNITS
CONSISTING OF 1,000,000 SHARES OF COMMON STOCK
AND 1,000,000 WARRANTS
MASON HILL & CO., INC.
, 2000
You should rely only on the information contained in this document or to
those which we have referred you. We have not authorized anyone to provide you
with any other information. This document may be used only where it is legal to
sell these securities. The information in this document may not be accurate
after the date on its cover.
Until , 2000 (25 days after the date of this prospectus) all
dealers that buy, sell or trade these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Board of Director has authorized it to provide a general
indemnification to its officers, directors, employees and agents regarding any
claims or liabilities incurred in the course of their employment. In addition,
its certificate of incorporation and by-laws provide for such indemnification.
The Registrant was organized as a corporation in the state of Delaware on
November 18, 1999. The Delaware General Corporation Law ('DGCL') provides that
each officer, director, employee and agent of the Registrant shall be
indemnified by it against certain costs, expenses and liabilities which he or
she may incur in his or her capacity as such.
Section #145 of DGCL -- 'Indemnification of Officers, Directors, Employees
and Agents; Insurance' provides:
'(a) A corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgements, fines and amounts
paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that the person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorney's fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection therewith.
II-1
<PAGE>
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct
set forth in subsections (a) and (b) of this section. Such determination
shall be made, with respect to a person who is a director or officer at the
time of such determination (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a
quorum, or (2) by a committee of such directors designated by majority vote
of such directors, even though less than a quorum, or (3) if there are no
such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or
other employees and agents may be so paid upon such terms and conditions, if
any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity
while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under
this section.
(h) For purposes of this section, references to 'the corporation' shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect
to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to 'other enterprises'
shall include employee benefit plans; references to 'fines' shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to 'serving at the request of the corporation' shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner 'not opposed to the best interests of the
corporation' as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit to the
heirs, executors and administrators of such a person.'
II-2
<PAGE>
(k) the Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
ITEM 25. OTHER EXPENSES OF INSURANCE AND DISTRIBUTION*
<TABLE>
<S> <C>
Registration fee............................................ $ 5,799
NASD filing fee............................................. $ 3,086
Blue Sky fees and expenses.................................. $ 55,000
NASDAQ listing fee.......................................... $ 15,000
Boston Stock Exchange listing fee and expenses.............. $ 21,000
Representative's Non-accountable expense allowance.......... $190,500**
Legal fees and expenses..................................... $275,000***
Accounting fees and expenses................................ $ 60,000
Printing and engraving...................................... $ 70,000
Miscellaneous............................................... $ 19,615
--------
Total................................................... $715,000
--------
--------
</TABLE>
- ---------
* All expenses will be paid by Registrant and, other than the non-accountable
expense allowance, are estimated.
** if the Underwriters' over-allotment option is exercised in full, this amount
will increase.
*** May be discounted if offering not completed.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On November 30, 1999, Registrant issued an aggregate of 4,000,000 shares of
its common stock, par value $.01 per share, to James E. Henry and Irvin F.
Witcosky in exchange for all their shareholdings in HBE Acquisition Corp. (1,000
shares), HBE Central Management, Inc. (100 shares), and Viscom Products, Inc.
(1,010 shares), which are now wholly-owned subsidiaries of Registrant. This
transaction was done in reliance upon the exemption provided by Section 4(2) of
the Securities Act of 1933, as amended.
ITEM 27. EXHIBITS
The following is a list of exhibits filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT METHOD
NUMBER DESCRIPTION OF DOCUMENT OF FILING
- ------- ----------------------- ---------
<S> <C> <C>
1.1 -- Underwriting Agreement................................... Filed Herewith
1.2 -- Selected Dealer Agreement................................ Filed Herewith
1.5 -- Form of Representative's Warrants to purchase Shares..... Filed Herewith
3.1 -- Certificate of Incorporation of Registrant............... *
3.2 -- By-laws of the Registrant................................ *
4.1 -- Specimen Common Stock Certificate of Registrant.......... Filed Herewith
4.2 -- Warrant Certificate and Warrant Agreement of
Registrant................................................ Filed Herewith
5.1 -- Counsel's Opinion re: legality of securities............. Filed Herewith
10.1 -- Employment Agreement between Registrant and James E.
Henry..................................................... *
10.2 -- Employment Agreement between Registrant and Irvin F.
Witcosky.................................................. *
10.3 -- Employment Agreement between Registrant and Louis
Massad.................................................... *
10.4 -- 1999 Incentive Stock Option Plan and form of Stock Option
Agreement................................................. *
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT METHOD
NUMBER DESCRIPTION OF DOCUMENT OF FILING
- ------ ----------------------- ---------
<C> <S> <C>
10.6 -- Original Office Lease and Amendments between Registrant
and Midland Holding Co., Inc. (Saddle Brook, NJ).......... *
10.7 -- Office Lease between Registrant and Eagle-DFW, Inc.
(Grand Prairie, Texas).................................... *
10.8 -- Sales Agreement between Registrant and Mavix, Ltd........ *
10.9 -- Authorized Reseller Agreement between Registrant and
Lenel Systems International, Inc.......................... *
10.11 -- OEM Agreement between Registrant and Sungjin C&C, Ltd.... Filed Herewith
10.12 -- NYC Transit Agreement.................................... Filed Herewith
16. -- Change of Accountants' Letter............................ Filed Herewith
23.1 -- Consent of Independent Certified Public Accountants...... Filed Herewith
23.3 -- Consent of Counsel (to be included in its opinion to be
filed as Exhibit 5.1)..................................... Filed Herewith
27. -- Financial Data Schedule.................................. Filed Herewith
</TABLE>
- ---------
* Previously Filed
ITEM 28. UNDERTAKINGS
Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriting Agreement to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all the requirements of filing on Form SB-2 and has authorized this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, in the Town of Saddle Brook, New Jersey on April 12, 2000.
INTEGCOM CORP.
By: /s/ JAMES E. HENRY
..................................
JAMES E. HENRY
PRESIDENT
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES E. HENRY President, Chief Executive April 12, 2000
......................................... Officer and Director
(JAMES E. HENRY)
/s/ IRVIN F. WITCOSKY Executive Vice President, April 12, 2000
......................................... Secretary and Director
(IRVIN F. WITCOSKY)
/s/ LOUIS MASSAD Vice President, Treasurer, April 12, 2000
......................................... Chief Financial Officer and
(LOUIS MASSAD) Director
/s/ LEROY KIRCHNER Director April 12, 2000
.........................................
(LEROY KIRCHNER)
/s/ C. JAY PELLICONI Director April 12, 2000
.........................................
(C. JAY PELLICONI)
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as.................................. 'SS'
II-5
<PAGE>
UNDERWRITING AGREEMENT
_______________, 2000
Mason Hill & Co., Inc.
As Representative of the Several
Underwriters Named in Schedule I Hereto
110 Wall Street
New York, New York 10005
Gentlemen:
InTegCom Corp., an Delaware corporation (the "Company"), hereby
confirms its agreement with you (the "Representative") and with the other
Underwriters, including the Representative, named in Schedule I hereto
(hereinafter "the Underwriters") as follows:
SECTION 1
DESCRIPTION OF SECURITIES
The Company proposes to issue and sell to the Underwriters shares (the
"Shares") of Common Stock, $.01 par value per share, and Redeemable Common Stock
Purchase Warrants (the "Warrants") (the Shares and the Warrants shall
collectively be referred to as the "Securities"). The Underwriters propose to
purchase 1,000,000 Shares ("Firm Shares") and 1,000,000 Warrants (collectively,
the "Firm Securities") at a purchase price of $_______ per Share and $______ per
Warrant. The Shares and the Warrants may be purchased by the Underwriters only
together on the basis of one Share and one Warrant. The Underwriters shall also
have options (the "Over-allotment Options") to purchase up to an additional
150,000 Shares ("Over-allotment Shares") and/or 150,000 Warrants
("Over-allotment Warrants") (collectively, the "Over-allotment Securities"), as
provided in Section 3.1 hereof.
Each Warrant shall entitle the holder to purchase one share of Common
Stock at $______ per share until __________ __, 2003. The Company may redeem the
Warrants on thirty (30) days' written notice at a price of $.25 per Warrant at
such time as the market price of the Common Stock exceeds $ _______ per share
for 20 of the 30 trading days ending within 60 days preceding the date of the
notice of redemption. To redeem the Warrants, the Company must have in effect a
current registration statement registering the Common Stock issuable upon
exercise of the Warrants. The shares of Common Stock underlying the Warrants are
referred to herein as the "Warrant Shares."
The Company proposes to issue and sell to the Representative and its
designees on the Closing Date (hereinafter defined) for an aggregate purchase
price of $10, options ("Share Options") to purchase 150,000 shares of Common
Stock and options ("Warrant Options") to purchase 150,000 Warrants. Each Share
Option shall be exercisable at $______ per share; and each Warrant Option is
exercisable at $______ per warrant. The Share Options and the Warrant Options
are collectively referred to as the "Representative's Options." The terms of the
warrants receivable upon exercise of the Warrant Options (the "Representative's
Warrants"), including the exercise price, shall be identical to the terms of the
Warrants.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
1
<PAGE>
In order to induce the Underwriters to enter into this Agreement, the
Company hereby represents and warrants to and agrees with each Underwriter that:
2.1 Registration Statement and Prospectus. A registration statement on
Form (File No. 333-94477) has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations of the Securities and Exchange Commission
(the "Commission") thereunder, and said registration statement has been filed
with the Commission. Copies of such registration statement and any amendments,
and all forms of the related prospectuses contained therein, have been delivered
to the Representative. Such registration statement, including the prospectus,
Part II, and documents incorporated by reference therein and financial schedules
and exhibits thereto, as amended at the time when it shall become effective, is
herein referred to as the "Registration Statement," and the prospectus included
as part of the Registration Statement on file with the Commission when it shall
become effective or, if the procedure in Rule 430A of the Rules and Regulations
(as defined below) under the Securities Act is followed, the prospectus that
discloses all the information that was omitted from the prospectus on the
effective date pursuant to such Rule, and in either case, together with any
changes contained in any prospectus filed with the Commission by the Company
with your consent after the effective date of the Registration Statement, is
herein referred to as the "Final Prospectus." If the procedure in Rule 430A is
followed, the prospectus included as part of the Registration Statement on the
date when the Registration Statement became effective is referred to herein as
the "Effective Prospectus." Any prospectus included in the Registration
Statement and in any amendments thereto prior to the effective date of the
Registration Statement is referred to herein as a "Preliminary Prospectus." For
purposes of this Agreement, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under the Securities Act.
Included in the Registration Statement are the Firm Securities and the
Over-allotment Securities; and an additional shares of Common Stock reserved
against exercise of the Firm Warrants, the Over-allotment Warrants, and the
Representative's Options.
As used in this Agreement, the term "Effective Date" refers to the date
the Commission declares the Registration Statement effective pursuant to Section
8 of the Securities Act.
2.2 Accuracy of Registration Statement and Prospectus. The Commission
has not issued any order preventing or suspending the use of any Preliminary
Prospectus with respect to the Securities, and each Preliminary Prospectus has
conformed in all material respects with the requirements of the Securities Act
and the applicable Rules and Regulations and to the best of the Company's
knowledge has not included at the time of filing any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; except that the
foregoing shall not apply to statements in or omissions from any Preliminary
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by the Representative, or from any Underwriter through
the Representative, specifically for use in the preparation thereof.
When the Registration Statement becomes effective and on the Closing
Date (hereinafter defined), the Registration Statement, the Effective Prospectus
(and on the Closing Date, the Final Prospectus) will contain all statements
which are required to be stated therein in accordance with the Securities Act
and the Rules and Regulations. No such document will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
except that the foregoing does not apply to information contained in or omitted
from the Registration Statement or the Effective Prospectus or Final Prospectus
in reliance upon written information furnished by the Representative, or by any
Underwriter through the Representative, specifically for use in the preparation
thereof. The Company will not at any time hereafter file any amendments to the
Registration Statement or in accordance with Rule 424(b) of the Rules and
Regulations of which the Representative shall not have been previously advised
in advance of filing or to which the Representative shall reasonably object in
writing.
2
<PAGE>
2.3 Financial Statements. Demetrius & Company, LLC, whose reports
appear in the Effective Prospectus and the Final Prospectus, are, and during the
periods covered by their reports were, independent accountants as required by
the Securities Act and the applicable Rules and Regulations. The financial
statements and schedules (including the related notes) included in the
Registration Statement, any Preliminary Prospectus or the Effective Prospectus
or the Final Prospectus, present fairly the financial position, the results of
operations, and changes in financial position of the entities purported to be
shown thereby at the dates and for the periods indicated; and such financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods indicated.
The pro forma financial information and related notes and schedules
included in the Registration Statement, any Preliminary Prospectus or the Final
Prospectus comply in all material respects with the requirements of the
Securities Act and the Rules and Regulations and present fairly the pro forma
financial position of the Company and its subsidiaries as of the dates
indicated, and the pro forma results of operation for the periods therein
specified. Such pro forma financial information, including the related notes and
schedules, have been prepared on a basis consistent with the historical
financial statements included in the Registration Statement, the Preliminary
Prospectus and the Final Prospectus, except for the pro forma adjustments
specified herein, and give effect to assumptions made on a reasonable basis to
give effect to historical and proposed transactions described in the
Registration Statement, any Preliminary Prospectus and the Final Prospectus. The
pro forma financial information and statistical data, and other data, set forth
in the Final Prospectus under the captions "Prospectus Summary--Financial and
Operating Data," "Selected Consolidated Financial Data," "Pro forma Financial
Information," and "Capitalization" are derived from and prepared on a basis
consistent with such pro forma financial information.
2.4 No Material Adverse Change. Except as may be reflected in or
contemplated by the Effective Prospectus or the Final Prospectus, subsequent to
the dates as of which information is given in the Effective Prospectus or the
Final Prospectus, and prior to the Closing Date, (a) there shall not have been
any material adverse change in the condition, financial or otherwise, of the
Company or in its business taken as a whole; (b) there shall not have been any
material transaction entered into by the Company other than transactions in the
ordinary course of business; (c) the Company shall not have incurred any
material liabilities, obligations or claims, contingent or otherwise, which are
not disclosed in the Effective Prospectus or the Final Prospectus; (d) except in
the ordinary course of business and with the consent of the Representative,
there shall not have been nor will there be any change in the capital stock or
long-term debt (except current payments) of the Company; and (e) the Company has
not and will not have paid or declared any dividends or other distributions on
its capital stock.
2.5 No Defaults. Other than as disclosed in the Effective Prospectus or
the Final Prospectus, the Company is not in any default (which has not been
waived) in the performance of any obligation, agreement or condition contained
in any debenture, note or other evidence of indebtedness or any indenture or
loan agreement. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated, and compliance with the
terms of this Agreement will not conflict with or result in a breach of any of
the terms, conditions or provisions of, or constitute a default under, the
articles of incorporation, as amended, or by-laws of the Company; any note,
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its property is bound,
other than for which the Company has received a consent or waiver of such
conduct, breach or default or except where such default would not have a
material adverse effect on the business of the Company; or any existing law,
order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality, agency or body, arbitration tribunal or court,
domestic or foreign, having jurisdiction over the Company or its property. The
consent, approval, authorization, or order of any court or governmental
instrumentality, agency or body is not required for the consummation of the
transactions herein contemplated except such as may be required under the
Securities Act or under the securities laws of any state or jurisdiction.
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2.6 Incorporation and Standing. The Company is, and at the Closing Date
(hereinafter defined) and the Over-allotment Closing Date (hereinafter defined)
will be, duly incorporated and validly existing in good standing as a
corporation under the laws of the jurisdiction of its organization, with full
power and authority (corporate and other) to own its property and conduct its
business, present and proposed, as described in the Effective Prospectus and the
Final Prospectus; the Company has full power and authority to enter into this
Agreement; is duly qualified and in good standing as a foreign corporation in
each jurisdiction in which the character or location of its properties (owned or
leased) or the nature of its business makes such qualification necessary except
where the failure to be so qualified would not have a material adverse effect on
the Company; and each of the Company and its Subsidiaries holds all material
licenses, certificates, and permits from governmental authorities necessary for
the conduct of its business as described in the Effective Prospectus and Final
Prospectus.
2.7 Capitalization. The Company's authorized and outstanding
capitalization on the Effective Date and on the Closing Date (hereinafter
defined), and on the Over-allotment Closing Date (hereinafter defined) are and
will be as set forth under the caption "Capitalization" in the Effective
Prospectus and the Final Prospectus. The Common Stock, the Warrants, and the
Representative's Options conform to the description thereof contained under the
captions "Description of Securities" and "Underwriting" in the Effective
Prospectus and the Final Prospectus. The outstanding shares of Common Stock have
been, and the Securities, upon issuance and delivery against payment therefor in
the manner described herein, will be, duly authorized and validly issued, fully
paid and nonassessable. No sales of securities have been made by the Company in
violation of the registration or anti-fraud provisions of the Securities Act or
in violation of any other federal law or laws of any state or jurisdiction.
2.8 Legality of Securities. The Shares, the Warrants, the
Representative's Options, and the Common Stock and Representative's Warrants
issuable upon the exercise of the Representative's Options have been duly and
validly authorized and, when issued and delivered against payment therefor as
provided in this Agreement, will be validly issued, fully paid and
nonassessable. There are no preemptive rights or other rights to subscribe for
or to purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's articles of incorporation, by-laws or
other governing documents or any agreement or other instrument to which the
Company or any of its Subsidiaries is a party or by which any of them may be
bound. Neither the filing of the Registration Statement nor the offering or sale
of the Securities as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock. All of the outstanding shares of
capital stock of each Subsidiary of the Company are owned directly or indirectly
by the Company, free and clear of any claim, lien, encumbrance or security
interest. The Warrants and the Representative's Options, when sold and
delivered, will constitute valid and binding obligations of the Company
enforceable in accordance with the terms thereof. A sufficient number of shares
of Common Stock of the Company has been reserved for issuance upon exercise of
the Warrants, the Representative's Options and the Representative's Warrants.
2.9 Prior Sales. No unregistered securities of the Company, of an
affiliate or of a predecessor of the Company have been sold within three years
prior to the date hereof, except as disclosed in the Registration Statement.
2.10 Litigation. Except as set forth in the Effective Prospectus and
the Final Prospectus, there is, and at the Closing Date there will be, no
action, suit or proceeding before any court, arbitration tribunal or
governmental agency pending, or to the knowledge of the Company, threatened,
which might result in judgments against the Company not adequately covered by
insurance or which collectively might result in any material adverse change in
the condition (financial or otherwise), the business or the prospects of the
Company, or which would materially affect the properties or assets of the
Company.
2.11 Representative's Options. Upon delivery of and payment for the
Representative's Options to be
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sold by the Company as set forth in Section 3.4 of this Agreement, the
Representative and designees of the Representative will receive good and
marketable title thereto, free and clear of all liens, encumbrances, charges and
claims whatsoever; and the Company will have on the Effective Date and at the
time of delivery of such Representative's Options the requisite power and
authority to sell, transfer and deliver such Representative's Options in the
manner provided hereunder.
2.12 Finder. The Company knows of no outstanding claims against it for
compensation for services in the nature of a finder's fee, origination fee or
financial consulting fee with respect to the offer and sale of the Securities
hereunder except as previously disclosed in writing to the Representative.
2.13 Exhibits; Contracts; Agreements. There are no contracts or other
documents which are required to be filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have not
been so filed and each contract to which the Company is a party and to which
reference is made in the Effective Prospectus and the Final Prospectus has been
duly and validly executed by the Company and, to the best of the Company's
knowledge, is in full force and effect in all material respects in accordance
with its terms, and none of such contracts have been assigned by the Company;
and the Company knows of no present situation or condition or fact which would
prevent compliance with the terms of such contracts, as amended to date. Except
for amendments or modifications of such contracts in the ordinary course of
business, the Company has no intention of exercising any right which it may have
to cancel any of its obligations under any of such contracts, and has no
knowledge that any other party to any of such contracts has any intention not to
render full performance under such contracts. All material terms of each
contract, agreement, plan, arrangement or understanding to which the Company is
a party, or to which it may reasonably be expected to become a party, have been
fully disclosed in the Effective Prospectus and Final Prospectus.
2.14 Tax Returns. The Company has filed all federal and state tax
returns which are required to be filed by it and has paid all taxes shown on
such returns and on all assessments received by it to the extent such taxes have
become due. All taxes with respect to which the Company is obligated have been
paid or adequate accruals have been set up to cover any such unpaid taxes.
2.15 Property. Except as otherwise set forth in or contemplated by the
Effective Prospectus and the Final Prospectus, the Company and its Subsidiaries
have good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case free and
clear of all liens, encumbrances and defects, except such as are described in
the Effective Prospectus and the Final Prospectus or such as do not materially
effect the value of such property and do not interfere with the use made or
proposed to be made of such property by the Company or such Subsidiaries; and
any real property and buildings held under lease by the Company and its
Subsidiaries are held by them under valid, existing, and enforceable leases with
such exceptions as are not material and do not interfere with the use made or
proposed to be made of such property and buildings by the Company and such
Subsidiaries.
2.16 Authority. The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action and this
Agreement is the valid, binding and legally enforceable obligation of the
Company, except as rights to indemnity hereunder may be limited by federal or
state securities laws or public policy and except as enforceability may be
limited by bankruptcy, insolvency, or similar laws affecting creditors rights
generally and by general equitable principles.
2.17 Lock-Up. The Company has obtained from each of its officers,
directors, and 1% or greater shareholders, his written agreement that for a
period of twelve (12) months from the Effective Date he will not, without the
prior written consent of the Representative, sell or otherwise dispose of any
shares of Common Stock of the Company owned directly or indirectly or
beneficially by him.
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2.18 Use of Form SB-2. The Company is eligible to use Form SB-2 for the
offer and sale of the Securities.
2.19 Governmental Compliance. Neither the Company nor any Subsidiary is
in violation of any law, ordinance, governmental rule or regulation or court
decree to which it may be subject which violation might reasonably be expected
to have a material adverse effect on the condition (financial or other),
properties, prospective results of operations or net worth of the Company and
its Subsidiaries.
2.20 Stabilization. The Company has not taken and may not take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
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stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares or the Warrants.
2.21 CUSIP Number. The Company has obtained CUSIP numbers for the
Common Stock and the Warrants.
2.22 Subsidiaries. The Company's only subsidiaries are HBE Central
Management, Inc. and Viscom Products, Inc.
2.23 Books and Accounts. The books, records and accounts of the Company
and each of its subsidiaries accurately and fairly reflect, in reasonable
detail, the transactions in and dispositions of the assets of the Company and
each of its subsidiaries. The systems of internal accounting controls maintained
by the Company and each of its subsidiaries are sufficient to provide reasonable
assurances that (w) transactions are executed in accordance with management's
general or specific authorization; (x) transactions are recorded as necessary
(A) to permit preparation of financial statements in conformity with generally
accepted accounting principles and (B) to maintain accountability for assets;
and (z) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.
2.24 Employees. No labor disturbance by the employees of the Company or
any of its subsidiaries exists or is imminent; and the Company is not aware of
any existing or imminent labor disturbance by the employees of any principal
suppliers, contract manufacturing organizations, manufacturers, authorized
dealers or distributors that might be expected to result in any material adverse
change in the condition (financial or otherwise), earnings, operations, business
or prospects of the Company and its subsidiaries, considered as a whole. No
collective-bargaining agreement exists with any of the Company's or any of the
Company's subsidiaries' employees and, to the best knowledge of the Company, no
such agreement is imminent.
2.25 Political Contributions. Neither the Company nor any of its
subsidiaries has, directly or indirectly, at any time (x) made any contributions
to any candidate for political office, or failed to disclose fully any such
contribution, in violation of law; (y) made any payment to any state, federal or
foreign governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or allowed by all
applicable laws; or (z) violated nor is it in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
2.26 Environmental Liabilities. Neither the Company nor any of its
subsidiaries has any liability, known or unknown, matured or not matured,
absolute or contingent, assessed or unassessed, imposed or based upon any
provision of, or has received notice of any potential liability under, any
foreign, federal, state or local law, rule or regulation or the common law, or
any tort, nuisance or absolute liability theory, or under any code, order,
decree, judgment or injunction applicable to the Company or any of its
subsidiaries relating to public health or safety, worker health or safety or
pollution, damage to or protection of the environment, including, without
limitation, laws relating to damage to natural resources, emissions, discharges,
releases or threatened releases of hazardous materials into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), or otherwise relating to the manufacture,
processing, use treatment, storage, generation, disposal, transport or handling
of hazardous materials. As used herein, "hazardous material" includes chemical
substances, wastes, pollutants, contaminants, hazardous or toxic substances,
constituents, materials or wastes, whether solid, gaseous or liquid in nature.
2.27 Investment Company Act. The Company is familiar with the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the future
to conduct, its affairs in such a manner as to ensure that it will not become an
"investment company" within the meaning of the 1940 Act and such rules and
regulations.
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2.28 Patents. The Company owns or possesses adequate rights to use all
material trademarks, service marks, trade names and copyrights described or
referred to in the Final Prospectus as owned by or used by it, or which are
necessary for the conduct of its business as described in the Final Prospectus;
and the Company has not received any notice of infringement of or conflict with
asserted rights of others with respect to any trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the business, properties, condition (financial
or otherwise), prospects or results of operations of the Company.
SECTION 3
PURCHASE AND SALE OF THE SECURITIES
3.1 Purchase of Securities and Over-Allotment Option. Subject to the
terms and conditions and upon the basis of the representations and warranties
herein set forth, the Company agrees to issue and sell to the Underwriters, and
each of the Underwriters agrees to purchase from the Company at a price of
$_____ per Share and $______ per Warrant, severally and not jointly, the number
of Shares and Warrants set forth opposite their respective names in Schedule I
hereto. The Underwriters agree to offer the Shares and Warrants to the public as
set forth in the Final Prospectus.
The Company hereby grants to the Underwriters an option to purchase
from the Company, solely for the purpose of covering over-allotments in the sale
of Firm Securities, all or any portion of the Over-allotment Shares and/or the
Over-allotment Warrants for a period of forty-five (45) days after the Effective
Date at the purchase price set forth above. The Representative shall notify the
Company of its intention to exercise the Over-allotment Option at least three
(3) days prior to such exercise or exercises.
3.2 Substitution of Underwriters. If any Underwriter defaults in its
obligation to purchase the number of Securities which it has agreed to purchase
under this Agreement, the non-defaulting Underwriters shall be obligated to
purchase (pro rata in proportion to the number of Securities set forth opposite
the name of each non-defaulting Underwriter in Schedule I hereto) the total
number of Securities which the defaulting Underwriter agreed but failed to
purchase; except that the non-defaulting Underwriters shall not be obligated to
purchase any of the Securities if the total number of Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase exceeds
9.09% of the total number of Securities, and any non-defaulting Underwriter
shall not be obligated to purchase more than 110% of the number of Securities
set forth opposite its name in Schedule I hereto purchasable by it pursuant to
the terms of Section 3.1; and provided further that the non-defaulting
Underwriters shall not be obligated to purchase any Securities which the
defaulting Underwriter or Underwriters agreed to purchase if such additional
purchase would cause the Underwriter to be in violation of the net capital rule
of the Commission or other applicable law. If the foregoing maximums are
exceeded, the non-defaulting Underwriters, and any other underwriters
satisfactory to the Representative who so agree, shall have the right, but will
not be obligated, to purchase (in such proportions as may be agreed upon among
them) all the Securities. In any such case, the Representative shall have the
right to postpone the Closing determined as provided in Section 3.3.2 hereof for
not more than seven Business Days after the date originally fixed as the Closing
pursuant to said Section 3.3.2 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If the non-defaulting Underwriters or the other underwriters
satisfactory to the Representative do not elect to purchase the Securities which
the defaulting Underwriter or Underwriters agreed but failed to purchase, this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter or the Company except for the payment of expenses to be borne by the
Company and the Underwriters as provided in Section 3.5 and the indemnity and
contribution agreements of the Company and the Underwriters contained in Section
6 hereof.
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Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company or to the non-defaulting Underwriters for
damages caused by its default hereunder.
3.3 Public Offering Price. After the Commission notifies the Company
that the Registration Statement has become effective, the Underwriters propose
to offer the Firm Securities to the public at an initial public offering price
of $_______ per Share and $______ per Warrant as set forth in the Final
Prospectus. The Underwriters may allow such discounts and concessions upon sales
to selected dealers as may be determined from time to time by the
Representative.
3.3.1 Payment For Securities. Payment for the Securities
(including any Securities included in the Over-allotment Option which the
Underwriters agree to purchase) shall be made to the Company or its order by
certified or official bank check or checks, in the amount of the purchase price
by or on behalf of the Underwriters at the offices of the Representative in
Englewood, Colorado, upon delivery to the Representative or its designee of
certificates for the Shares and Warrants in definitive form in such numbers and
registered in such names as the Representative requests in writing at least
three full business days prior to such delivery. At the request of the
Representative, the Company shall deliver the Securities to the Underwriters
through the facilities of The Depository Trust Company or as otherwise directed.
3.3.2 Closing. The time and date of delivery and payment hereunder
is herein called the "Closing Date" and shall take place at the office of the
Representative in Englewood, Colorado, or at such other location as may be
specified by the Representative, on the fourth Business Day (as hereinafter
defined) following the Effective Date; provided, however, that such date may be
extended for not more than an additional seven business days by the
Representative. Should the Underwriters elect to exercise any part of the
Over-allotment Option pursuant to Section 3.1 above, the time and date of
delivery and payment for such Over-allotment Shares and/or Over-allotment
Warrants shall be the third Business Day following such exercise of the
Over-allotment Option, or each earlier date as may be agreed upon by the
Representative and the Company. Said date is referred to as the "Over-allotment
Closing Date."
3.3.3 Inspection of Certificates. For the purpose of expediting
the checking and packaging of the certificates for the Securities, if requested
by the Representative, the Company agrees to make the certificates available for
inspection by the Representative at the main office of the Representative in
Sarasota, Florida, at least two full business days prior to the proposed
delivery date.
3.4 Sale of Representative's Options. On the Closing Date the Company
will sell and deliver to the Representative and its designees, for a purchase
price of $100, Share Options and Warrant Options dated as of the date of the
Prospectus substantially in the form filed as an Exhibit to the Registration
Statement with such changes therein, if any, as may be agreed upon by the
Company and the Representative, to purchase 150,000 Shares at $______ per Share
and 150,000 Warrants at $______ per Warrant. The Company shall not be obligated
to sell and deliver the Representative's Options, and the Representative will
not be obligated to purchase and pay for the Representative's Options, except
upon payment for the Securities pursuant to Subsection 3.3.1 hereof.
The Representative's Options shall be non-transferable for a period of
one (1) year following the Effective Date except to the Underwriters and their
respective officers or partners. The Representative's Options shall also contain
anti-dilution provisions for stock splits, recombinations and reorganizations, a
one-time demand registration provision, customary piggyback registration rights
and shall otherwise be in form and substance satisfactory to the Representative.
The Representative's Options will be exercisable during the four year period
commencing one (1) year after the Effective Date.
3.5 Representative's Expense Allowance. It is understood that the
Company shall reimburse the
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Representative, for itself alone and not on behalf of the other Underwriters,
for its expenses on a nonaccountable basis in the amount of three percent (3%)
of the gross proceeds from the sale of the Shares and the Warrants ($_____ per
Share and $______ per Warrant) including proceeds from the sale of the
Over-allotment Shares and/or the Over-allotment Warrants (hereinafter the
"Expense Allowance"). The Representative acknowledges receipt of $50,000 of said
Expense Allowance. On the Closing Date and, if applicable, on the Over-allotment
Closing Date, the Representative shall be entitled to withhold the unpaid
balance of such Expense Allowance. The Representative shall be solely
responsible for all expenses incurred by it in connection with the offering
including, but not limited to, the expenses of its own counsel except as set
forth in Section 5.7 hereof. Notwithstanding the foregoing, if the Registration
Statement does not become effective, or the offering is never commenced after it
becomes effective, or if this Agreement is terminated as provided herein, the
Representative will retain so much of the Expense Allowance which has been or
should have been received by the Representative from the Company as is equal to
its actual accountable out-of-pocket expenses and reimburse the remainder, if
any, to the Company, provided that the amount to be reimbursed will not exceed
$50,000. The Representative's expenses shall include, but are not to be limited
to, a fee to compensate the Representative for the services and time of
Representative's counsel plus any additional expenses and fees, including but
not limited to, travel expenses, postage expenses, duplication expenses,
confirmation and other record preparation expenses, long-distance telephone
expenses, consultant and investigator expenses and other expenses incurred by
the Representative in connection with the proposed offering.
3.6 Representations of the Parties. The parties hereto respectively
represent that as of the Closing Date the representations herein contained and
the statements contained in all the certificates theretofore or simultaneously
delivered by any party to another, pursuant to this Agreement, shall in all
material respects be true and correct.
3.7 Post-Closing Information. The Representative covenants that
reasonably promptly after the Closing Date, it will supply the Company with all
information required from the Representative which must be supplied to the
Commission, if any, and such additional information as the Company may
reasonably request to be supplied to the securities authorities for such states
in which the Securities have been qualified for sale.
3.8 Re-Offers By Selected Dealers. On each sale by the Underwriters of
any of the Securities to selected dealers, the Representative shall require the
selected dealer purchasing any such Securities to agree to re-offer the same on
the terms and conditions of the offering set forth in the Final Prospectus.
SECTION 4
REGISTRATION STATEMENT AND PROSPECTUS
4.1 Delivery of Registration Statements. The Company shall deliver to
the Representative without charge two (2) manually signed copies of the
Registration Statement, including all financial statements and exhibits filed
therewith and any amendments or supplements thereto, and shall deliver without
charge to the Representative ten (10) conformed copies of the Registration
Statement and any amendment or supplement thereto, including such financial
statements and exhibits. The signed copies of the Registration Statement so
furnished to the Representative will include manually signed copies of any and
all consents and certificates of the independent public accountant certifying to
the financial statements included in the Registration Statement and signed
copies of any and all opinions, consents and certificates of any other persons
whose profession gives authority to statements made by them and who are named in
the Registration Statement as having prepared, certified, or reviewed any part
thereof.
4.2 Delivery of Pre-Effective Prospectus. The Company will cause to be
delivered to the Underwriters and to other broker-dealers, without charge, prior
to the Effective Date, as many copies of each Preliminary Prospectus filed with
the Commission bearing in red ink the statement required by Item 501(c)(8) of
Regulation S-K (Reg. 229.501(c)(8)) as may be required by the Representative.
The Company consents to the use
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of such documents by the Underwriters and by selected dealers prior to the
Effective Date of the Registration Statement.
4.3 Delivery of Prospectus. The Company will deliver, without charge,
copies of the Effective Prospectus and the Final Prospectus at such addresses
and in such quantities as may be required by the Underwriters for the purposes
contemplated by this Agreement and shall deliver said printed copies of the
Effective Prospectus and the Final Prospectus to the Underwriters and to
selected dealers within one business day after the Effective Date.
4.4 Further Amendments and Supplements. If during such period of time
as in the opinion of the Representative or its counsel the Final Prospectus is
required to be delivered under the Securities Act, any event occurs or any event
known to the Company relating to or affecting the Company shall occur as a
result of which the Final Prospectus as then amended or supplemented would
include an untrue statement of a material fact, or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary at any time
after the Effective Date to amend or supplement the Final Prospectus to comply
with the Securities Act, the Company will forthwith notify the Representative
thereof and prepare and file with the Commission such further amendment to the
Registration Statement or supplement the Final Prospectus (at the expense of the
Company) so as to correct such statement or omission or effect such compliance.
The Company shall furnish and deliver to the Representative and to others whose
names and addresses are designated by the Representative, all at the cost of the
Company, a reasonable number of copies of the amended or supplemented Prospectus
which as so amended or supplemented will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
Prospectus not misleading in the light of the circumstances as of the date of
such Prospectus, amendment, or supplement, and which will comply in all respects
with the Securities Act. In the event the Underwriters are required to deliver a
Prospectus beyond completion of their participation in the public offering, upon
request the Company will prepare promptly such Prospectus or Prospectuses as may
be necessary to permit continued compliance with the requirements of Section 10
of the Securities Act.
4.5 Use of Prospectus. The Company authorizes the Underwriters and all
selected dealers to whom any of the Securities may be sold to use the Effective
Prospectus and the Final Prospectus, as from time to time amended or
supplemented, in connection with the offer and sale of the Securities and in
accordance with the applicable provisions of the Securities Act, the Rules and
Regulations and state Blue Sky or securities laws.
SECTION 5
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Underwriters that:
5.1 Objection of Representative to Amendments or Supplements. The
Company will not at any time, whether before or after the Effective Date, file
any amendment or supplement to the Registration Statement or Prospectus, unless
and until a copy of such amendment or supplement has been furnished to the
Representative a reasonable period of time prior to the proposed filing thereof;
or to which the Representative or counsel for the Representative have reasonably
objected, in writing, on the ground that such amendment or supplement is not in
compliance with the Securities Act or the Rules and Regulations.
5.2 Company's Best-Efforts to Cause Registration Statement to Become
Effective. The Company will use its best efforts to cause the Registration
Statement to become effective or, if the procedure in Rule 430A of the Rules and
Regulations is followed, comply with the provisions of and make all requisite
filings with the Commission pursuant to such Rule and to notify the
Representative promptly (in writing, if requested) of all such filings. The
Company shall promptly advise the Representative, and will confirm such advice
in writing (a) when
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the Registration Statement shall become effective and when any amendment thereto
shall have become effective and when any amendment of or supplement to the
Effective Prospectus or the Final Prospectus shall be filed with the Commission;
(b) when the Commission makes a request or suggestion for any amendment to the
Registration Statement or the Effective Prospectus or the Final Prospectus or
for additional information and the nature and substance thereof; and (c) of the
happening of any event which in the judgment of the Company makes any material
statement in the Registration Statement or Effective Prospectus or the Final
Prospectus untrue or which requires the making of any changes in the
Registration Statement or the Effective Prospectus or Final Prospectus in order
to make the statements therein not misleading. The Company shall also promptly
notify the Representative, and confirm such notice in writing, when the Company
has knowledge of the issuance by the Commission of an order suspending the
effectiveness of the Registration Statement pursuant to Section 8 of the
Securities Act, suspending or preventing the use of any Preliminary Prospectus
or the Effective Prospectus or Final Prospectus or suspending the qualification
of the Securities for offering or sale in any jurisdiction, or of the
institution of any proceedings for any such purpose. The Company will use every
reasonable effort to prevent the issuance of any order suspending the
effectiveness of the Registration Statement or refusing or suspending the
qualification of the Securities, and to obtain as soon as possible a lifting of
any such suspension order, the reversal of any such refusal to qualify, and the
termination of any such suspension.
5.3 Preparation and Filing of Amendments and Supplements. The Company
agrees to prepare and file promptly with the Commission, upon request of the
Representative, such amendments or supplements to the Registration Statement or
Final Prospectus, in form satisfactory to counsel to the Company, as may be
necessary, in the opinion of counsel to the Representative and of counsel to the
Company; and it shall use its best efforts to cause the same to become effective
as promptly as possible.
5.4 Blue Sky Qualification. The Company has used and will use its best
efforts to qualify (blue-sky) the sale of the Securities in those states as may
be agreed upon by the Company and the Representative. Copies of all applications
for the registration of securities and related documents (except for the
Registration Statement and Preliminary or Final Prospectus) filed by the
Representative's counsel with the various states have been supplied to the
Company's counsel, concurrently with their transmission to the various states,
and copies of all comments and orders received from the various states have been
and shall be immediately supplied to the Company's counsel. Immediately prior to
the Effective Date, counsel for the Representative shall advise the
Representative in writing of all states wherein the offering is exempt or has
been registered for sale, canceled, withdrawn or denied, the date of such
event(s) and the number of Securities registered for sale in each such state.
After settlement and closing, the Representative shall notify its counsel of the
number of Securities sold in each such jurisdiction.
5.5 Financial Statements. The Company at its own expense will prepare
and give such financial statements and other information to the Commission, or
the proper public bodies of the states in which the Securities may be registered
or qualified, as may be required by them.
5.6 Reports and Financial Statements to the Representative. During the
period ending three years from the Closing Date, the Company will deliver to the
Representative copies of each annual report of the Company, and will deliver to
the Representative, within 90 days after the close of each fiscal year of the
Company, a financial report of the Company and its Subsidiaries, if any, on a
consolidated basis, and a similar financial report of all unconsolidated
Subsidiaries, if any. All such reports will include a balance sheet as of the
end of the preceding fiscal year, a statement of operations, a statement of cash
flows and an analysis of shareholders' equity covering such fiscal year, and all
will be in reasonable detail and certified by independent public accountants for
the Company. These requirements will be satisfied if the Company provides to the
Representative copies of its Forms 10-K, Forms 10-Q and Forms 8-K (or other
appropriate forms) when they are filed with the Commission.
If the Company shall fail to furnish the Representative with financial
statements as herein provided, within the times specified herein, the
Representative, after giving reasonable notice of not less than 30 days (and if
the
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financial statements are not provided within such 30 day period), shall have the
right to have such financial statements prepared by independent public
accountants of its own choosing and the Company agrees to furnish such
independent public accountants such data and assistance and access to such
records as they may reasonably require to enable them to prepare such statements
and to pay their reasonable fees and expenses in preparing the same.
During the period ending three years from the Closing Date the Company
shall also provide to the Representative copies of all other statements,
documents, or other information which the Company shall mail or otherwise make
available to any class of its security holders, or which it shall file with the
Commission; and, upon request in writing from the Representative, the Company
shall furnish to the Representative such other information as may reasonably be
requested and which may be properly disclosed to the Representative with
reference to the property, business and affairs of the Company and its
Subsidiaries, if any; provided such written request includes an agreement to
keep confidential any information which should not be disclosed to the public.
5.7 Expenses Paid by the Company. The Company will pay or cause to be
paid, whether or not the transactions contemplated hereunder are consummated or
the Registration Statement is prevented from becoming effective or this
Agreement is terminated, (a) all expenses (including stock transfer taxes)
incurred in connection with the delivery to the several Underwriters of the
Securities; (b) all fees and expenses (including, without limitation, fees and
expenses of the Company's accountants and counsel, but excluding fees and
expenses of counsel for the Underwriters in connection with the preparation,
printing, filing, delivery and shipping of the Registration Statement (including
financial statements therein and all amendments and exhibits thereto), each
Preliminary Prospectus, the Effective Prospectus and the Final Prospectus as
amended or supplemented, and the printing, delivery and shipping of this
Agreement and other underwriting documents, including Underwriter's
Questionnaires, Underwriters' Powers of Attorney, Blue Sky Memoranda, Agreements
Among Underwriters, and Selected Dealer Agreements; (c) the filing fee of the
National Association of Securities Dealers, Inc.; (d) any applicable listing
fees; (e) the cost of printing certificates representing the Shares and
Warrants; (f) the cost and charges of any transfer agent or registrar, and the
Warrant agent; and (g) all other costs and expenses incident to the performance
of its obligations hereunder which are not otherwise provided for in this
Section. It is understood, however, that, except as provided in this Section,
the Underwriters shall pay all of their own costs and expenses, including the
fees of their counsel, stock transfer taxes on resale of any of the Securities
by them, and any advertising expenses connected with any offers they may make.
5.8 Reports to Shareholders. During the period ending five years from
the Closing Date the Company will, as promptly as possible, but not later than
180 days after the end of its annual fiscal year, render and distribute reports
to its shareholders which will include audited statements of its operations and
cash flows during such period and its balance sheet as of the end of such
period, as to which statements the Company's independent certified public
accountants shall have rendered an opinion.
5.9 Section 11(a) Financials. The Company will make generally available
to its security holders and will deliver to the Representative, as soon as
practicable, an earnings statement (as to which no opinion need be rendered but
which will satisfy the provisions of Section 11(a) of the Securities Act)
covering a period of at least 12 months beginning after the Effective Date.
Compliance by the Company with Rule 158 promulgated under the Securities Act
shall satisfy the requirements of this Section 5.9.
5.10 Post-Effective Availability of Prospectus. The Company will
comply, at its own expense, with all requirements imposed upon it by the
Securities Act, as now or hereafter amended, by the Rules and Regulations, as
from time to time may be in force, and by any order of the Commission, so far as
necessary to permit the continuance of sales or dealings in the Shares and the
Warrants and the exercise of the Warrants.
5.11 Application of Proceeds. The Company will apply the net proceeds
from the sale of the Securities substantially in the manner specifically set
forth in the Final Prospectus. Any deviation from such application must
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be in accordance with the Final Prospectus and may occur only after approval by
the board of directors of the Company and then only after the board of directors
has obtained the written opinion as to the propriety of any such deviation
provided by recognized legal counsel well versed in the federal and state
securities laws.
5.12 Agreements of Certain Shareholders. The Company has delivered to
the Representative, prior to the execution of this Agreement, the agreement of
each officer, director, and one percent (1%) or greater shareholder, that for a
period of twelve months from the Effective Date such persons shall not sell,
contract to sell, pledge, hypothecate, grant any option to purchase or otherwise
dispose of any portion of the shares of Common Stock owned directly, indirectly
or beneficially by such person prior to the Effective Date, without the
Representative's prior written consent.
5.13 Delivery of Documents. At the Closing, the Company has delivered
to the Representative true and correct copies of the articles of incorporation
of the Company and all amendments thereto; true and correct copies of the
by-laws of the Company and of the minutes of all meetings of the directors and
shareholders of the Company held prior to the Closing Date which in any way
relate to the subject matter of this Agreement. All such copies shall be
certified by the Secretary of the Company.
5.14 Cooperation With Representative's Due Diligence. At all times
prior to the Closing Date, the Company will cooperate with the Representative in
such investigation as the Representative may make or cause to be made of all the
properties, management, business and operations of the Company, and the Company
will make available to the Representative in connection therewith such
information in its possession as the Representative may reasonably request.
5.15 Appointment of Transfer Agent and Warrant Agent. The Company has
appointed, as Transfer Agent for the Common Stock and Warrant Agent for the
Warrants, subject to the closing of the offering. The Company will not change or
terminate such appointment for a period of three years from the Effective Date
without first obtaining the written consent of the Representative, which consent
shall not be unreasonably withheld.
5.16 Compliance With Conditions Precedent. The Company will use all
reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Underwriters in Section 8 hereof.
5.17 Filing of Form SR. If required under the Securities Act, the
Company agrees to file with the Commission all required reports on Form SR in
accordance with the provisions of Rule 463 promulgated under the Securities Act
and to provide a copy of such reports to the Representative and its counsel.
5.18 Bound Volume. The Company shall supply to the Representative and
the Representative's counsel, at the Company's cost, five bound volumes each of
all of the public offering materials within a reasonable time after the closing,
not to exceed three months.
5.19 Listing in Moody's and Standard & Poor's. The Company has applied
to have the Company listed in Moody's Over-The-Counter Manual or Standard &
Poor's Standard Corporation Records, and it agrees to maintain such listings.
5.20 Nasdaq. The Company has applied to have the Common Stock and
Warrants quoted on the Nasdaq Stock Market ("Nasdaq") on the Effective Date and
it shall continue such listing on Nasdaq or on a national securities exchange
during the entire period each such security is outstanding; provided that the
Company is in compliance with Nasdaq maintenance requirements. The Nasdaq
symbols shall be mutually agreeable to the Company and the Representative.
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5.21 Secondary Trading Qualification. The Company agrees to use its
best efforts to qualify the Common Stock and Warrants for secondary trading as
soon as legally possible in such states as are requested by the Representative
from time to time, including, without limitation, California and Texas.
5.22 Right of Inspection. For a period of three years after the
Effective Date, the Representative, at the Representative's expense, will have
the right to have a person or persons selected by the Representative review the
books and records of the Company upon seven days' written notice and at
reasonable times. Such person or persons will be required to execute a
confidentiality agreement which will, in part, prohibit disclosure of
information to any party except the Representative, which information shall be
held in confidence unless otherwise specifically agreed to by the Company in
writing.
5.23 Outside Directors, Committees, Executive Compensation. The
Company's board of directors shall consist of not less than five members. The
Company shall use its best efforts to have at least two members elected to its
board of directors who are not officers or employees of the Company ("outside
directors") on the Effective Date of the Registration Statement, and to cause
two such outside directors to be nominated as directors for two additional
one-year terms. At the option of the Representative, the Company shall cause a
designee of the Representative to be elected as one of the two independent
members of the board of directors. The Company will form independent audit and
compensation committees which shall be comprised of at least three of the
Company's directors, at least a majority of whom shall be outside directors.
5.24 Registration Under the Exchange Act. The Company has filed a
Registration Statement under Section 12(g) of the Exchange Act with respect to
the Common Stock and the Warrants. The Company has delivered a copy of such
filing to the Representative and to legal counsel for the Representative. The
Company shall use its best efforts to cause the registration statement under the
Exchange Act to become effective not later than the Effective Date, or as soon
thereafter as possible.
SECTION 6
INDEMNIFICATION AND CONTRIBUTION
6.1 Indemnification By Company. The Company shall indemnify and hold
harmless each Underwriter against any and all loss, claim, damage or liability,
joint or several, to which such Underwriter may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, or liability
(or action with respect thereto) arises out of or is based upon (a) any
violation of any registration requirements; (b) any improper use of sales
literature by the Company; (c) any untrue statement or alleged untrue statement
made by the Company in Section 2 hereof; (d) any untrue statement or alleged
untrue statement of a material fact contained (i) in the Registration Statement,
any Preliminary Prospectus, the Effective Prospectus, or the Final Prospectus or
any amendment or supplement thereto, or (ii) in any application or other
document, executed by the Company specifically for such application or based
upon written information furnished by the Company, filed in order to qualify the
Securities under the securities laws of the states where filings were made (any
such application, document, or information being hereinafter called "Blue Sky
Application"); or (e) the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, the Effective Prospectus, or
the Final Prospectus or any amendment or supplement thereto or in any Blue Sky
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading; and shall reimburse each Underwriter for
any legal or other reasonable expenses incurred by such Underwriter in
connection with investigating or defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action,
notwithstanding the possibility that payments for such expenses might later be
held to be improper, in which case the person receiving them shall promptly
refund them; except that the Company shall not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company through the Representative by or on
behalf of any
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Underwriter specifically for use in the preparation of the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus and the Final
Prospectus or any amendment or supplement thereto, or any Blue Sky Application.
6.2 Indemnification By Underwriters. Each Underwriter severally, but
not jointly, shall indemnify and hold harmless the Company against any and all
loss, claim, damage or liability, joint or several, to which the Company may
become subject under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability (or action in respect thereto) arises out of or are
based upon (a) any untrue statement or alleged untrue statement of a material
fact contained (i) in the Registration Statement, any Preliminary Prospectus,
the Effective Prospectus or the Final Prospectus or any amendment or supplement
thereto or (ii) in any Blue Sky Application; or (b) the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus or the Final Prospectus or any amendment or supplement
thereto or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading; except that
such indemnification shall be available in each such case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon information and in
conformity with written information furnished to the Company through the
Representative or on behalf of such Underwriter specifically for use in the
preparation thereof; and shall reimburse any legal or other expenses reasonably
incurred by the Company in connection with the investigation or defending
against any such loss, claim, damage, liability, or action.
6.3 Right to Provide Defense. Promptly after receipt by an indemnified
party under Section 6.1 or 6.2 above of written notice of the commencement of
any action, the indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such section, notify the indemnifying
party in writing of the claim or the commencement of that action; the failure to
notify the indemnifying party shall not relieve it of any liability which it may
have to an indemnified party, except to the extent that the indemnifying party
did not otherwise have knowledge of the commencement of the action and the
indemnifying party's ability to defend against the action was prejudiced by such
failure. Such failure shall not relieve the indemnifying party from any other
liability which it may have to the indemnified party or any person identified in
Section 6.4 below. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under such
section for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof other than reasonable costs of
investigation; except that the Representative shall have the right to employ
counsel to represent the Representative and those other Underwriters who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by the Underwriters against the Company under such section if, in the
Representative's reasonable judgment, it is advisable for the Representative and
those Underwriters to be represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the Company.
6.4 Contribution. If the indemnification provided for in Sections 6.1
and 6.2 of this Agreement is unavailable or insufficient to hold harmless an
indemnified party, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages, or liabilities referred to in Sections 6.1 or 6.2 above (a) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the offering of
the Securities; or (b) if the allocation provided by clause (a) above is not
permitted by applicable law, in such proportion as is appropriate to reflect the
relative benefits referred to in clause (a) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages, or
liabilities, as well as any other relevant equitable considerations. The
relative
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benefits received by the Company and the Underwriters shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and un-itemized expenses received by the Underwriters, in each case as
set forth in the table on the cover page of the Final Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the Company or the Underwriter and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such untrue statement or omission. For purposes of this Section 6.4, the term
"damages" shall include any counsel fees or other expenses reasonably incurred
by the Company or the Underwriters in connection with investigating or defending
any action or claim which is the subject of the contribution provisions of this
Section 6.4. Notwithstanding the provisions of this Section 6.4, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue
statements or omissions. No person adjudged 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. Under this Section 6.4, each Underwriter's
obligations to contribute are several in proportion to their respective
underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it shall promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in Section 6.4 hereof).
6.5 Extension of Obligations. The obligations of the Company under this
Section 6 shall be in addition to any other liability which the Company may
otherwise have, and shall extend, upon the same terms and conditions, to each
person, if any, who controls any Underwriter within the meaning of the
Securities Act; and the obligations of the Underwriters under this Section shall
be in addition to any liability that the respective Underwriters may otherwise
have, and shall extend, upon the same terms and conditions, to each director of
the Company (including any person who, with his consent, is named in the
Registration Statement as about to become a director of the Company), to each
officer of the Company who has signed the Registration Statement, and to each
person, if any, who controls the Company within the meaning of the Securities
Act.
6.6 Reimbursement of Underwriters. In addition to its obligations under
Section 6.1 of this Agreement, the Company 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 loss, claim, damage, or liability
described in Section 6.1 of this Agreement, it will reimburse the Underwriters,
and each of them, on a monthly basis (or more often, if requested) for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any
portion, or all, of any such interim reimbursement payments are so held to have
been improper, the Underwriters receiving the same shall promptly return such
amounts to the Company together with interest, compounded daily, determined on
the basis of the prime rate (or other commercial lending rate for borrowers of
the highest credit rating) announced from time to time by Norwest Bank of
Denver, Denver, Colorado (the "Prime Rate"). Any such interim reimbursement
payments that are not made to the Underwriters within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request until the date paid.
6.7 Reimbursement of the Company. In addition to their obligations
under Section 6.2 of this Agreement, the Underwriters agree that, as an interim
measure during the pendency of any claim, action,
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investigation, inquiry or other proceeding arising out of or based upon any
loss, claim, damage or liability described in Section 6.2 of this Agreement,
they will reimburse the Company on a monthly basis (or more often, if requested)
for all reasonable legal or other expenses incurred by the Company 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 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 portion, or all, of any such interim reimbursement payments are
so held to have been improper, the Company shall promptly return such amounts to
the Underwriters together with interest, compounded daily, determined on the
basis of the Prime Rate. Any such interim reimbursement payments that are not
made to the Company within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request until the date paid.
SECTION 7
EFFECTIVENESS OF AGREEMENT
This Agreement shall become effective (a) at 10:00 a.m., Eastern Time,
on the first full business day after the Effective Date, or (b) upon release by
the Representative of the Securities for sale after the Effective Date,
whichever shall first occur. The Representative shall notify the Company
immediately after the Representative shall have taken any action, by release or
otherwise, whereby this Agreement shall have become effective. For purposes of
this Agreement, the release of the initial public offering of the Firm
Securities for sale to the public shall be deemed to have been made when the
Representative releases, by telegram or otherwise, firm offers of the Firm
Securities to securities dealers or release for publication of a newspaper
advertisement relating to the Firm Securities, whichever occurs first. This
Agreement shall, nevertheless, become effective at such time earlier than the
time specified above, after the Effective Date, as the Representative may
determine by notice to the Company.
SECTION 8
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The obligations of the several Underwriters hereunder to purchase the
Securities and to make payment to the Company hereunder on the Closing Date and
on the Over-allotment Closing Date, if any, shall be subject to the accuracy, as
of the Closing Date and the Over-allotment Closing Date, of each of the
representations and warranties on the part of the Company herein contained, to
the performance by the Company of all its agreements herein contained, to the
fulfillment of or compliance by the Company with all covenants and conditions
hereof, and to the following additional conditions:
8.1 Effectiveness of Registration Statement. The Registration Statement
and all post-effective amendments thereto filed with the Commission prior to the
Closing Date or the Over-allotment Closing Date shall have become effective and
any and all filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made; no stop order suspending the effectiveness of
the Registration Statement or any amendment or supplement thereto shall have
been issued; no proceeding for that purpose shall have been initiated or
threatened by the Commission or be pending; any request for additional
information on the part of the Commission (to be included in the Registration
Statement or Final Prospectus or otherwise) shall have been complied with to the
satisfaction of the Commission; and neither the Registration Statement, the
Effective Prospectus or Final Prospectus, nor any amendment thereto shall have
been filed to which counsel to the Representative shall have reasonably objected
in writing or have not given their consent.
8.2 Accuracy of Registration Statement. The Representative shall not
have advised the Company that the Registration Statement or the Effective
Prospectus or Final Prospectus or any amendment thereof or supplement thereto
contains an untrue statement of a fact which, in the opinion of counsel to the
Representative, is material, or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein, or is
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necessary to make the statements therein not misleading.
8.3 Casualty and Other Calamity. Since the Effective Date the Company
shall not have sustained any loss on account of fire, explosion, flood,
accident, calamity or any other cause, of such character as materially adversely
affects its business or property considered as an entire entity, whether or not
such loss is covered by insurance, and no officer or director of the Company
shall have suffered any injury, sickness or disability of a nature which would
materially adversely affect his or her ability to properly function as an
officer or director of the Company.
8.4 Litigation and Other Proceedings. Other than as disclosed in the
Registration Statement or Prospectus, there shall be no litigation instituted or
threatened against the Company and there shall be no proceeding instituted or
threatened against the Company before or by any federal or state commission,
regulatory body or administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding would materially
adversely affect the business, management, licenses, operations or financial
condition or income of the Company considered as an entity.
8.5 Lack of Material Change. Except as contemplated herein or as set
forth in the Registration Statement and Final Prospectus, during the period
subsequent to the date of the last audited balance sheet included in the
Registration Statement, the Company (a) shall have conducted its business in the
usual and ordinary manner as the same was being conducted on the date of the
last audited balance sheet included in the Registration Statement, and (b)
except in the ordinary course of its business, the Company shall not have
incurred any liabilities, claims or obligations (direct or contingent) or
disposed of any of its assets, or entered into any material transaction or
suffered or experienced any substantially adverse change in its condition,
financial or otherwise. The capital stock and surplus accounts of the Company
shall be substantially the same as at the date of the last audited balance sheet
included in the Registration Statement, without considering the proceeds from
the sale of the Securities, other than as may be set forth in the Final
Prospectus, and except as the surplus reflects the result of continued profits
or losses from operations consistent with prior periods.
8.6 Review By Representative's Counsel. The authorization of the
Shares, the Warrants, the Warrant Shares, the Representative's Options and the
Common Stock and Warrants issuable upon the exercise of the Representative's
Options, the Registration Statement, the Effective Prospectus and the Final
Prospectus and all corporate proceedings and other legal matters incident
thereto and to this Agreement shall be reasonably satisfactory in all respects
to counsel to the Representative.
8.7.1 Opinion of Counsel. The Company shall have furnished to the
Representative the opinion, dated the Closing Date and, if applicable, the
Over-allotment Closing Date, addressed to the Representative, from Cascone &
Cole, counsel to the Company, to the effect that based upon a review by them of
the Registration Statement, Effective Prospectus and the Final Prospectus, the
Company's articles of incorporation, by-laws, and relevant corporate proceedings
and contracts, and examination of such statutes they deem necessary and such
other investigation by such counsel as they deem necessary to express such
opinion:
(a) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of, and has the
corporate power and authority to own its properties and to carry on its business
as described in the Registration Statement and Effective Prospectus and the
Final Prospectus.
(b) The Company is duly qualified and in good standing as a foreign
corporation authorized to do business in all jurisdictions in which the
character of the properties owned or held under lease or the nature of the
business conducted requires such qualification except where the failure to
qualify would not have a material adverse effect on the business of the Company.
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(c) The authorized and outstanding capital stock of the Company is as
set forth in the Effective Prospectus and Final Prospectus; the Common Stock of
the Company, the Warrants, and the Representative's Options conform in all
material respects to the statements concerning them in the Effective Prospectus
and Final Prospectus; the outstanding Common Stock of the Company contains no
preemptive rights; the Shares, the Warrants, and the Representative's Options
have been, and the Common Stock issuable upon exercise of the Share Options and
the Representative's Options, will be, duly and validly authorized and, upon
issuance thereof and payment therefor in accordance with this Agreement, validly
issued, fully paid and nonassessable, and will not be subject to the preemptive
rights of any shareholder of the Company.
(d) A sufficient number of shares of Common Stock have been duly
reserved for issuance upon the exercise of the Warrants, the Representative's
Options and the Warrants issuable upon exercise of the Representative's Options.
(e) To such counsel's knowledge, no consents, approvals, authorizations
or orders of agencies, officers or other regulatory authorities are required for
the valid authorization, issuance or sale of the Common Stock, the Warrants and
the Representative's Options contemplated by this Agreement, except for those
consents, approvals, authorizations, and orders which the Company has obtained
and which are in full force and effect under the Securities Act, the Exchange
Act, and under applicable state securities laws in connection with the purchase
and distribution of such securities by the Underwriters, and the clearance of
the underwriting compensation by the NASD.
(f) The issuance and sale of the Securities and the Representative's
Options, the consummation of the transactions herein contemplated, and the
compliance with the terms of this Agreement will not conflict with or result in
a breach of any of the terms, conditions, or provisions of or constitute a
default under the articles of incorporation or by-laws of the Company; nor, to
such counsel's knowledge, will they conflict with or result in a breach of any
of the terms, conditions, or provisions of any note, indenture, mortgage, deed
of trust, or other agreement or instrument to which the Company is a party or by
which the Company or any of its property is bound, other than for which the
Company has received a consent or waiver of such conflict, breach or default, or
where such conflict or breach would not have a material adverse effect on the
business of the Company; or any existing law (provided this paragraph shall not
relate to federal or state securities laws), order, rule, regulation, writ,
injunction, or decree known to such counsel of any government, governmental
instrumentality, agency, body, arbitration tribunal, or court, domestic or
foreign, having jurisdiction over the Company or its property.
(g) On the basis of a reasonable inquiry by such counsel, including
participation in conferences with representatives of the Company and its
accountants at which the contents of the Registration Statement and the
Effective Prospectus and the Final Prospectus and related matters were
discussed, and without expressing any opinion as to the financial statements or
other financial data contained therein: (i) nothing has come to such counsel's
attention which leads them to believe that the Registration Statement and the
Final Prospectus, as amended or supplemented by any amendments or supplements
thereto made by the Company prior to the Closing Date, do not comply as to form
in all material respects with the requirements of the Securities Act; (ii)
nothing has come to their attention which leads them to believe that the
Registration Statement or the Final Prospectus, as amended or supplemented by
any such amendments or supplements thereto, contains any untrue statement of a
material fact or omits 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) they do not know of any contract or
other document required to be described in or filed as an exhibit to the
Registration Statement which is not so described or filed; and (iv) the
Registration Statement has become effective under the Securities Act, and, to
the best of their knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated by the Commission.
(h) This Agreement has been duly authorized and executed by the Company
and is a valid and
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binding agreement of the Company, except as rights to indemnity hereunder may be
limited by federal or state securities laws or public policy and except as
enforceability may be limited by bankruptcy, insolvency, or similar laws
affecting creditors rights generally and by general equitable principles.
(i) The Company is not in default of any of the contracts, licenses,
leases or agreements to which it is a party, and the offering of the Shares, the
Warrants and the Representative's Options will not cause the Company to become
in default of any of its contracts, licenses, leases or agreements.
(j) To such counsel's knowledge the Company is not currently offering
any securities for sale except as described in the Registration Statement.
(k) Counsel has no knowledge of any promoter, affiliate, parent or
subsidiaries of the Company except as are described in the Registration
Statement and Final Prospectus.
(l) To the knowledge of counsel, and without making any statement as to
title, the Company owns all properties described in the Registration Statement
as being owned by it; the properties are free and clear of all liens, charges,
encumbrances or restrictions except as described in the Registration Statement;
all of the leases, subleases and other agreements under which the Company holds
its properties are in full force and effect; the Company is not in default under
any of the material terms or provisions of any of the leases, subleases or other
agreements; and there are no claims against the Company concerning its rights
under the leases, subleases and other agreements and concerning its right to
continued possession of its properties.
(m) To the knowledge of counsel, the Company has been issued by the
appropriate federal, state and local regulatory authorities the required
licenses, certificates, authorizations or permits necessary to conduct its
business as described in the Registration Statement and to retain possession of
its properties. Counsel is unaware of any notice of any proceeding relating to
the revocation or modification of any of these certificates or permits.
(n) To the knowledge of counsel, the Company has paid all taxes which
are shown as due and owing on the financial statements included in the
Registration Statement and Final Prospectus.
As to all factual matters, including without limitation the issuance of stock
certificates and receipt of payment therefor, the states in which the Company
transacts business, and the adoption of resolutions reflected by the Company's
minute book, such counsel may rely on the certificate of an appropriate officer
of the Company. Counsel's opinion as to the validity and enforceability of any
and all contracts and agreements referenced herein may exclude any opinion as to
the validity or enforceability of any indemnification or contribution provisions
thereof, or as the validity or enforceability of any such contract or agreement
may be limited by bankruptcy or other laws relating to or affecting creditors'
rights generally and by equitable principles.
8.8 Accountant's Letter. The Representative shall have received letters
addressed to it dated the Effective Date, the Closing Date and, if applicable,
the Over-allotment Closing Date, respectively, and a draft of such letter at
least five days prior to the Effective Date, the Closing Date and, if
applicable, the Over-allotment Closing Date, from Demeitrius & Company, LLC,
confirming that they are independent public accountants with respect to the
Company within the meaning of the Act and the published Rules and Regulations.
In the letter dated the date of this Agreement, they shall state their
conclusions and findings with respect to such financial, accounting, and
statistical information and other matters contained in the Registration
Statement as have been approved by the Representative prior to the execution of
this Agreement. In the letter dated the Closing Date (and if applicable, the
Over-allotment Closing Date), they shall state as of such date (or, with respect
to matters involving changes or developments since the respective dates as of
which specified financial information is given in the Final Prospectus, as of a
date not more than five days prior to the date of such letter) their conclusions
and findings with respect to the financial information and other matters covered
by their letter dated the date of this Agreement, the purpose of the
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<PAGE>
letter to be delivered on the Closing Date (and, if applicable, the
Over-allotment Closing Date) being to update in all respects the conclusions and
findings set forth in the prior letter or letters. The Representative shall be
furnished without charge, in addition to the original signed copies, such number
of signed or photostatic or conformed copies of such letters as the
Representative shall reasonably request.
8.9 Officer's Certificate. The Company shall furnish to the
Representative certificates, each signed by the President and Chief Financial
Officer of the Company, one dated as of the Effective Date, one dated as of the
Closing Date, and, if applicable, one dated as of the Over-allotment Closing
Date, to the effect that:
(a) The representations and warranties of the Company in this Agreement
are true and correct at and as of the date of the certificate, and the Company
has complied with all the agreements and has satisfied all the conditions on its
part to be performed or satisfied at or prior to the date of the certificate.
(b) The Registration Statement has become effective and to the best of
the knowledge of the respective signers no order suspending the effectiveness of
the Registration Statement has been issued and no proceeding for that purpose
has been initiated or is threatened by the Commission.
(c) The respective signers have each examined the Registration
Statement and the Final Prospectus and any amendments and supplements thereto,
and to the best of their knowledge the Registration Statement and the Final
Prospectus and any amendments and supplements thereto contain all statements
required to be stated therein, do not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and, since the Effective
Date, there has occurred no event required to be set forth in an amended or a
supplemented Prospectus which has not been so set forth.
8.10 Tender of Delivery of Securities. All of the Securities being
offered by the Company and being purchased from the Company by the Underwriters,
and the Representative's Options being purchased from the Company by the
Representative, shall be tendered for delivery in accordance with the terms and
provisions of this Agreement.
8.11 Blue-Sky Registration or Qualification. The Shares and the
Warrants shall be registered or qualified in such states as the Representative
and the Company may agree pursuant to Section 5.4, and each such registration or
qualification shall be in effect and not subject to any stop order or other
proceeding on the Closing Date or the Over-allotment Closing Date. On the
Effective Date, on the Closing Date and, if applicable, the Over-allotment
Closing Date, the Representative shall receive from counsel for the
Representative, written information which contains the following:
(a) the names of the states in which applications to register or
qualify the Shares, the Warrants and the Warrant Shares have been filed;
(b) the status of such registrations or qualifications in such states
as of the date of such letter;
(c) a list containing the name of each such state in which the Shares,
the Warrants and the Warrant Shares may be legally offered and sold by a dealer
licensed in such state and the number of each which may be legally offered and
sold in the offering in each such state as of the date of such letter;
(d) with respect to the written information provided on the Effective
Date, a representation that such counsel will promptly update such written
information if counsel receives actual notice of any material changes in the
information provided therein between the Effective Date and the Closing Date
and, if applicable, Over-allotment Closing Date;
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<PAGE>
(e) the names of the states in which the offer and sale of the Shares
and Warrants in the offering is exempt from registration or qualification; and
(f) a statement that the Underwriters and selected dealers in the
offering may rely upon the information contained therein.
8.12 Approval of Representative's Counsel. All opinions, letters,
certificates and evidence mentioned above or elsewhere in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
form and substance satisfactory to counsel to the Representative, whose approval
shall not be unreasonably withheld. The suggested form of such documents shall
be provided to the counsel for the Representative at least three business days
before the dates they are to be provided, that is, the Effective Date, the
Closing Date, and the Over-allotment Closing Date, if applicable.
8.13 Officers' Certificate as a Company Representation. Any certificate
signed by an officer of the Company and delivered to the Representative or
counsel for the Representative shall be deemed a representation and warranty by
the Company to the Underwriters as to the statements made therein.
SECTION 9
TERMINATION
9.1 Termination Because of Noncompliance. This Agreement may be
terminated in its entirety by the Representative by notice to the Company prior
to its effectiveness in the event that the Company shall have failed or been
unable to comply with any of the terms, conditions or provisions of this
Agreement which the Company is required by this Agreement to be performed,
complied with or fulfilled (including but not limited to those specified in
Sections 2, 3, 4, 5, and 8 hereof) within the respective times herein provided
for, unless compliance therewith or performance or satisfaction thereof shall
have been expressly waived by the Representative in writing.
9.2 Market Out Termination. This Agreement may be terminated by the
Representative by notice to the Company at any time if, in the sole judgment of
the Representative, payment for and delivery of the Securities is rendered
impracticable or inadvisable because of:
(a) Material adverse changes in the Company's business, business
prospects, management, earnings, properties or conditions, financial or
otherwise;
(b) Any action, suit, or proceedings, at law or in equity, hereafter
threatened or filed against the Company by any person or entity, or by any
federal, state or other commission, board or agency wherein any unfavorable
result or decision could materially adversely affect the business, business
prospects, properties, financial condition or income or earnings of the Company;
(c) Additional material governmental restrictions not in force and
effect on the date hereof shall have been imposed upon the trading in securities
generally, or new offering or trading restrictions shall have been generally
established by a registered securities exchange, the Commission, NASD or other
applicable regulatory authority, or trading in securities generally on any such
exchange, NASDAQ or otherwise, shall have been suspended, or a general
moratorium shall have been established by federal or state authorities;
(d) Substantial and material changes in the condition of the market
beyond normal fluctuations such that it would be undesirable, impracticable or
inadvisable in the judgment of the Representative to proceed with this Agreement
or with the public offering of the Securities;
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<PAGE>
(e) Any outbreak or escalation of major hostilities in which the United
States is involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of the
Representative, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the sale of and payment for the Securities; or
(f) Any suspension of trading in the securities of the Company in the
over-the-counter market or the interruption or termination of quotations of any
security of the Company on the NASDAQ System.
9.3 Effect of Termination Hereunder. Any termination of this Agreement
pursuant to this Section 9 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages) on the part of any party hereto, except that the Company shall remain
obligated to pay the costs and expenses provided to be paid by it specified in
Sections 3.5 and 5.7; and the Company and the Underwriters shall be obligated to
pay, respectively, all losses, claims, damages or liabilities, joint or several,
under Sections 6.1 or 6.4 in the case of the Company and Sections 6.2 or 6.4 in
the case of the Underwriters .
SECTION 10
REPRESENTATIVE'S REPRESENTATIONS AND WARRANTIES
The Representative represents and warrants to and agrees with the
Company that:
10.1 Registration as Broker-Dealer and Member of NASD. The
Representative is registered as a broker-dealer with the Commission and is
registered as a securities broker-dealer in all states in which it will sell
Securities and is a member in good standing of the National Association of
Securities Dealers, Inc.
10.2 No Pending Proceedings. There is not now pending or threatened
against the Representative any action or proceeding of which it has been
advised, either in any court of competent jurisdiction, before the Commission or
any state securities regulatory authority concerning activities as a broker or
dealer which are foreseen as affecting the Representative's capacity to complete
the terms of this Agreement.
10.3 Company's Right to Terminate. In the event any action or
proceeding of the type referred to in Section 10.2 above shall be instituted or
threatened against the Representative at any time prior to the Effective Date
hereunder, or in the event there shall be filed by or against the Representative
in any court pursuant to any federal, state, local or municipal statute, a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of its assets or if it makes an assignment
for the benefit of creditors, the Company shall have the right on three days'
written notice to the Representative to terminate this Agreement without any
liability to the Representative or the Company of any kind except for the
payment of all expenses as provided herein.
10.4 Representative's Covenants. The Representative covenants and
agrees with the Company that (a) it will not offer or sell the Securities in any
state or other jurisdiction where it has not been advised in writing by legal
counsel for the Company that the Securities are qualified for the offer and sale
therein or exempt from such requirements; (b) it will not make any
representation to any person in connection with the offer and sale of the
Securities covered hereby except as set forth in the Registration Statement or
as authorized in writing by the Company and the Representative; (c) it will
comply in good faith with all laws, rules and regulations applicable to the
distribution of the securities, including the Rules of Fair Practice of the
NASD; and (d) the Representative has the authority to execute this Agreement on
behalf of all of the Underwriters.
SECTION 11
NOTICE
Except as otherwise expressly provided in this Agreement:
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<PAGE>
11.1 Notice to the Company. Whenever notice is required by the
provisions of this Underwriting Agreement to be given to the Company, such
notice shall be in writing addressed to the Company as follows:
InTegCom Corp.
280 Midland Avenue
Saddle Brook, New Jersey 07662
Attn: James E. Henry, President
with a copy to:
Kenneth T. Cascone, Esq.
Cascone & Cole
711 Third Avenue
Suite 1505
New York, New York 10017
11.2 Notice to the Representative. Whenever notice is required by the
provisions of this Agreement to be given to the Representative, such notice
shall be given in writing addressed to the Representative as follows:
Mason Hill & Co., Inc.
110 Wall Street
New York, New York 10005
Attn: Christopher J. Kinsley
with a copy to:
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<PAGE>
Richard Friedman, Esq.
Sichenzia, Ross & Friedman LLC
125 West 50th Street
New York, New York 10020
11.3 Effective Date of Notices. Such notices shall be effective on the
date of delivery set forth on the receipt if the notice is sent by registered or
certified mail or any expedited delivery, or, if sent regular mail, three days
from the day of mailing.
SECTION 12
MISCELLANEOUS
12.1 Benefit. This Agreement is made solely for the benefit of the
Representative, other Underwriters, the Company, their respective officers,
directors and controlling persons referred to in Section 15 of the Securities
Act and such other persons as are identified in this Agreement, and their
respective successors and assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successor" or the term
"successors and assigns" as used in this Agreement shall not include any
purchasers, as such, of any of the Securities.
12.2 Survival. The respective indemnities, agreements, representations,
warranties, and covenants of the Company or its officers and the Representative
or the Underwriters as set forth in or made pursuant to this Agreement and the
indemnity and contribution agreements contained in Section 6 hereof of the
Company and the Underwriters (as defined in Section 6) shall survive and remain
in full force and effect, regardless of (a) any investigation made by or on
behalf of the Company or the Underwriters or any such officer or director
thereof or any controlling person of the Company or of the Underwriters, (b)
delivery of or payment for the Securities, and (c) the Closing Date and, if
applicable, the Over-allotment Closing Date, and any successor of the Company or
the Underwriters or any controlling person, officer or director thereof, as the
case may be, shall be entitled to the benefits hereof.
12.3 Governing Law. The validity, interpretation and construction of
this Agreement and of each part hereof will be governed by the laws of the State
of New York.
12.4 Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties hereto, and supersedes all agreements and
understandings including, but not limited to, the Letter of Intent dated
September 7, 1999.
12.5 Representative's Information. The statements with respect to the
public offering of the Securities on the inside and outside of both the front
and back cover pages of the Prospectus and under the caption "Underwriting" in
the Final Prospectus constitute the written information furnished by or on
behalf of the Representative referred to in Section 2.2 hereof, in Section 6.1
hereof and Section 6.2 hereof.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together will constitute one and the same instrument.
12.7 Definition of "Business Day" and "Subsidiary". For purposes of
this Agreement, (a) "Business Day" means any day on which the New York Stock
Exchange, Inc. is open for trading and (b) "Subsidiary" has the meaning set
forth in Rule 405 of the Rules and Regulations.
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<PAGE>
Please confirm that the foregoing correctly sets forth the Agreement
between you and the Company.
Very truly yours,
INTEGCOM CORP.
By: _________________________________________
James E. Henry, President
WE HEREBY CONFIRM AS OF THE DATE HEREOF THAT THE ABOVE SETS FORTH THE AGREEMENT
BETWEEN THE COMPANY AND US.
MASON HILL & CO., INC.
(for itself and as Representative of
the several Underwriters named in
Schedule I hereto)
By _________________________________________
Christopher J. Kinsley, President
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<PAGE>
SCHEDULE I
This Schedule sets forth the name of each Underwriter referred to in
the Underwriting Agreement and the number of Shares and Warrants to be purchased
by each Underwriter.
<TABLE>
<CAPTION>
Number
Name of Shares and Warrants
- ---- ----------------------
<S> <C>
Mason Hill & Co., Inc.
Total 1,000,000
</TABLE>
28
<PAGE>
INTEGCOM CORP.
1,000,000 Units, Each Unit Consisting of
One Share of Common Stock and
One Common Stock Purchase Warrants
SELECTED DEALER'S AGREEMENT
________, 2000
Dear Sirs:
1. Mason Hill & Co., Inc. ("Mason Hill"), together with other underwriters named
in the Prospectus dated _________, 2000, are the underwriters (the
"Underwriters"). The Underwriters agreed to purchase, subject to the terms and
conditions set forth in the Underwriting Agreement referred to in the
Prospectus, an aggregate of 1,000,000 units (the "Units"),each Unit consisting
of one share of common stock, $.01 par value per share (the "Common Stock"), and
one common stock purchase warrant (the "Warrants") of InTegCom Corp. (the
"Company"), from the Company, and up to 150,000 additional Units (the
"Additional Securities"), pursuant to an option for the purpose of covering
over-allotments (the Units, and the Common Stock and Warrants underlying the
Units, plus any of the Additional Securities purchased upon exercise of the
option being herein collectively called the "Securities"). The Securities and
the terms upon which they are to be offered for sale by the Underwriter are more
particularly described in the Prospectus.
1. The Securities are to be offered to the public by the Underwriter at a
price of $_____ per Unit (herein called the "Public Offering Price") and in
accordance with the terms of the offering set forth in the Prospectus.
<PAGE>
2. The Underwriter is offering, subject to the terms and conditions hereof,
a portion of the Securities for sale to certain dealers which are members of the
National Association of Securities Dealers, Inc. and agree to comply with the
provisions of Section 24 of Article III of the Rules of Fair Practice of such
Association and to foreign dealers or institutions ineligible for membership in
said Association which agree (a) not to resell Securities (i) to purchasers
located in, or to persons who are nationals of, the United States of America or
(ii) when there is a public demand for the Securities to persons specified as
those to whom members of said Association participating in a distribution may
not sell and (b) to comply, as though such foreign dealer or institution were a
member of such Association, with Sections 8, 24, 25 (to the extent applicable to
foreign nonmember brokers or dealers) and Section 36 of such Rules (such dealers
and institutions agreeing to purchase Common Stock and/or Warrants hereunder
being hereinafter referred to as "Selected Dealers") at the Public Offering
Price less a selling concession of $_____ per Unit, payable as hereinafter
provided, out of which concession an amount not exceeding $_____ per Unit may be
reallowed by Selected Dealers to members of the National Association of
Securities Dealers, Inc. or to foreign dealers or institutions ineligible for
membership therein which agree as aforesaid. The Underwriter may be included
among the Selected Dealers.
3. The Underwriter shall act as your representative under this Agreement
and shall have full authority to take such action as the Underwriters may deem
advisable in respect to all matters pertaining to the public offering of the
Securities.
4. If you desire to purchase any of the Securities, your application should
reach us promptly by telephone or facsimile at the office of Mason Hill, and we
will use our best efforts to fill the same. We reserve the right to reject all
subscriptions in whole or in part, to make allotments and to close the
subscription books at any time without notice. The Units allotted to you will be
confirmed, subject to the terms and conditions of this Agreement.
5. The privilege of purchasing the Units is extended to you by the
Underwriter only if they may lawfully sell the Securities to dealers in your
state.
6. Any of the Units purchased by you under the terms of this Agreement may
be immediately reoffered to the public in accordance with the terms of the
offering set forth herein and in the Prospectus, subject to the securities laws
of the various states. Neither you nor any other
2
<PAGE>
person is or has been authorized to give any information or to make any
representations in connection with the sale of Securities other than as
contained in the Prospectus.
7. This Agreement will terminate when we shall have determined that the
public offering of the Securities has been completed and upon telegraphic notice
to you of such termination, but, if not previously terminated, this Agreement
will terminate at the close of business on the 20th full business day after the
date hereof; provided, however, that we shall have the right to extend this
Agreement for an additional period or periods not exceeding 20 full business
days in the aggregate upon telegraphic notice to you. Promptly after the
termination of this Agreement there shall become payable to you the selling
concession on all Units which you shall have purchased hereunder and which shall
not have been purchased or contracted for (including certificates issued upon
transfer) by us, in the open market or otherwise (except pursuant to Section 10
hereof), during the terms of this Agreement for the account of the Underwriter.
8. For the purpose of stabilizing the market in the Units, and the Common
Stock and Warrants underlying the Units, we have been authorized to make
purchases and sales thereof, in the open market or otherwise, and, in arranging
for sale of the Securities, to over-allot.
9. You agree to advise us from time to time, upon request, prior to the
termination of this Agreement, of the number of Securities purchased by you
hereunder and remaining unsold at the time of such request, and, if in our
opinion any such Securities shall be needed to make delivery of the Securities
sold or over-allotted for the account of the Underwriters, you will, forthwith
upon our request, grant to us, or such party as we determine for, our account
the right, exercisable promptly after receipt of notice from you that such right
has been granted, to purchase, at the Public Offering Price less the selling
concession as we shall determine, such number of Securities owned by you as
shall have been specified in our request.
10. On becoming a Selected Dealer and in offering and selling the
Securities, you agree to comply with all applicable requirements of the
Securities Act of 1933, the Securities Exchange Act of 1934 and the NASD Rules
of Fair Practice.
11. Upon application, you will be informed as to the jurisdictions in which
we have been advised that the Securities have been qualified for sale under the
respective securities or blue sky
3
<PAGE>
laws of such jurisdictions, but we assume no obligation or responsibility as to
the right of any Selected Dealer to sell the Securities in any jurisdiction or
as to any sale therein.
12. Additional copies of the Prospectus will be supplied to you in
reasonable quantities upon request.
13. It is expected that public advertisement of the Securities will be made
on the first day after the effective date of the Registration Statement.
Twenty-four hours after such advertisement shall have appeared but not before,
you will be free to advertise at your own expense, over your own name, subject
to any restrictions of local laws, but your advertisement must conform in all
respects to the requirements of the Securities Act of 1933, and we will not be
under any obligation or liability in respect of your advertisement.
14. No Selected Dealer is authorized to act as our agent or to make any
representation as to the existence of an agency relationship otherwise to act on
our behalf in offering or selling the Securities to the public or otherwise.
15. We shall not be under any liability for or in respect of the value,
validity or form of the certificates for the shares of Common Stock and Warrants
underlying the Units, or delivery of such certificates, or the performance by
anyone of any agreement on his part, or the qualification of the Securities for
sale under the laws of any jurisdiction, or for or in respect of any matter
connected with this Agreement, except for lack of good faith and for obligations
expressly assumed by us in this Agreement. The foregoing provisions shall be
deemed a waiver of any liability imposed under the Securities Act of 1933.
16. Payment for the Securities sold to you hereunder is to be made at the
Public Offering Price, on or about _______, 2000, or such later date as we may
advise, by certified or official bank check payable to the order of Mason Hill &
Co, Inc., in current New York Clearing House funds at such place as we shall
specify on one day's notice to you against delivery of certificates for the
Common Stock and Warrants.
17. Notice to us should be addressed to us at the office of Mason Hill &
Co., Inc., 110 Wall Street, New York, New York 10005, attention: Christopher J.
Kinsley, and to [ ]. Notices to you shall be deemed to have been duly given
if telefaxed or mailed to you at the address to which this letter is addressed.
4
<PAGE>
18. If you desire to purchase any of the Securities, please confirm your
application by signing and returning to us your confirmation on the duplicate
copy of this letter enclosed herewith even though you have previously advised us
thereof by telephone or facsimile.
Dated: _________, 2000 MASON HILL & CO., INC.
By:__________________________________
Christopher J. Kinsley
Accepted and agreed
as to ________ shares of Common Stock and ________ Warrants
this ____ day of _______, 2000.
By: __________________________________
5
<PAGE>
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT
MAY BE MADE UNTIL THE EFFECTIVENESS OF A REGISTRATION STATEMENT OR OF A
POST-EFFECTIVE AMENDMENT THERETO UNDER THE SECURITIES ACT OF 1933 (THE "ACT"),
COVERING THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT, OR UNTIL THE
COMPANY IS IN RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE ACT. TRANSFER OF THIS WARRANT IS RESTRICTED UNDER PARAGRAPH 2 BELOW.
UNDERWRITER'S WARRANT TO PURCHASE UNITS
(COMMON STOCK AND REDEEMABLE WARRANTS)
INTEGCOM CORP.
(a DELAWARE corporation)
Dated: ____________, 2000
THIS CERTIFIES THAT, for value received, Mason Hill & Co.,
Inc. (the "Underwriter") or its registered assigns (the "Holder") is the owner
of warrants ("Underwriter's Warrants") to purchase from InTegCom Corp., a
Delaware corporation (the "Company"), during the period and at the prices
hereinafter specified, up to 100,000 Units, each unit consisting of one share of
the Company's common stock, no par value per share (the "Common Stock"), and one
common stock purchase warrant (the "Warrants"), (the Units, and the Common Stock
and Warrants underlying the Units, collectively referred to as the
"Securities").
This Underwriter's Warrant is issued pursuant to an
Underwriting Agreement dated ______, 2000, between the Company and the
Underwriter in connection with a public offering through the Underwriter (the
"Public Offering"), of 1,000,000 Units and, pursuant to the Underwriter's
overallotment option, an additional 150,000 Units. The Warrants (including those
issuable pursuant to the exercise of the Underwriter's Warrant) will be issued
pursuant to and subject
<PAGE>
to the terms and conditions set forth in an agreement between the Company, the
Underwriter and Jersey Transfer & Trust Co. (the "Warrant Agreement").
1. Exercise of the Underwriter's Warrant.
(a) The rights represented by this Underwriter's Warrant shall
be exercisable at the prices and during the period specified below, upon the
terms and subject to the conditions as set forth herein:
(i) During the period from ___, 2000 to ____,
2001, inclusive, the Holder shall have no right to purchase any Securities
hereunder.
(ii) Between _____, 2001 and _______, 2005,
inclusive, the Holder shall have the option to purchase Units hereunder at a
price of $____ per Unit, the purchase price of the Units being __% of the public
offering prices for the Securities set forth in the Prospectus forming a part of
the registration statement on Form SB-2 (File No. 333-94477) of the Company, as
amended (the "Registration Statement").
(iii) After _______, 2005, the Holder shall have no
right to purchase any Securities hereunder and this Underwriter's Warrant shall
expire effective at 5:00 p.m., Portland, Oregon time on such date.
(b) The rights represented by this Underwriter's Warrant may
be exercised at any time within the period above specified, in whole or in part,
by (i) the surrender of this Underwriter's Warrant (with the purchase form at
the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price then in
effect for the number of shares of Common Stock and Warrants specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of Paragraph 5 and subparagraphs (b), (c)
and (d) of Paragraph 6 hereof. This Underwriter's Warrant shall be deemed to
have been exercised, in whole or in part to the extent specified, immediately
prior to the close of business on the date this Underwriter's Warrant is
surrendered and payment is made in accordance with the foregoing provisions of
this Paragraph 1, and the person or persons in whose name or names the
certificates for the Securities shall be issuable upon such exercise shall
become the holder or holders of record of such Common Stock and Warrants at that
time and date. The Common Stock and Warrants so purchased shall be delivered to
the Holder within a reasonable time, not exceeding ten (10) business days, after
the rights represented by this Underwriter's Warrant shall have been so
exercised.
(c) Notwithstanding anything to the contrary contained in
subparagraph (b) of paragraph 1, the Holder may elect to exercise this
Underwriter's Warrant in whole or in part by
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<PAGE>
receiving Shares and Warrants equal to the value (as determined below) of this
Underwriter's Warrant at the principal office of the Company together with
notice of such election, in which event the Company shall issue to the Holder a
number of Shares and/or Warrants computed using the following formula:
X = Y(A-B)
----------
A
Where: X = the number of Shares and/or Warrants to be issued to the
- ------ Holder;
Y = the number of Shares and/or Warrants to be
exercised under this Underwriter's Warrant;
A = the current fair market value of one share of Common Stock
and one Warrant (calculated as described below); and
B = the Share Exercise Price and/or the Warrant Exercise Price,
as the case may be.
As used herein, the current fair market value of one share of
Common Stock shall mean the greater of (x) the average of the closing prices of
the Company's Common Stock sold on all securities exchanges on which the Common
Stock may at the time be listed and the Nasdaq National Market or the Nasdaq
Small Cap Market, or, if there have been no sales on any such exchange or the
Nasdaq National Market or the Nasdaq Small Cap Market on such day, the average
of the highest bid and lowest asked price on such day in the domestic
over-the-counter market as reported by the Nasdaq Stock Market, the electronic
bulletin board operated by the Nasdaq, or the National Quotation Bureau,
Incorporated, or any similar successor organization (the "Market Price"), on the
trading day immediately preceding the date notice of exercise of this
Underwriter's Warrant is given or (y) the average of the Market Price per share
of Common Stock for the five trading days immediately preceding the date notice
of exercise of this Underwriter's Warrant is given. If on any date for which the
Market Price per share of Common Stock is to be determined the Common Stock is
not listed on any securities exchange or quoted on the Nasdaq National Market or
on The Nasdaq Stock Market or otherwise in the over-the-counter market, the
Market Price per share of Common Stock shall be the highest price per share
which the Company could then obtain from a willing buyer (not a current employee
or director) for shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by the Board of Directors of the
Company, unless prior to such date the Company has become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the Market Price per share of Common Stock shall
be deemed to be the value received by the holders of the Company's Common Stock
for each share thereof pursuant to the Company's acquisition.
The current fair market value of one Warrant shall be determined in a
like manner, with reference to the prices per Warrant.
3
<PAGE>
2. Restrictions on Transfer.
This Underwriter's Warrant shall not be transferred, sold,
assigned or hypothecated for a period of one year commencing ______, 2000,
except that it may be transferred to successors of the Holder, and may be
assigned in whole or in part to any person who is an officer of the Underwriter
or an officer or partner of any other member of the selling group during such
period. Any such assignment shall be effected by the Holder by (i) completing
and executing the transfer form at the end hereof and (ii) surrendering this
Underwriter's Warrant with such duly completed and executed transfer form for
cancellation, accompanied by funds sufficient to pay any transfer tax, at the
office or agency of the Company referred to in Paragraph 1 hereof, accompanied
by a certificate (signed by a duly authorized representative of the Holder),
stating that each transferee is a permitted transferee under this Paragraph 2;
whereupon the Company shall issue, in the name or names specified by the Holder
(including the Holder), a new Underwriter's Warrant or Underwriter's Warrants of
like tenor and representing in the aggregate rights to purchase the same number
of Securities as are then purchasable hereunder. The Holder acknowledges that
this Underwriter's Warrant may not be offered or sold except pursuant to an
effective registration statement under the Act or an opinion of counsel
satisfactory to the Company that an exemption from registration under the Act is
available.
3. Covenants of the Company
(a) The Company covenants and agrees that all Common Stock
issuable upon the exercise of this Underwriter's Warrant will, upon issuance
thereof and payment therefor in accordance with the terms hereof, and all Common
Stock issuable upon exercise of the Warrants underlying this Underwriter's
Warrant, will upon the issuance thereof and payment therefor in accordance with
the terms of the Warrant Agreement, be duly and validly issued, fully paid and
nonassessable and no personal liability will attach to the holder thereof by
reason of being such a holder, other than as set forth herein.
(b) The Company covenants and agrees that during the period
within which this Underwriter's Warrant may be exercised, the Company will at
all times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the exercise of this Underwriter's Warrant and the Warrants
included therein.
(c) The Company covenants and agrees that for so long as the
Securities shall be outstanding (unless the Securities shall no longer be
registered under Paragraph 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended) the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Underwriter's Warrant and the
Warrants contained therein, to be quoted by the Nasdaq Stock Market or listed on
a national securities exchange.
4
<PAGE>
4. No Rights of Stockholder.
This Underwriter's Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company, either at law or
in equity, and the rights of the Holder are limited to those expressed in this
Underwriter's Warrant and are not enforceable against the Company except to the
extent set forth herein.
5. Registration Rights.
(a) During the four year period following _______, 2001, the
Company shall advise the Holder, whether the Holder holds this Underwriter's
Warrant or has exercised this Underwriter's Warrant and holds Common Stock and
Warrants underlying the Units, or Common Stock underlying the Warrants (the
"Warrant Shares"), by written notice at least 30 days prior to the filing of any
post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the Act,
covering any securities of the Company, for its own account or for the account
of others, and upon the request of the Holder made during such four-year period,
include in any such post-effective amendment or registration statement such
information as may be required to permit a public offering of any of the Common
Stock or Warrants issuable hereunder, and/or the Warrant Shares (the
"Registrable Securities"); provided, that this Paragraph 5(a) shall not apply to
any registration statement filed pursuant to Paragraph 5(b) hereof or to
registrations of shares in connection with an employee benefit plan or a merger,
consolidation or other comparable acquisition or solely for registration of
non-convertible debt or preferred equity securities of the Company; and
provided, further, that, notwithstanding the foregoing, the Holder shall have no
right to include any Registrable Securities in any new registration statement or
post-effective amendment thereto unless as of the effective date thereof the
Registration Statement (as it may hereafter be amended or supplemented) or any
new registration statement under which the Registrable Securities are registered
shall have ceased to be effective or the prospectus contained in such
Registration Statement shall have ceased to be current. The Company shall supply
prospectuses in order to facilitate the public sale or other disposition of the
Registrable Securities, use its reasonable efforts to register and qualify any
of the Registrable Securities for sale in such states in which the Common Stock
and Warrants are offered and sold in the Public Offering as such Holder
reasonably designates and do any and all other acts and things which may be
necessary to enable such Holder to consummate the public sale of the Registrable
Securities, provided that, without limiting the foregoing, the Company shall not
be obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction, and furnish indemnification in the manner provided in Paragraph 6
hereof. The Holder shall furnish information reasonably requested by the Company
in accordance with such post-effective amendments or registration statements,
including its intentions with respect thereto, and shall furnish indemnification
as set forth in Paragraph 6. The Company shall continue to advise the Holders of
the Registrable Securities of its intention to file a registration statement or
amendment pursuant to this Paragraph 5(a) until the earliest of (i) _______,
2005; or (ii) such time as all of the Registrable Securities have been
registered and sold under the Act; or (iii) all of the Registrable Securities
have been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not require registration or
qualification of them under
5
<PAGE>
the Act, or (iv) in the opinion of legal counsel for the Company, the
Registrable Securities may be offered and sold by the holders thereof without
being registered under the Act and such securities, upon receipt by the
purchasers thereof pursuant to such sale, will not constitute "restricted
securities" as such term is defined in Rule 144 under the Act.
(b) If any fifty-one (51%) percent holder (as defined below)
shall give notice to the Company at any time during the four (4) year period
beginning ___, 2000 to the effect that such holder desires to register under the
Act any Registrable Securities, under such circumstances that a public
distribution (within the meaning of the Act) of any such Registrable Securities
will be involved (and the Registration Statement or any new registration
statement under which such Registrable Securities are registered shall have
ceased to be effective or the Prospectus contained therein shall have ceased to
be current), then the Company will as promptly as practicable after receipt of
such notice, but not later than thirty (30) days after receipt of such notice,
at the Company's option, file a post-effective amendment to the current
Registration Statement or a new registration statement pursuant to the Act to
the end that the Registrable Securities may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its reasonable
efforts to cause such registration to become and remain effective as provided
herein (including the taking of such steps as are reasonably necessary to obtain
the removal of any stop order); provided, that such fifty-one (51%) percent
holder shall furnish the Company with appropriate information in connection
therewith as the Company may reasonably request; and provided, further, that the
Company shall not be required to file such a post-effective amendment or
registration statement pursuant to this Paragraph 5(b) on more than one
occasion; and provided, further, that, the registration rights of the 51% holder
under this Paragraph 5(b) shall be subject to the "piggyback" registration
rights of other holders of securities of the Company to include such securities
in any registration statement or post-effective amendment filed pursuant to this
Paragraph 5(b). The Company will maintain such registration statement or
post-effective amendment current under the Act for a period of at least nine
months from the effective date thereof. The Company shall supply prospectuses in
order to facilitate the public sale of the Registrable Securities, use its
reasonable efforts to register and qualify any of the Registrable Securities for
sale in such states in which the Common Stock and Warrants are offered and sold
in the Public Offering as such holder reasonably designates and furnish
indemnification in the manner provided in Paragraph 6 hereof, provided that,
without limiting the foregoing, the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(c) The Holder may, in accordance with Paragraphs 5(a) or (b),
at his or its option, and subject to the limitations set forth in Paragraph 1(a)
hereof, request the registration of any of the Registrable Securities in a
filing made by the Company prior to the acquisition of the Securities upon
exercise of this Underwriter's Warrant. The Holder may thereafter exercise this
Underwriter's Warrant at any time or from time to time subsequent to the
effectiveness under the Act of the registration statement in which the Common
Stock underlying the Underwriter's Warrants and Warrants were included.
(d) The term "51% holder," as used in this Paragraph 5, shall
include any owner or combination of owners of Underwriter's Warrants or
Registrable Securities if the aggregate
6
<PAGE>
number of shares of Common Stock and Warrant Shares included in and underlying
the Underwriter's Warrants and Registrable Securities held of record by it or
them, would constitute a majority of the aggregate of such shares of Common
Stock and Warrant Shares underlying the Underwriter's Warrant and Registrable
Securities as of the date of the initial issuance of the Underwriter's Warrant.
(e) The following provisions of this Paragraph 5 shall also be
applicable:
(i) Within ten (10) days after receiving any notice
pursuant to Paragraph 5(b), the Company shall give notice to the other Holders
of Underwriter's Warrants or Registrable Securities, advising that the Company
is proceeding with such post-effective amendment or registration and offering to
include therein the Registrable Securities of such other Holders, provided that
they shall furnish the Company with all information in connection therewith as
shall be necessary or appropriate and as the Company shall reasonably request in
writing. Following the effective date of such post-effective amendment or
registration, the Company shall, upon the request of any Holder of Registrable
Securities, forthwith supply such number of prospectuses meeting the
requirements of the Act, as shall be reasonably requested by such Holder. The
Company shall use its reasonable efforts to qualify the Registrable Securities
for sale in such states in which the Common Stock and Warrants are offered and
sold in the Public Offering as the 51% holder shall reasonably designate at such
times as the registration statement is effective under the Act, provided that,
without limiting the foregoing, the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(ii) The Company shall bear the entire cost and
expense of any registration of securities initiated by it under Paragraph 5(a)
hereof notwithstanding that the Registrable Securities subject to this
Underwriter's Warrant may be included in any such registration. The Company
shall also comply with the one request for registration made by the 51% holder
pursuant to Paragraph 5(b) hereof at the Company's own expense and without
charge to any holder of the Registrable Securities. Notwithstanding the
foregoing, any Holder whose Registrable Securities are included in any such
registration statement pursuant to this Paragraph 5 shall, however, bear the
fees of any counsel retained by him and any transfer taxes or underwriting
discounts or commissions applicable to the Registrable Securities sold by him
pursuant thereto and, in the case of a registration pursuant to Paragraph 5(a)
hereof, any additional registration or "blue sky" or state securities fees
attributable to the registration or qualification of such Holder's Registrable
Securities.
(iii) If the underwriter or managing underwriter in
any underwritten offering made pursuant to Paragraph 5(a) hereof shall advise
the Company that it declines to include a portion or all of the Registrable
Securities requested by the Holders to be included in the registration
statement, then distribution of all or a specified portion of the Registrable
Securities shall be excluded from such registration statement (in case of an
exclusion as to a portion of such Registrable Securities, such portion to be
allocated among such Holders in proportion to the respective numbers of
Registrable Securities requested to be registered by each such Holder). In such
event the Company shall give the Holder prompt notice of the number of
Registrable Securities excluded. Further, in such event the Company shall,
commencing six (6) months after the completion of such
7
<PAGE>
underwritten offering, file and use its best efforts to have declared effective,
at its sole expense (subject to the last sentence of Paragraph 5(a)(ii)), a
registration statement relating to such excluded securities.
(iv) Notwithstanding anything to the contrary
contained herein, the Company shall have the right at any
time after it shall have given written notice pursuant to Paragraph 5(a) or 5(b)
(irrespective of whether a written request for inclusion of any Registrable
Securities shall have been made) to elect not to file or to delay any such
proposed registration statement or post-effective amendment thereto, or to
withdraw the same after the filing but prior to the effective date thereof. In
addition, the Company may delay the filing of any registration statement or
post-effective amendment requested pursuant to Paragraph 5(b) hereof by not more
than 120 days if the Company, prior to the time it would otherwise have been
required to file such registration statement or post-effective amendment
thereto, determines in good faith that the filing of the registration statement
would require the disclosure of non-public material information that, in its
judgment, would be detrimental to the Company if so disclosed or would otherwise
adversely affect a financing, acquisition, disposition, merger or other material
transaction.
(v) If a registration pursuant to Paragraph 5(a)
hereof involves an underwritten offering, the Company shall have the right to
select the investment banker or investment bankers and manager or managers that
will serve as underwriter with respect to the underwritten offering. No Holder
of Registrable Securities may participate in any underwritten offering under
this Agreement unless such holder completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwritten offering, in each case, in the
form and upon terms reasonably acceptable to the Company and the underwriters.
The requested registration pursuant to Paragraph 5(b) hereof shall not involve
an underwritten offering unless the Company shall first give its written
approval of each underwriter that participates in the offering, such approval
not to be unreasonably withheld.
6. Indemnification.
(a) Whenever pursuant to Paragraph 5, a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder hereinafter referred to as the "Distributing Holder"),
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each officer, employee, partner or agent of the
Distributing Holder, if the Distributing Holder is a broker or dealer, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter and
each officer, employee, agent or partner of such underwriter against any losses,
claims, damages or liabilities, joint or several, to which the Distributing
Holder, any such underwriter or any other person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any such
registration statement or any preliminary prospectus or final prospectus
constituting a part thereof or any amendment or supplement thereto, or arise out
of or are based upon the omission to state therein a material fact required to
be stated therein or necessary to
8
<PAGE>
make the statements therein, in light of the circumstances under which such
statements were made, not misleading; and will reimburse the Distributing Holder
and each such underwriter or such other person for any legal or other expenses
reasonably incurred by the Distributing Holder, or underwriter or such other
person, in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case (i) to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder, any other Distributing Holder or any such
underwriter for use in the preparation thereof, or (ii) such losses, claims,
damages or liabilities arise out of or are based upon any actual or alleged
untrue statement or omission made in or from any preliminary prospectus, but
corrected in the final prospectus, as amended or supplemented.
(b) Whenever pursuant to Paragraph 5 a registration statement
relating to the Registrable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 6.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to so assume the defense thereof, the
indemnifying party will not be liable to such
9
<PAGE>
indemnified party under this Paragraph 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
7. Adjustments of Price and Number of Shares of Common Stock.
The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
a. Adjustments. The number of Units purchasable upon the exercise of
the Warrants shall be subject to adjustments as follows:
(1) In case the Company shall (i) pay a dividend in Common
Stock or securities convertible into Common Stock or make a distribution to its
stockholders in Common Stock or securities convertible into Common Stock; (ii)
subdivide its outstanding Common Stock; (iii) combine its outstanding Common
Stock into a smaller number of shares of Common Stock; or (iv) issue by
reclassification of its Common Stock other securities of the Company; then the
number of Units purchasable upon exercise of the Warrants immediately prior
thereto shall be adjusted so that the Warrant Holder shall be entitled to
receive the kind and number of Units or other securities of the Company which it
would have owned or would have been entitled to receive immediately after the
happening of any of the events described above, had such Warrants been exercised
immediately prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this subsection 7.(a)1 shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(2) If, prior to the expiration of the Warrants by exercise,
by their terms, or by redemption, the Company shall be recapitalized by
reclassifying its outstanding shares of Common Stock into shares with a
different par value, or by changing its outstanding shares of Common Stock into
shares without par value or in the event of any other material change of the
capital structure of the Company or of any successor corporation by reason of
any reclassification, recapitalization or conveyance, prompt, proportionate,
equitable, lawful and adequate provision shall be made whereby any Warrant
Holder shall thereafter have the right to purchase, on the basis and the terms
and conditions specified in this Agreement, in lieu of the Units theretofore
purchasable on the exercise of any Warrant, such securities or assets as may be
issued or payable with respect to or in exchange for the number of Units
theretofore purchasable on exercise of the Warrants had such reclassification,
recapitalization or conveyance not taken place; and in any such event, the
rights of any Warrant Holder to any adjustment in the number of Units
purchasable on exercise of such Warrant, as set forth above, shall continue to
be preserved in respect of any stock, securities or assets which the Warrant
Holder becomes entitled to purchase.
(3) In case the Company shall issue rights, options,
warrants, or convertible securities to all or substantially all holders of its
Common Stock, without any charge to such holders, entitling them to subscribe
for or purchase Common Stock at a price per share which is lower at the record
date mentioned below than the then Current Market Price, the number of Units
thereafter
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<PAGE>
purchasable upon the exercise of each Warrant shall be determined by multiplying
the number of Units theretofore purchasable upon exercise of the Warrants by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, options, warrants
or convertible securities plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such rights, options, warrants, or convertible securities plus the number of
shares which the aggregate offering price of the total number of shares offered
would purchase at such Current Market Price. Such adjustment shall be made
whenever such rights, options, warrants, or convertible securities are issued,
and shall become effective immediately and retroactively to the record date for
the determination of shareholders entitled to receive such rights, options,
warrants, or convertible securities.
(4) In case the Company shall distribute to all or
substantially all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants, or convertible securities containing the right to subscribe
for or purchase Common Stock (excluding those referred to in subsection 7(a)(2)
above), then in each case the number of Units thereafter purchasable upon the
exercise of the Warrants shall be determined by multiplying the number of Units
theretofore purchasable upon exercise of the Warrants by a fraction, of which
the numerator shall be the then Current Market Price on the date of such
distribution, and of which the denominator shall be such Current Market Price on
such date minus the then fair value (determined as provided in subsection
7(a)(8)(y) below) of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights, options, warrants, or convertible
securities applicable to one share. Such adjustment shall be made whenever any
such distribution is made and shall become effective on the date of distribution
retroactive to the record date for the determination of stockholders entitled to
receive such distribution.
(5) No adjustment in the number of Units purchasable pursuant
to the Warrants shall be required unless such adjustment would require an
increase or decrease of at least one percent in the number of Units then
purchasable upon the exercise of the Warrants or, if the Warrants are not then
exercisable, the number of Units purchasable upon the exercise of the Warrants
on the first date thereafter that the Warrants become exercisable; provided,
however, that any adjustments which by reason of this subsection 7(a)(5) are not
required to be made immediately shall be carried forward and taken into account
in any subsequent adjustment.
(6) Whenever the number of Units purchasable upon the exercise
of the Warrant is adjusted, as herein provided, the Exercise Price payable upon
exercise of the Warrant shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, of which the numerator shall
be the number of Units purchasable upon the exercise of the Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
Units so purchasable immediately thereafter.
(7) For the purpose of this subsection 7(a), the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such
11
<PAGE>
Common Stock consisting solely of changes in par value, or from par value to no
par value, or from no par value to par value. In the event that at any time, as
a result of an adjustment made pursuant to this Section 7, the Warrant Holder
shall become entitled to purchase any securities of the Company other than
Common Stock, (y) if the Warrant Holder's right to purchase is on any other
basis than that available to all holders of the Company's Common Stock, the
Company shall obtain an opinion of an independent investment banking firm
valuing such other securities; and (z) thereafter the number of such other
securities so purchasable upon exercise of the Warrants shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Units contained in this
Section 7.
(8) Upon the expiration of any rights, options, warrants, or
conversion privileges, if such shall have not been exercised, the number of
Units purchasable upon exercise of the Warrants, to the extent the Warrants have
not then been exercised, shall, upon such expiration, be readjusted and shall
thereafter be such as they would have been had they been originally adjusted (or
had the original adjustment not been required, as the case may be) on the basis
of (i) the fact that the only shares of Common Stock so issued were the shares
of Common Stock, if any, actually issued or sold upon the exercise of such
rights, options, warrants, or conversion privileges, and (ii) the fact that such
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the consideration, if
any, actually received by the Company for the issuance, sale or grant of all
such rights, options, warrants, or conversion privileges whether or not
exercised; provided, however, that no such readjustment shall have the effect of
decreasing the number of Units purchasable upon exercise of the Warrants by an
amount in excess of the amount of the adjustment initially made in respect of
the issuance, sale, or grant of such rights, options, warrants, or conversion
rights.
(b) No Adjustment for Dividends. Except as provided in subsection 7(a),
no adjustment in respect of any dividends or distributions out of earnings shall
be made during the term of the Warrants or upon the exercise of the Warrants.
(c) No Adjustment in Certain Cases. No adjustments shall be made
pursuant to Section 7 hereof in connection with the issuance of the Common Stock
sold as part of the Public Offering sale or the issuance of Units upon exercise
of the Warrants. No adjustments shall be made pursuant to Section 7 hereof in
connection with the grant or exercise of presently authorized or outstanding
options to purchase, or the issuance of shares, of Common Stock under the
Company's director or employee benefit plans disclosed in the Registration
Statement relating to the Public Offering.
(d) Preservation of Purchase Rights upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation, or in case of any sale or conveyance to
another corporation of the property, assets, or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute an agreement that the
Warrant Holder shall have the right thereafter upon payment of the Exercise
Price in effect immediately prior to such action to purchase, upon exercise of
the Warrants, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such consolidation, merger, sale, or conveyance had the Warrants been
exercised immediately prior to
12
<PAGE>
such action. In the event of a merger described in Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, in which the Company is the surviving
corporation, the right to purchase Units under the Warrants shall terminate on
the date of such merger and thereupon the Warrants shall become null and void,
but only if the controlling corporation shall agree to substitute for the
Warrants, its Warrants which entitle the holder thereof to purchase upon their
exercise the kind and amount of shares and other securities and property which
it would have owned or been entitled to receive had the Warrants been exercised
immediately prior to such merger. Any such agreements referred to in this
subsection 7(d) shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 7
hereof. The provisions of this subsection 10.4 shall similarly apply to
successive consolidations, mergers, sales, or conveyances.
(e) Par Value of Shares of Common Stock. Before taking any action which
would cause an adjustment effectively reducing the portion of the Exercise Price
allocable to each Share in such Unit below the par value per share of the Common
Stock issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Common Stock upon exercise of the Warrants.
(f) Independent Public Accountants. The Company may retain a firm of
independent public accountants of recognized national standing (which may be any
such firm regularly employed by the Company) to make any computation required
under this Section 7, and a certificate signed by such firm shall be conclusive
evidence of the correctness of any computation made under this Section 7.
(g) Statement on Warrant Certificates. Irrespective of any adjustments
in the number of securities issuable upon exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the same
number of securities as are stated in the similar Warrant Certificates initially
issuable pursuant to this Agreement. However, the Company may, at any time in
its sole discretion (which shall be conclusive), make any change in the form of
Warrant Certificate that it may deem appropriate and that does not affect the
substance thereof; and any Warrant Certificate thereafter issued, whether upon
registration of transfer of, or in exchange or substitution for, an outstanding
Warrant Certificate, may be in the form so changed.
(h) Treasury Stock. For purposes of this Section 7, shares of Common
Stock owned or held at any relevant time by, or for the account of, the Company,
in its treasury or otherwise, shall not be deemed to be outstanding for purposes
of the calculations and adjustments described.
(i) Officers' Certificate. Whenever the Exercise Price or that
aggregate number of Units purchasable pursuant to this Warrant shall be adjusted
as required by the provisions of this Section 7, the Company shall promptly file
with the Warrant Agent an officers' certificate executed by the Company's
President and Secretary or Assistant Secretary, describing the adjustment and
setting forth, in reasonable detail, the facts requiring such adjustment and the
basis for and calculation of such adjustment in accordance with the provisions
of this Warrant Agreement. Each such officers' certificate shall be made
available to the Holders for inspection at all reasonable times, and the
Company, after each such adjustment, shall promptly deliver a copy of the
officers' certificate
13
<PAGE>
relating to that adjustment to the Holders. If the officers' certificate is not
accompanied by the Certificate described in Section 7(f), the officers'
certificate described in this Section 7(i) shall be deemed to be conclusive as
to the correctness of the adjustment reflected therein if, and only if, no
Holder delivers written notice to the Company of an objection to the adjustment
within 30 days after the officers' certificate is delivered to the Holders. The
Company will make its books and records available for inspection and copying
during normal business hours by the Holder so as to permit a determination as to
the correctness of the adjustment. If written notice of an objection is
delivered by a Holder to the Company and the parties cannot reconcile the
dispute, the Holder and the Company shall submit the dispute to arbitration
pursuant to the rules of the American Arbitration Association. Failure to
prepare or provide the officers' certificates shall not modify the parties'
rights hereunder.
(j) For the purposes of this Section 7, the "Market Price" shall be
determined as follows:
(1) if the security at issue is listed on a national
securities exchange or admitted to unlisted trading privileges on such an
exchange or quoted on either the Nasdaq National Market or on the Nasdaq Small
Cap Market, the Market Price shall be the last reported sale price of that
security on such exchange or system on the day for which the Market Price is to
be calculated; or, if no such sale is made on such day, the average of the
highest closing bid and lowest asked price for such day on such exchange or
system; or
(2) if the security at issue is not so listed or quoted or
admitted to unlisted trading privileges, the Market Price shall be the last
reported sale price of that security on the OTC Bulletin Board on the day for
which the Market Price is to be calculated; or if no such sale is made on such
day, the average of the last reported highest bid and lowest asked prices quoted
on the OTC Bulletin Board on such day; or
(3) if the security at issue is not so listed or quoted or
admitted to unlisted trading privileges and bid and asked prices are not
reported, the Market Price shall be determined in such reasonable manner as may
be prescribed in good faith from time to time by the Board of Directors of the
Company, based on the best information available to it for the day immediately
preceding such determination.
8. Fractional Shares.
(a) The Company shall not be required to issue fractions of
shares of Common Stock or fractional Warrants on the exercise of this
Underwriter's Warrant, provided, however, that if the Holder exercises the
Underwriter's Warrant in full, any fractional shares of Common Stock shall be
eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock.
(b) The Holder of this Underwriter's Warrant, by acceptance
hereof, expressly waives his right to receive any fractional share of Common
Stock or fractional Warrant upon exercise of this Underwriter's Warrant.
9. Redemption of Warrants underlying the Underwriter's Option
14
<PAGE>
The Warrants underlying the Underwriter's Option are
redeemable by the Company at a redemption price of $.05 per Warrant, in whole or
in part, commencing 12 months after the date hereof and prior to their
expiration upon not less than thirty (30) days' prior written notice to the
holders of the Warrants; provided that the average closing bid quotation of the
Common Stock as reported on The Nasdaq Stock Market, if traded thereon, or if
not traded thereon, the average closing sale price if listed on a national
securities exchange (or other reporting system that provides last sales prices),
has been at least _____% of the then current Exercise Price for a period of 20
consecutive trading days ending on the third day prior to the date on which the
Company gives notice of redemption. Any redemption in part shall be made pro
rata to all Warrant holders. The redemption notice shall be mailed to the
holders of the Warrants at their respective addresses appearing in the Warrant
register. Holders of the Warrants will have exercise rights until the close of
business on the day immediately preceding the date fixed for redemption (at
which time this Underwriter's Option shall no longer be exercisable for
Warrants).
10. Miscellaneous.
(a) This Underwriter's Warrant shall be governed by and in
accordance with the laws of the State of New York without regard to the
conflicts of law principles thereof.
(b) All notices, requests, consents and other communications
hereunder shall be made in writing and shall be deemed to have been duly made
when delivered, or mailed by registered or certified mail, return receipt
requested: (i) if to a Holder, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, 280 Midland Avenue, Saddle
Brook, New Jersey 07662.
(c) The Company and the Underwriter may from time to time
supplement or amend this Underwriter's Warrant without the approval of any other
Holders in order to cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any provisions
herein, or to make any other provisions in regard to matters or questions
arising hereunder which the Company and the Underwriter may deem necessary or
desirable and which the Company and the Underwriter deem not to materially
adversely affect the interest of the Holders.
(d) All the covenants and provisions of this Underwriter's
Warrant by or for the benefit of the Company and the Holders shall bind and
inure to the benefit of their respective successors and assigns hereunder.
(e) Nothing in this Underwriter's Warrant shall be construed
to give to any person or corporation other than the Company and the Underwriter
and any other registered Holder or Holders, any legal or equitable right, and
this Underwriter's Warrant shall be for the sole and exclusive benefit of the
Company and the Underwriter and any other Holder or Holders.
15
<PAGE>
(f) This Underwriter's Warrant may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the Company has caused this Underwriter's
Warrant to be signed by its duly authorized officer and this Underwriter's
Warrant to be dated [___________], 2000.
INTEGCOM CORP.
By:
---------------------------------
James E. Henry, President
16
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of the Underwriter's Warrant)
The undersigned, the Holder of the foregoing Underwriter's
Warrant, hereby irrevocably elects to exercise the purchase rights represented
by such Underwriter's Warrant for, and to purchase thereunder, ______ Units,
each consisting one share of Common Stock and one Warrant of InTegCom Corp. and
herewith makes payment of $________ therefor, and requests that the certificates
for Common Stock and Warrants be issued in the name(s) of, and delivered to
__________________________________________________________ whose address(es) is
(are) ___________________________________________________________ and whose
social security or taxpayer identification number is __________ .
Dated: __________________
_________________________*
_________________________
Address
Signature must conform in all respects to name of registered Holder.
17
<PAGE>
WARRANT CONVERSION EXERCISE FORM
TO:
Pursuant to Section 4.6 of the Warrant Agreement, the Holder
hereby irrevocably elects to convert Warrants into ____ Shares and/or
____ Warrants of the Company. A conversion calculation is attached hereto
as Exhibit B-1.
The undersigned requests that certificates for such Shares and/or
Warrants be issued as follows:
Name: _____________________________________________________
Address: _____________________________________________________
Deliver to: _____________________________________________________
and that a new Certificate for the balance remaining of the Warrants, if any, be
registered in the name of, and delivered to, the undersigned at the address
stated above.
Signature_________________________* Dated____________________________
Signature must conform in all respects to name of registered Holder.
18
<PAGE>
Exhibit B-1
CALCULATION OF WARRANT CONVERSION
Converted Securities(1) = Y(A-B)
------
A
A = $_______________
B = $__________ per Share
= $__________ per Warrant
Converted Securities = __________ Shares
__________ Warrants
Fractional Converted Shares = ________________(2)
_____________
(1) Y = the number of Shares and/or Warrants to be exercised under this
Underwriter's Warrant;
A = the current fair market value of one share of Common Stock and one
Warrant (calculated as described below);
B = the Share Exercise Price and/or the Warrant Exercise Price, as the
case may be.
(2) __________________ to pay for fractional Shares in cash @ $__________ per
Share
19
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Underwriter's Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _____________________ the right to purchase Units consisting of
shares of Common Stock and Warrants of InTegCom Corp. represented by the
foregoing Underwriter's Warrant to the extent of __________ Units (i.e.,
____ shares of Common Stock and ____ Warrants), and appoints ________________,
attorney to transfer such rights on the books of InTegCom Corp., with full power
of substitution in the premises.
Dated: __________________
_________________________
(name of holder)
_________________________
Address
_________________________
In the presence of:
_________________________
_________________________
20
<PAGE>
[INTEGCOM CORP. LOGO]
<TABLE>
<S> <C> <C>
NUMBER SHARES
COMMON STOCK INTEGCOM CORP. CUSIP 45811D 10 5
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
</TABLE>
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE OF
INTEGCOM CORP. transferable on the books of the Corporation in person or by duly
authorized Attorney on surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by
its duly authorized officers and its Corporate Seal to be hereunto affixed.
[SEAL] Dated:
(SIGNATURE TO COME) (SIGNATURE TO COME)
Secretary President
Countersigned and Registered:
JERSEY TRANSFER & TRUST CO.
Transfer Agent
and Registrar
By
Authorized Signature
NOTE: LOGO IS FOR POSITION ONLY.
<TABLE>
<S> <C>
- -------------------------------------- -----------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR BELINDA BECK: 215-764-8619
55th and Sansom St. PROOF OF FEBRUARY 8, 2000
PHILA., PA 19139 INTEGCOM
(215) 764-8600 H 65153 Face 1
- -------------------------------------- -----------------------------------------------------
SALES: L. TOGLIA: 212-593-5700 OPERATOR: hj
- -------------------------------------- -----------------------------------------------------
HOME 15/ LIVE JOBS/1/INTEGCOM 65153 NEW
- -------------------------------------- -----------------------------------------------------
</TABLE>
<PAGE>
INTEGCOM CORP.
The Corporation will furnish without charge to each stockholder who so
requests 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.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ..........Custodian..........
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act...........................
tenants in common (State)
</TABLE>
Addition 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 OR ASSIGNEE
- ----------------------------------------
- ----------------------------------------........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
..........................................................................
..........................................................................
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ................
------------------------------------------------------------------
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.
SIGNTURE(S) GUARANTEED: .......................................................
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<TABLE>
<S> <C>
- -------------------------------------- -----------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR BELINDA BECK: 215-764-8619
55th and Sansom St. PROOF OF FEBRUARY 8, 2000
PHILA., PA 19139 INTEGCOM
(215) 764-8600 H 65153 BK 1
- -------------------------------------- -----------------------------------------------------
SALES: L. TOGLIA: 212-593-5700 OPERATOR: hj
- -------------------------------------- -----------------------------------------------------
HOME 15/ LIVE JOBS/1/INTEGCOM 65153 NEW
- -------------------------------------- -----------------------------------------------------
</TABLE>
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this __th day of May, 2000, by and between
INTEGCOM CORP., a corporation organized under the laws of the State of Delaware
(the "Company"), and JERSEY TRANSFER & TRUST CO., as Warrant Agent (the "Warrant
Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 1,000,000 Units
("Units"), each consisting of one (1) share of Common Stock (the "Common
Stock"), and one (1) Class A Redeemable Common Stock Purchase Warrant (the
"Warrant") pursuant to an underwriting agreement (the "Underwriting Agreement")
dated May ____, 2000 between the Company and Mason Hill & Co., Inc., and the
issuance to Mason Hill & Co., Inc. or its designees of an option to purchase an
additional 150,000 Units (the "Purchase Option") to cover overallotments;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company of
which at the date hereof consists of ___________ authorized shares, and shall
also include any capital stock of any class of the Company thereafter authorized
which shall not be limited to a fixed sum or percentage in respect to the rights
of the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary liquidation, dissolution, or winding up of the
Company; provided, however, that the shares issuable upon exercise of the
Warrants shall include (i) only shares of such class designated in the Company's
Certificate of Incorporation as Common Stock on the date of the original issue
of the Warrants or (ii), in the case of any reclassification, change,
consolidation, merger, sale, or conveyance of the character referred to in
Section 9(c) hereof, the stock, securities, or property provided for in such
section or (iii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision, such shares of Common Stock as so reclassified or
changed.
<PAGE>
(b) "Corporate Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business shall
be administered, which office is located at the date hereof at 2 Broadway, New
York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean May ___, 2001 (one
(1) year from the Effective Date).
(e) "Purchase Price" shall mean the purchase price per share to be
paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $4.50 per share, subject to adjustment from time to time pursuant
to the provisions of Section 9 hereof, and subject to the Company's right, in
its sole discretion, to reduce the Purchase Price upon notice to all
warrantholders.
(f) "Redemption Price" shall mean the price at which the Company
may, at its option, redeem the Warrants, in accordance with the terms hereof,
which price shall be $0.10 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time)
on _____ __, 2003 or the Redemption Date as defined in Section 8, whichever is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized or required to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized or required to close. Upon notice
to all Warrantholders the Company shall have the right to extend the warrant
expiration date.
2
<PAGE>
2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 1,787,500 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed, or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the Purchase
Option; and (vi) those issued at the option of the Company, in such form as may
be approved by the its Board of Directors, to reflect any adjustment or change
in the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 9 hereof.
(e) Pursuant to the terms of the Purchase Option, Fin-Atlantic may
purchase up to 71,500 additional Units. The Purchase Option shall not be
transferred, sold, assigned or hypothecated for a period of one (1) year from
the Effective Date, except that it may be transferred to persons who are
officers and partners of Fin-Atlantic or selling group members in the offering.
3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers, or other marks of identification or
designation and such legends, summaries, or endorsements printed, lithographed,
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or
3
<PAGE>
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage or to the requirements of Section 2(b). The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer, exchange, or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrant
Certificates shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President, or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date the Warrant Agent
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates for the securities
deliverable upon such exercise (plus a certificate for any remaining unexercised
Warrants of the Registered Holder), unless prior to the date of issuance of such
certificates the Company shall instruct the Warrant Agent to refrain from
causing such issuance of certificates pending clearance of checks received in
payment of the Purchase Price pursuant to such Warrants. Upon the exercise of
any Warrant and clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant (the "Warrant Proceeds") to
the Company or as the Company may direct in writing.
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5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof, (other than those which the Company shall promptly pay or
discharge) and that upon issuance such shares shall be listed on each national
securities exchange or eligible for inclusion in each automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will, to the extent the Purchase Price is less than the Market Price (as
hereinafter defined), in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval and will use its reasonable
efforts to obtain appropriate approvals or registrations under state "Blue-Sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp, or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the
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Company shall execute and the Warrant Agent shall countersign, issue, and
deliver in exchange therefor the Warrant Certificate or Certificates which the
Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration or transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration or transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or disposed of or destroyed,
at the direction of the Company.
(f) Prior to due presentment for registration or transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants which are being publicly offered with shares of
Common Stock pursuant to the Underwriting Agreement will be immediately
detachable from the Common Stock and transferable separately therefrom.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction, or mutilation of any Warrant Certificate and (in case of loss,
theft, or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant
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Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Warrant Agent may prescribe.
8. Redemption.
(a) Subject to the provisions of paragraph 2(e) hereof, on not less
than thirty (30) days notice given at any time after one (1 year) months after
the Initial Warrant Exercise Date, or earlier with the consent of Mason Hill &
Co., Inc., the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.25 per Warrant, provided the Market Price of the Common
Stock receivable upon exercise of the Warrant shall equal or exceed 100% of the
then initial public offering price of the shares of common stock per share (the
"Target Price"), subject to adjustment as set forth in Section 8(f) below.
Market Price for the purpose of this Section 8 shall mean the closing sale price
for all ten (10) consecutive trading days, ending on the third day prior to the
date of the notice of redemption, which notice shall be mailed no later than
five days thereafter. The closing price for each day shall be the last sale
price regular way or, in case no such reported sale takes place on such day, the
average of the last reported bid and asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is admitted
to trading or listed, or if not listed or admitted to trading on such exchange,
the average of the highest reported bid and lowest reported asked prices as
reported by NASDAQ, or other similar organization if NASDAQ is no longer
reporting such information, or if not so available, the fair market price as
determined by the Board of Directors.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrant shall be the Redemption Date. No failure
to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Holders of the Warrants shall have no further
rights except to receive, upon surrender of the Warrant, the Redemption Price.
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(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the redemption price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
9 Adjustment of Exercise Price and Number of Shares of Common Stock or
Warrants.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price of the Common Stock (as defined in Section 8) on the date of
the sale or issue any shares of Common Stock as a stock dividend to the holders
of Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision,
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f)(G) below) for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
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(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization, or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization, or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage, or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization, or other
change, consolidation, merger, sale, or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities, or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations, and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales, or conveyances.
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<PAGE>
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder, and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefor were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to Fin-Atlantic and to each registered
holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.05 in such
price; provided that any adjustments which by reason of this subsection (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.05 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than cash, if any
(such convertible or exchangeable securities being
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herein called "Convertible Securities"), or (2) the issuance by the Company,
without the receipt by the Company of any consideration therefor, of any rights
or warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, in each case, if (and only if) the
consideration payable to the Company upon the exercise of such rights, warrants,
or options shall consist of cash, whether or not such rights, warrants, or
options, or the right to convert or exchange such Convertible Securities, are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such rights, warrants, or options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(x) the minimum aggregate consideration payable to the Company upon the exercise
of such rights, warrants, or options, plus the consideration received by the
Company for the issuance or sale of such rights, warrants, or options, plus, in
the case of such Convertible Securities, the minimum aggregate amount of
additional consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the total maximum number
of shares of Common Stock issuable upon the exercise of such rights, warrants,
or options or upon the conversion or exchange of such Convertible Securities
issuable upon the exercise of such rights, warrants, or options) is less than
the fair market value of the Common Stock on the date of the issuance or sale of
such rights, warrants, or options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities (as of the date
of the issuance or sale of such rights, warrants, or options) shall be deemed to
be outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b)
hereof and shall be deemed to have been sold for cash in an amount equal to such
price per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value or
the Common Stock on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights of conversion,
exchange, or exercise of any of the securities referred to in subsection (iii)
above or any other securities of the Company convertible, exchangeable, or
exercisable for shares of Common Stock, for any reason other than an event that
would require adjustment to prevent dilution, so that the consideration per
share received by the Company after such modification is less than the market
price on the date prior to such modification, the Purchase Price to be in effect
after such modification shall be determined by multiplying the Purchase Price in
effect immediately prior
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to such event by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding multiplied by the market price on the date
prior to the modification plus the number of shares of Common Stock which the
aggregate consideration receivable by the Company for the securities affected by
the modification would purchase at the market price and of which the denominator
shall be the number of shares of Common Stock outstanding on such date plus the
number of shares of Common Stock to be issued upon conversion, exchange, or
exercise of the modified securities at the modified rate. Such adjustment shall
become effective as of the date upon which such modification shall take effect.
(vi) On the expiration of any such right, warrant, or option or
the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options, or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options, or Convertible Securities.
(vii) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants, including without
limitation the sale or exercise of any of the Warrants comprising the Purchase
Option; or
(ii) upon the sale of any shares of Common Stock in the
Company's initial public offering, including, without limitation, shares sold
upon the exercise of any over-allotment option granted to the Underwriters in
connection with such offering; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants, or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold
other than issuances of preferred stock in connection with acquisitions by the
Company; or
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(iv) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(h) Intentionally Omitted.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant, or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants, or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants, or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 9(j), that
exercise of warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10 Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation System, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of this Warrant or if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported
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by the National Quotation Bureau, Inc. on the last business day prior to the
date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11 Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger, or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
12 Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13 Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent
and every other holder of a warrant that:
(a) The warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true, and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14
<PAGE>
14 Cancellation of Warrant Certificates. If the Company shall purchase
or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel Common
Stock following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split up, combination, or exchange.
15 Concerning the Warrant Agent. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value, or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered, or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order, or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses, and liabilities, including judgments,
costs, and counsel fees, for anything done or omitted by the Warrant Agent in
the execution of its duties and powers hereunder except losses, expenses, and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
15
<PAGE>
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 60
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 30 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties, and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act, or deed; but if for any reason
it shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act, or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
16 Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
16
<PAGE>
however, that this Agreement shall not otherwise be modified, supplemented, or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the Warrants
then outstanding; and provided, further, that no change in the number or nature
of the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed or are made in
compliance with applicable law.
17 Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company 280 Midland Avenue, Saddle Brook, NJ 07662, Attention: Irvin
Witcosky, Executive Vice President, with a copy sent to Cascone & Cole, 711
Third Avenue, New York, NY 10017, Attention: Kenneth T. Cascone, Esq. or at such
other address as may have been furnished to the Warrant Agent in writing by the
Company; and if to the Warrant Agent, at its Corporate office.
18 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy, or claim, in equity or at law,
or to impose upon any other person any duty, liability, or obligation.
20 Termination. This Agreement shall terminate at the close of business
on the Warrant Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
21 Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
INTEGCOM CORP.
By: _____________________________
James Henry
Its: President
JERSEY STOCK TRANSFER & TRUST
COMPANY
By: ______________________________
Its: Authorized Officer
18
<PAGE>
NUMBER WARRANTS
W
[LOGO]
CUSIP 45811D 11 3
WARRANT CERTIFICATE
INTEGCOM CORP.
This Warrant Certificate certifies that
, or registered assigns,
is the registered holder of
Warrants expiring on March , 2003 (the "Warrants") to purchase shares of
Common Stock, par value $.01 per share (the "Common Stock"), of INTEGCOM CORP.,
a Delaware corporation (the "Company"). Each Warrant entitles the holder upon
exercise to purchase from the Company until 5:00 p.m., New York City time, on
March , 2003 (the "Warrant Expiration Date") one fully paid and nonassessable
share of Common Stock (a "Warrant Share") at the initial exercise price (the
"Warrant Exercise Price") of $ per Warrant Share payable in lawful money of
the United States of America upon surrender of this Warrant Certificate and
payment of the Warrant Exercise Price at the office or agency of the Warrant
Agent, but only subject to the conditions set forth herein and in the Warrant
Agreement referred to on the reverse hereof. The Warrant Exercise Price and
number of Warrant Shares issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events set forth in the Warrant
Agreement.
No Warrant may be exercised after 5:00 p.m., New York City time, on the
Warrant Expiration Date, and to the extent not exercised by such time such
Warrants shall become void. Reference is hereby made to the further provisions
of this Warrant Certificate set forth on the reverse hereof and such further
provisions shall for all purposes have the same effect as though fully set forth
at this place. This Warrant Certificate shall not be valid unless countersigned
by the Warrant Agent, as such term is used in the Warrant Agreement. This
Warrant Certificate shall be governed and construed in accordance with the
internal laws of the State of New York.
IN WITNESS WHEREOF, INTEGCOM CORP. has caused in this Warrant
Certificate to be signed by its President, and by its Secretary and has caused
its corporate seal to be affixed hereunto or imprinted hereon.
Dated:
INTEGCOM CORP.
<TABLE>
<S> <C> <C> <C>
COUNTERSIGNED: [SEAL] By: By:
JERSEY TRANSFER & TRUST CO.
AS WARRANT AGENT (Signature to Come) (Signature to Come)
BY:
AUTHORIZED SIGNATURE Secretary President
</TABLE>
NOTE: LOGO IS FOR POSITION ONLY.
<TABLE>
<S> <C>
- ------------------------------------- ---------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: BELINDA BECK: 215-764-8619
55th and Sansom St. PROOF OF FEBRUARY 8, 2000
PHILA., PA 19139 INTEGCOM
(215) 764-8600 H 65153 FACE 2
- ------------------------------------- ---------------------------------------------------
SALES: L. TOGLIA: 212-592-5700 OPERATOR: hj
- ------------------------------------- ---------------------------------------------------
HOME 15/ LIVE JOBS/I/INTEGCOM 65153 NEW
- ------------------------------------- ---------------------------------------------------
</TABLE>
<PAGE>
INTEGCOM CORP.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring on March , 2003 (the "Warrant Expiration
Date"), each Warrant entitling the holder on exercise to purchase one share of
Common Stock, par value $.01 per share, of the Company (the "Common Stock", and
the Common Stock issuable upon exercise of Warrants being referred to
hereinafter as the "Warrant Shares"), and are issued or to be issued pursuant to
a Warrant Agreement dated as of March 9, 1998 (the "Warrant Agreement"), duly
executed and delivered by the Company to First Chicago Trust Company of New
York, a New York trust company, as warrant agent (the "Warrant Agent"), which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Warrant Agent, the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Warrants. A copy of
the Warrant Agreement may be obtained by the holder hereof upon written request
to the Company.
Warrants may be exercised at any time from time to time on or before
5:00 p.m., New York City time, on the Warrant Expiration Date; provided that
holders shall be able to exercise their Warrants only if (i)(x) the Registration
Statement (as defined hereinafter) is then in effect and the Company has
delivered to each person exercising a Warrant a current prospectus meeting the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or (y) the exercise of such Warrants is exempt from the registration
requirements of the Securities Act, and (ii) the Warrant Shares are qualified
for sale or exempt from qualification under the applicable securities laws of
the states in which the various holders of the Warrants, or other persons to
whom it is proposed that the Warrant Shares be issued on exercise of the
Warrants, reside. The holder of Warrants evidenced by this Warrant Certificate
may exercise them by surrendering this Warrant Certificate, with the form of
election to purchase set forth hereon properly completed and executed, together
with payment of the Warrant Exercise Price in lawful money of the United States
of America, either in cash or by certified or official bank check payable to the
order of the Company, at the office of the Warrant Agent. In the event that
upon any exercise of Warrants evidenced hereby the number of Warrants exercised
shall be less than the total number of Warrants evidenced hereby. there shall be
issued to the holder hereof or such holder's assignee a new Warrant Certificate
evidencing the number of Warrants not exercised. No adjustment shall be made for
any cash dividends on any Common Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Warrant Exercise Price set forth on the face hereof may, subject to
certain conditions, be adjusted. If the Warrant Exercise Price is adjusted, the
Warrant Agreement provides that the number of shares of Common Stock issuable
upon the exercise of each Warrant shall be adjusted.
The Warrants and the Warrant Shares have been registered for public
distribution under the Securities Act pursuant to a Registration Statement on
Form S-1 (No. 333-39115) (together with any amendments thereto, the
"Registration Statement") filed by the Company on October 30, 1997, with the
Securities and Exchange Commission (the "Commission") and declared effective by
the Commission on January 30, 1998. The Company has agreed under the terms of
the Warrant Agreement, subject to Black Out Periods and Postponement Periods, to
use its commercially reasonable efforts to keep the Registration Statement
effective under the Securities Act.
Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder to any rights of a
stockholder of the Company.
ELECTION TO PURCHASE
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive shares of Common Stock
and herewith tenders payment for such shares to the order of IntegCom Corp. in
the amount of $ in accordance with the terms hereof.
The undersigned requests that a certificate for such shares be registered in the
name of _______________________________________________________________________,
whose address is ______________________________________________________________,
and that such shares be delivered to __________________________________________,
whose address is ______________________________________________________________.
If said number of shares is less than all of the shares of Common Stock
purchaseable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such shares be registered in the name
of_____________________________________________________________________________,
whose address is ______________________________________________________________,
and that such Warrant Certificate be delivered to______________________________,
whose address is ______________________________________________________________.
Date ______________________
________________________________
________________________________
Name of holder of Warrant Certificate: _________________________________________
(Please print)
Address: _______________________________________________________________________
________________________________________________________________________________
Signature: ________________________________________
Note: The above signature must correspond with the name
as written upon the face of this Warrant
Certificate in every particular, without
alteration or enlargement or any change
whatsoever, and if the certificate representing
the shares of Common Stock is to be registered in
a name other than that in which this Warrant
Certificate is registered, the signature of the
holder hereof must be guaranteed.
Signature Guaranteed:
<TABLE>
<S> <C>
- ------------------------------------- ---------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: BELINDA BECK: 215-764-8619
55th and Sansom St. PROOF OF FEBRUARY 8, 2000
PHILA., PA 19139 INTEGCOM
(215) 764-8600 H 65153 BK 2
- ------------------------------------- ---------------------------------------------------
SALES: L. TOGLIA: 212-592-5700 OPERATOR: hj
- ------------------------------------- ---------------------------------------------------
HOME 15/ LIVE JOBS/I/INTEGCOM 65153 NEW
- ------------------------------------- ---------------------------------------------------
</TABLE>
<PAGE>
[LETTERHEAD]
April 12, 2000
InTegCom, Inc.
280 Midland Avenue
Saddle Brook, NJ 07652
Re: InTegCom, Corp.
Registration Statement
on Form SB-2 No. 333-94477
Gentlemen:
You have requested that we express our opinion in connection with the
proposed sale by InTegCom, Inc. (the "Company") of 1,000,000 units, consisting
of the Company's Common Stock, par value $.01 per share, and 1,000,000 warrants
to purchase 1,000,000 shares of such Common Stock, with respect to which a
Registration Statement on Form SB-2 has been filed with the Securities and
Exchange Commission. In addition, the underwriter has an overallotment option to
purchase up to 150,000 additional units, also covered by such Registration
Statement.
As counsel to the Company, we have examined the minutes of the Company,
a copy of its Certificate of Incorporation, its by-laws, and are familiar with
the proceedings of its Board of Directors. We have also examined the
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission, and consulted with the appropriate officers of the Company. Based on
the foregoing and on our examination of such other documents deemed pertinent by
us, we are of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Delaware with power
and authority to own its properties and to conduct its
business as described in the Registration Statement.
2. The units, consisting of shares of common stock and warrants,
being offered by the Company pursuant to such Registration
Statement have been duly authorized and, when delivered
against payment therefor and the terms of sale described
therein, will be validly issued, fully paid and
non-assessable.
<PAGE>
CASCONE & COLE
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and all amendments thereto filed by the Company regarding
the proposed public offering referred to above, and we further consent to being
named in the prospectus filed in connection therewith under the caption "Legal
Matters."
Very truly yours,
Cascone & Cole
2
<PAGE>
GK INDUSTRIES, INC.
RESELLER LICENSE AND DISTRIBUTION AGREEMENT
This re-seller agreement made this day of March, 2000, (the "Effective Date')
is an agreement between VISCOM PRODUCTS, INC. ("Viscom" or "Reseller"), 280
Midland Avenue, #M2, Saddle Brook, NJ 07663, a company incorporated under the
laws of Delaware, and GK INDUSTRIES, INC., 425 Huehl Road, Building 15A,
Northbrook, Illinois, 60062, ("GKI"), a company incorporated under the laws of
the State of Illinois, and is recognized as the Master Agent and Distributor for
the DiSS line of digital recording products manufactured by Sungjin C&C Co. Ltd.
of South Korea ("Sungjin"). By signing in the place indicated below, both
parties are agreeing to become legally bound by the terms and conditions
contained in this Agreement. This agreement is for a period of two years from
the above date and is renewable yearly thereafter once all parties agree to
changes to the agreement as well as any modification or change of the sales
projections referred to below.
1. GRANT OF LICENSE GKI hereby grants two licenses to Viscom so it can use,
remarket, and resell the Product listed in Schedule 1 by granting end-user
licenses under the terms stated in this Agreement. One license shall be
non-exclusive and covers the non-mobile applications of the Product; the
other license is exclusive and encompasses all mobile applications of the
Product, such as -- installations for buses, police cars, armored trucks or
other transportation-related purposes. It is understood the Product
contains Sungjin's proprietary software programs (the "Software") and
documentation and may also include third-party software licenses. Viscom
will purchase the Product from GKI and both GKI and Sungjin retain all
title and ownership of the Software and documentation. Any special
arrangements modifying this clause may also be found in Schedule 1.
2. MARKETING Viscom and its authorized representatives will use their best
efforts to promote and market the Product to, and in, the Territory listed
in Schedule 2. This includes providing training, marketing, and support
personnel to promote, sell, train, install and maintain the Product. At its
expense, GKI will provide technical training to Reseller's headquarters
staff in accordance with its established policies, as well as at Viscom's
Japanese office. Reseller is authorized to market the Product in the form
and packaging delivered by GKI. Viscom is not authorized to market the
product directly or indirectly outside of the territory listed as found in
Schedule 2. No use of GKI's, Sungjin, or DiSS Technology named trademarks
are authorized except to display the trademarks to identify and market the
Product.
Viscom will provide GKI with a six (6) month rolling forecast setting forth
estimated requirements for the Product by month for both exclusive and non-
exclusive applications. These forecasts are for planning purposes only and
will
<PAGE>
not be binding on either party. Viscom will also provide GKI with a monthly
sales call activity and project report from its various offices that
operate in the Territory listed in Schedule 2. These reports would indicate
progress in the promotion of the various DiSS products as well as any major
projects that are forthcoming in order to better assist the factory in
planning production runs. It is expected that Viscom's organization's staff
and local sales offices are trained in selling the product, and that each
distribution outlet has a permanent demonstration unit at their disposal
for office and field demonstrations of DiSS technology. This report will be
faxed to the Sales and Marketing Manager at (970) 884-7445. Viscom
represents and warrants that it has made a full disclosure (by name and
capability) of the items it currently sells. If Viscom chooses to market,
promote or distribute additional items that compete with the Product, it
will notify GKI of its intent at least sixty (60) days prior to the
commencement of such activity, and GKI will have the right to terminate
this Agreement on ninety days (90) notice to Viscom without any liability
to GKI. A competing item provides substantial overlap of functionality of
the Product listed in Schedule 1.
3. DEMONSTRATION SYSTEM ORDERS & QUOTAS
A. Reseller shall make an initial stocking order for the Product(s) as
set forth in Schedule 3. (Opening Order)
B. Reseller shall employ sufficient efforts to promote and distribute the
Product in the Territory so that GKI receives orders from Reseller for
the Product, deliverable directly by GKI in the aggregate minimum USD
amount set forth as Schedule 3 ("Quota"). Reseller acknowledges that,
beginning on the Effective Date, failure to achieve such volumes
shall, at GKI's sole option, result in the termination of this
Agreement; provided, however, that Viscom will be given another
opportunity for the next time period to meet or exceed its Quota.
C. Viscom will fax a monthly sales report to GKI on its standard
reporting sheet which will be supplied by GKI to the Reseller. Failure
to provide this monthly activity report shall, at GKI's sole option,
result in the termination of this Agreement; provided, however, Viscom
will be given 30 days to cure such failure.
D. The Reseller will always maintain adequate inventory of GKI's
Products.
4. PRODUCT ORDERS AND SHIPMENT Viscom will order the Product (by fax or
otherwise) using a written purchase order. All orders are subject to
acceptance by GKI. GKI will ship the Product F.O.B. place of origin, within
the then current lead-times, to the location specified by Reseller, at its
expense, using the carrier of its choice. Current delivery lead times are
at maximum of 45 to 60 days after receipt of order.
2
<PAGE>
5. PRICE & PAYMENT GKI's Product Price Schedule is set out in Schedule 1. GKI
may adjust the Price Schedule with prior notice to Reseller of sixty (60)
days. Payment for the Product will be due via letter of credit prior, or
cash with each purchase order, unless otherwise indicated by GKI in
writing. Viscom will pay all applicable taxes, whether levied by
International, Federal, State or local governmental authority, and pay for
all shipping, freight and insurance charges. Equipment is shipped F.O.B.
Northbrook, I11.
6. COPYRIGHTS GKI represents and warrants that the software and documentation
involving the Product are owned (or, in the case of third-party software,
licensed) by Sungjin and are protected by United States copyright laws,
international treaty provisions and all other applicable national laws.
Except as provided in this Agreement, Viscom have not been granted any
right, title, or interest to any intellectual property rights in the
Software and documentation.
7. OTHER RESTRICTIONS -- Viscom may not copy the Software, modify, reverse
engineer, decompile, or disassemble the Software, or loan, rent or provide
access to the Software and documentation for a fee or otherwise, to any
third party for the purpose of unauthorized copying. However, nothing
herein will prevent Viscom from incorporating the Product and modifying it
for closed circuit television and for access control systems that it
designs, fabricates, markets or sells. All purchases under this Agreement
will be done through GKI, any deviation will be grounds for legal action.
During the term of this Agreement, the Reseller shall have access to and
may become familiar with proprietary information owned or controlled by GKI
consisting of, but not limited to, process, computer programs, compilation
of information, records, sales procedures, customer requirements, pricing
techniques, customer lists, methods of doing business and other
confidential information ("Information"), which are owned by GKI and which
are used in the operation of its business. Reseller shall not use in any
way or disclose any information, directly or indirectly, either during the
term of this Agreement or at any time thereafter. All files, records,
documents, information, data and similar items relating to the business of
GKI whether prepared by Reseller or otherwise coming into its possession,
shall remain exclusive property of GKI and shall be delivered to it upon
termination of this Agreement.
8. END-USER SOFTWARE LICENSE AND LIMITED WARRANTY GKI licenses and warrants
the Product under the terms and conditions set forth in the DiSS Technology
product's End-User Software License Agreement and Limited Warranty attached
as Schedule 4.
9. LIMITATIONS EXCEPT AS SPECIFICALLY SET IN THE SOFTWARE LICENSE AGREEMENT
AND LIMITED WARRANTY, GKI DISCLAIMS ANY AND ALL WARRANTIES, WHETHER
EXPRESSED OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF FITNESS
FOR A
3
<PAGE>
PARTICULAR PURPOSE OR MERCHANTABILITY. IN NO EVENT WILL GKI OR SUNGJIN BE
LIABLE FOR ANY DAMAGES, DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
(INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR ANY OTHER PECUNIARY
LOSS), ARISING OUT OF THE USE OR INABILITY TO USE THE PRODUCT AND
DOCUMENTATION, EVEN IF GKI HAS BEEN ADVISED OF THE POSSIBLITY OF SUCH
DAMAGES, OR ANY CLAIM BY ANY OTHER PARTY. Some countries do not allow the
exclusion or limitation of implied warranties or liability for incidental
or consequential damages, so the above limitations or exclusions may not
apply to Viscom. In no event will the liability of GKI or Sungjin for
damages to Viscom or any other person ever exceed the amount of a Product's
most current suggested retail list price in effect at the time of a claim
for such damages. Regardless of any claims by Viscom against GKI or
Sungjin, GKI and Sungjin will not be liable to Viscom for any loss of
profits or damages in connection with any claims brought against Viscom by
any third party unless a court of competent jurisdiction so orders.
10. INDEMNIFICATION Viscom will indemnify and hold GKI and Sungjin harmless
against any and all claims or actions and any costs, liabilities, or losses
arising out of any statements or representations made by Reseller's
employees, representatives or agents with respect to the Product, except
for statements that are directly quoted from the documentation. This
indemnification provision will survive the termination of this Agreement.
11. CONFIDENTIALITY Viscom agrees to the terms and conditions contained in the
Mutual Non-Disclosure Agreement attached as Schedule 5.
12. TERMINATION GKI or Viscom may terminate this Agreement at any time, with
cause, by giving ninety (90) days written notice. If Viscom clearly has
violated any material of the terms of this Agreement, GKI may immediately
terminate this Agreement at its sole election as long as it gives Viscom
prior notice that it will terminate this Agreement and an opportunity to
cure such breach within thirty (30) days of such notice. Upon termination
of this Agreement, Viscom will cease holding itself out as an authorized
GKI reseller, and immediately make payment of any amounts due to GKI prior
to the date of termination, including reimbursement of reasonable and
verifiable costs incurred by GKI in connection with such termination. Under
no circumstances, will GKI, Sungjin or any of its agents, representatives,
employees, dealers or other resellers circumvent Viscom to sell, market, or
license the Product to any prior or current Viscom customers. This
non-circumvention pledge shall survive the termination of this Agreement.
In the event such circumventing occurs, Viscom shall be entitled to treble
damages. In the event of termination, any orders regarding unshipped
Product may be cancelled by Viscom; but if not so cancelled by it, such
orders shall be delivered by GKI on a timely basis as long as payment
therefor has been made or arranged as is customary hereunder.
4
<PAGE>
13. NOTICES All notices pertaining to this Agreement will be in writing and
sent to the addresses set forth below. Notices will be deemed given when
delivered personally or five (5) business days after having been sent by
certified or registered mail, commercial courier or similar reliable means
of delivery, or by facsimile transmission (the receipt of which
transmission is acknowledged within 24 hours of the receipt thereof) to the
other party at the addresses contained herein.
14. ADDITIONAL OBLIGATIONS OF RESELLER
A. BEST EFFORTS Reseller shall use its best efforts (at least equal to
its other products) to advertise and promote the sale of the Product
in Territory by:
1. Identifying End-Users that may benefit from use of the Product and are
capable of paying the fees associated therewith;
2. Arranging for and conducting competent and effective product
demonstrations and presentations relating to the Product;
3. Providing marketing and support services of a depth and magnitude
reasonably satisfactory to GKI;
4. Conducting, at all times, its business in a manner that will reflect,
favorably on GKI and the Product, and not engage in any deceptive,
misleading, illegal or unethical business practice;
5. Providing training to all Dealers and End-Users purchasing the Product
through Reseller's distribution channels; and
6. Reseller's distributors must, in order to sell the product, have on
hand one unit for their demonstration purposes at their branch
location.
B. DEALER TRAINING At GKI's expense Reseller will ensure that all of its
sales staff, employees and/or installers of the Product will be
trained, prior to any Product installations, either by Reseller or
upon request by Reseller, by GKI directly.
C. BUSINESS PLAN Reseller shall develop and provide to GKI within sixty
(60) days of the Effective Date a business plan for the Product to be
marketed and licensed in the Territory, with estimations provided on
global sales per market country covered.
D. INTELLECTUAL PROPERTY PROTECTION Reseller shall notify GKI of any
unauthorized use or infringement in the Territory of any of the
intellectual property rights (insofar as it becomes aware), and shall
at the request of GKI take part in or give assistance in respect of
any legal proceedings and execute any documents and do any things
reasonably necessary to protect the intellectual property rights in
the Territory. Reseller may, at its sole option and expense, elect to
participate in, but not control, any prosecution initiated by GKI to
protect the intellectual property rights in the Territory.
5
<PAGE>
E. MARKS In any instance where any GKI or DiSS Technology, or Sungjin
mark is contemplated for use in any advertising promotion news release
or other publication of any kind whatsoever, Reseller shall first
submit such matters to GKI for prior written approval prior to
release, publication or other dissemination. GKI shall have the right
to require, at its discretion, the correction or deletion of any
misleading, false, or objectionable material from such advertising,
promotion or publicity. Such approval shall not be unreasonably
withheld and, when given, shall be given on a timely basis.
F. PRIVATE LABEL The Reseller has the right to have future products,
other than the opening stock order, be private-labeled with the
Reseller's logo on the front of the recorder. In addition, the
Reseller has the right to create their own literature and marketing
materials. GKI shall offer private labeling at no additional charge on
the Product. Any new literature to be done will be at the Reseller's
own cost.
G. INSPECTION With at least ten days (10) prior written notice, Reseller
shall permit GKI or its authorized representatives, at all reasonable
times on any mutually convenient business day, to enter Reseller's
facilities to conduct audits of Reseller's maintenance, support and
training activities.
H. Reseller will abide by all rules, regulations and laws of the United
States Government regarding exports.
15. MISCELLANEOUS Viscom's status under this Agreement is that of an
independent contractor and nothing will be construed in this Agreement to
create a partnership, joint venture, or agency relationship with GKI.
Viscom may not assign this Agreement without the prior written consent of
GKI. This Agreement constitutes the entire agreement between GKI and Viscom
and supersedes all prior agreements and communications, whether oral or in
writing, with respect to the subject matter of this Agreement. In the event
of any conflict between a purchase order and this Agreement, the terms of
this Agreement will control. No amendment or notification of this Agreement
will be effective unless made in writing and signed by both parties. This
agreement and all amendments, modifications, alterations or supplements
hereto are to be governed and construed as to both substantive and
procedural matters in accordance with the laws of the State of Illinois.
16. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF GKI
A. That Viscom and Vicon Industries, Inc. will be the only two resellers
of the Product in the Territory specified in Schedule 2 hereto during
the term of this Agreement and no additional resellers of the Product
will be appointed or licensed without Viscom's express written
consent.
6
<PAGE>
B. That Sungjin holds and maintains all rights, title and interest to the
Product and its underlying technology and that a master
distributorship agreement exists between GKI and Sungjin covering the
Product and the Territory included in this Agreement whereby GKI has
full authority and power to enter into this Agreement to resell the
Product in the Territory specified therein and that Master
Distributorship Agreement extends through the full term of this
Agreement and that GKI and Sungjin have both complied to the full
extent with the terms and conditions thereof and that neither party
has breached or is in default under such agreement and no legal or
administrative actions, suits, litigation, hearings or orders are in
effect or threatened thereunder or in regard thereto.
C. That GKI shall on a timely basis cooperate with Viscom in the sale,
marketing and modification of the Product by sharing information on
projects and prices quoted sufficiently in advance, by providing
notice and information in regard to any upgrades, improvements or new
related developments, by furnishing demonstrations and prototypes of
any such upgrades, improvements or development at GKI's expense.
IN WITNESS WHEREOF, GK Industries, Inc. and Viscom Products, Inc. have caused
this Agreement to be executed by their duly authorized corporate officers as of
the day, month, and year first above written.
GK INDUSTRIES, INC. VISCOM PRODUCTS, INC.
By:___________________________________ By:_____________________________________
Name (in print):______________________ Name (in print):________________________
Title:________________________________ Title:__________________________________
Date:_________________________________ Date:___________________________________
Address: 425 Huehl Road Address: 280 Midland Avenue
Building 15-A Saddle Brook, NJ 07663
Northbrook, Illinois Phone: (201) 794-6500
USA 60062 Fax: (201) 794-8341
Phone: (847) 272-3590
Fax: (847) 272-4096
7
<PAGE>
SCHEDULE 2
TERRITORY
With present product labeled under the Viscom brand name, North America,
South America, Central America (including Mexico) and Japan.
<PAGE>
SCHEDULE 3
INITIAL OPENING EQUIPMENT ORDER*
<TABLE>
<CAPTION>
Quantity Description Unit Price Extension
-------- ----------- ---------- ---------
<S> <C> <C>
33 Model DiSS Guardian w/25.2 GB Hard $7,800.00 $257,400.00
Disk Drive, w/LAN, Modem, Quad
W/internal SCSI card for Reseller
supplied DVD
23 Model DiSS NetMaster networked recording $8,940.00 $205,620.00
system
2 Model DiSS NetAgent Review Station $6,600.00 $ 13,200.00
Software
2 Model DiSS NetAgent Review Station $3,900.00 $ 7,800.00
complete w/monitor
Total Opening Order $484,020.00
</TABLE>
TARGET QUOTA (WORLDWIDE)
RECORDERS, MIX AND MATCH
To be determined under mutual agreement, revised as needed by both
parties.
* To be purchased at time of signature of the agreement.
<PAGE>
SCHEDULE 4
SOFTWARE LICENSE & LIMITED WARRANTY
IF YOU DO NOT AGREE WITH THESE TERMS AND CONDITIONS, DO NOT OPEN THE DiSS
PRODUCT CARTON AND POWER UP OR USE THE PRODUCT, RETURN ALL HARDWARE, WRITTEN
USER DOCUMENTATION, ACCESSORIES AND ALL PERIPHERAL COMPONENTS (IF ANY) WITHIN 30
DAYS OF PURCHASE TO GK INDUSTRIES, INC. OR ITS AUTHORIZED DISTRIBUTOR OR DEALER,
AS APPLICABLE. A RESTOCKING CHARGE FEE WILL BE APPLIED.
GRANT OF RIGHTS: GK Industries, Inc. ("GKI") warrants you (an entity or person)
the right to use the product and DiSS digital recording software as installed
in its products ("Software"), on a non-exclusive basis for non-mobile
applications and exclusive basis for mobile applications, under the
circumstances and configurations described in the purchase order or contract
agreement between GKI and you.
TITLE: Title to any hardware, peripheral components and accessories thereof
("Hardware"), physical copies of the user documentation and magnetic or other
physical media acquired for the use with the Software and DiSS recording system,
transfers upon the acquisitions thereof, but GKI and Sungjin C&C Co. Ltd.
("Sungjin") retains all title to an ownership of the Software. The term
"Software", includes third party software GKI licenses for use in the Hardware
and/or Software. "System" means the Software, Hardware, user documentation,
magnetic media or other physical embodiment of the Software.
COPYRIGHT: All intellectual property rights in the Software, System and user
documentation are owned or licensed by GKI/Sungjin and are protected by United
States copyright laws, other applicable copyright and national and
international laws and international treaty provisions. GKI and Sungjin retains
all rights not expressly granted.
RESTRICTIONS: You may not alter, merge, modify, or adapt this Software and/or
hardware in any way, including reverse engineering, disassembling, decompiling
or creating derivative works. You may not loan, rent, lease, provide access to,
or license the Software and/or Hardware. Nothing herein, however, prevents you
from incorporating, modifying and/or selling this Software and/or as part of
your CCTV or access control systems.
UPDATES (NEW RELEASES AND MODIFICATIONS): At its option, GKI may, from time to
time, (i) issue a New Release obtainable by paying the stipulated license fee
or, (ii) issue a modification during the warranty period. "New Release" means
any improved or enhanced version of the Software and/or Hardware adding new
features or functions not addressed or contemplated by the user documentation.
"Modification" means any alteration to the Software of Hardware which corrects
defects preventing the
<PAGE>
code or system from functioning in material conformity with the user
documentation, but which does not change the form, fit or function of the
Software and Hardware.
LIMITED WARRANTY: Subject to the limitations described below, GKI warrants as
follows: Software: The Software is free of material reproducible programming
errors and substantially conforms to the applicable user documentation and
specifications (if any). When properly installed, the Product works efficiently
and effectively as indicated in product literature, in demonstrations, and
conversations between GKI and Viscom personnel. USER DOCUMENTATION: The User
Documentation is free from material defects in materials and workmanship.
EXCEPT AS PROVIDED HEREIN, GKI MAKES NO WARRANTY, REPRESENTATION, PROMISE, OR
GUARANTEE, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE
SOFTWARE AND/OR HARDWARE, USER DOCUMENTATION, OR RELATED TECHNICAL SUPPORT,
INCLUDING WARRANTIES OF QUALITY, PERFORMANCE, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
EXCLUSIVE REMEDY: The warranty and remedy set forth herein are exclusive and
in lieu of all others, oral or written, express or implied. No GKI dealer,
distributor, agent or employee is authorized to make modification or addition
to this warranty. This warranty gives you specific legal rights and you may
also have rights which vary from state to state. After expiration of the
Warranty period (the "Warranty Period"), you or your customer, and not GKI or
its dealers, distributors, agents, or employees, assume the entire cost of all
necessary service, repair or correction. SOFTWARE AND USER DOCUMENTATION: GKI
will, at its option, repair the defect or replace the Software at no charge
provided the defective item(s) is (are) returned to GKI within one (1) year
from the date of retail purchase.
ADDITIONAL LIMITATIONS: The foregoing warranty is null and void and of no force
and effect if (i) you fail to operate the System in substantial conformity with
the operations and maintenance procedures described in the user documentation or
published environmental and electrical parameters; (ii) identification markings
on any component of the System have been defaced, altered, or removed; (iii) any
component of the System is altered or modified without the approval or knowledge
of GKI; (iv) the System has been tampered with in an unprofessional manner such
as the Hardware Cabinet being opened without the express written consent of GKI.
WARRANTY WITH RESPECT TO ANY HARDWARE COMPRISING THE SYSTEM: GKI warrants the
Hardware is free from defective materials and workmanship from the date of the
retail purchase for a period of one (1) year and operates efficiently and
effectively as indicated in product literatures, demonstrations, and
conversations between GKI and Viscom personnel. During the Warranty Period, GKI
will, at its sole option and discretion, replace or repair the defective
Hardware at no charge providing the defective Hardware is returned to GKI by
using first calling the Customer Care Service Center for a Return Materials
Authorization Number. Should the equipment received be modified, scratched, or
be damaged, GKI will at its sole discretion, apply a reasonable refurbishing
charge to materials that may not be used as in-
2
<PAGE>
warranty replacements. This shall be communicated to the dealer or applicable
party once an incoming inspection report has been completed.
NOTICE OF WARRANTY CLAIM: In the event of any defect or suspected defect in the
System, promptly communicate via Fax GKI Customer Care Department at (847)
272-4096 or call (800) 272-2203. If, after reasonable investigation, the
defect or suspected defect is not covered by warranty, GKI at its sole
discretion, may charge for services rendered at its customary rates. All
equipment being returned for repair/replacement whether under warranty or not
will only be accepted at GKI if Return Materials Authorization Number has been
issued previous to receiving any equipment.
LIMITATION OF LIABILITY: In no event will GKI and Sungjin be liable for
indirect, special, incidental, economic, cover, or consequential damages arising
out of the use of or inability to use the Software, Hardware, user
documentation, or related technical support, including, without limitation,
damages or costs relating to loss of profits, business, goodwill, data or
computer programs, even if advised of the possibility of such damages unless GKI
or Sungjin is guilty of an intentional act or omission or gross negligence. In
no other case shall GKI's liability exceed the amount paid by you for the
Software and/or Hardware. Some states do not allow the exclusion or limitation
of implied warranties or limitation for incidental or consequential damages, so
the above exclusion or limitation may not apply to you.
GENERAL: This agreement constitutes the entire agreement between GKI and you,
and supercedes all prior agreements and communications, whether oral and in
writing, with respect to the subject matter of this Agreement. In the even of
any conflict between a purchase order and this Agreement, the terms of this
Agreement will control. No amendment or modification of this agreement will be
effective unless made in writing and signed by both parties. This Agreement and
all amendments, modifications, alterations and supplements hereto is governed
and construed as to both substantive and procedural matters in accordance with
Illinois State Law. If any provision of this Agreement is found to be unlawful,
void or unenforceable, then that provision is severed from this Agreement and
will not affect the validity and enforceability of any of the remaining
provisions.
CUSTOMER SUPPORT: Subject always to its support polices, GKI will attempt to
answer your technical support questions concerning the System; however, this
service is offered on a reasonable efforts basis only, and GKI may not be able
to resolve every support request. GKI supports the system for the usage which
the System is designed. Support policies may change from time to time without
notice.
3
<PAGE>
SCHEDULE 5
MUTUAL NON-DISCLOSURE AGREEMENT
THIS AGREEMENT is between the Reseller and GK Industries, Inc. (the "Parties").
WHEREAS, the Parties have entered into a Reseller Agreement and agree that
certain business and trade information proprietary to the Parties, and which
the disclosing party considers confidential, may be provided or disclosed to
the receiving party during the term of the Reseller Agreement.
NOW, THEREFORE, in consideration of these premises, it is agreed as follows:
ARTICLE 1. DEFINITIONS
As used herein, the following terms shall have the following respective
meaning:
(a) "Confidential Information" shall mean any information, technical data or
know-how which relates to the business, services, or products of the
Parties or its Affiliate (as defined hereinafter), including, without
limitation any research, product, service, development, invention, process,
technique, design, distribution, engineering, marketing, merchandising
and/or sales information which is disclosed by the Parties of by any
Affiliate on its behalf, before or after the date hereof, to the receiving
party or its employees in writing, orally, or by drawing or inspection of
parts or equipment.
(b) "Affiliate" shall mean any company or entity that directly controls or
is directly or indirectly controlled by, or is under common control
with one of the Parties. The term "control" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction
of management of company or entity in question whether through the
ownership of voting shares, by contract, or otherwise.
ARTICLE 2. MARKETING OF INFORMATION
Any confidential information provided by the disclosing party to the receiving
party and entitled to protection hereunder shall be identified as such by an
appropriate stamp or marking on each document provided, and if oral, promptly,
but no later than thirty (30) days thereafter, reduced to a writing transmitted
to the receiving party.
ARTICLE 3. TREATMENT IN CONFIDENCE
Except as provided in Article 5 hereof, the receiving party agrees to the
following:
<PAGE>
(a) the receiving party shall not disclose the Confidential Information to
any other person other than the disclosing party's or its Affiliate
employees having a reasonable need-to-know of the Confidential
Information.
(b) the receiving party shall cause all its employees or its Affiliates to
whom such Confidential Information shall be disclosed to treat such
Confidential Information with the same degree of care, to avoid
disclosure to any third party, as is used with respect to the
receiving party's own information of like importance which is to be
kept secret;
(c) the receiving party shall take reasonable security measures and use care
to preserve and protect the security of and to avoid disclosure or use of
the Confidential Information; and
(d) the receiving party shall promptly advise the disclosing party in
writing of any misappropriation or misuse of Confidential Information
which may come to its attention.
ARTICLE 4. RETURN OF DOCUMENTS
All equipment, documentation and other information which has been furnished by
the disclosing party to the receiving party shall be promptly returned by the
receiving party to the disclosing party, accompanied by all copies and
translations of such documentation and information made by the receiving party
upon termination of this Agreement.
ARTICLE 5. EXCLUSION OF DOCUMENTS
Confidential Information shall not be afforded the protection of this Agreement
if such information:
(a) had, at the time of disclosure, been previously made
public;
(b) is made public after its disclosure, unless such publication is a
breach of this Agreement or any other agreement between the parties hereto;
(c) was, prior to disclosure to the receiving party, obtained from a third
party who is lawfully in possession of such information and is free to
disclose such information to the receiving party; and
(d) is before or after disclosure, independently developed by the
receiving party without reference to any information furnished
pursuant to this agreement and written documentation is available to
prove that such development pre-dated this agreement.
2
<PAGE>
ARTICLE 6. NO RIGHTS GRANTED
Nothing herein contained or the termination hereof shall be construed as
granting or conferring any rights on the receiving party by license or
otherwise, expressly or implied by, to any Confidential Information of the
disclosing party or to any patent of copyright covering such information.
ARTICLE 7. COMPENSATION
The parties hereto shall not be obligated to compensate each other for
exchanging any information under this Agreement as well as any use thereof,
except as otherwise expressly provided for herein.
ARTICLE 8. TERMINATION
This Agreement shall be effective as of the effective date of the Reseller
Agreement and shall terminate when said Reseller Agreement terminates. The
rights and obligations accruing prior to termination as set forth herein shall,
however, survive the termination as specified in this Agreement for a period of
one year.
ARTICLE 9. AUTHORITY
Each party warrants and represents that it possesses all necessary powers,
rights and authority to lawfully make the disclosures subject to this
Agreement.
3
<PAGE>
FORM OF PERFORMANCE BOND
CONTRACT W-33725
Bond No. U2806893
Know All Men by These Presents, That
HBE Acquisition Corporation D/B/A Henry Brothers Electronics, Inc., of
280 Midland Avenue, Saddle Brook, NJ 07662
(hereinafter called the "Contractor") and
United Pacific Insurance Company
112 Haddontowne Court, Suite 303
Cherry Hill, NJ 08034
(hereinafter called the "Surety"), are held and firmly bound unto The
Metropolitan Transportation Authority
(hereinafter called the Contracting Party), and the New York City Transit
Authority, (hereinafter called the "Authority"), in the sum of TWO MILLION
SIX HUNDRED EIGHTY ONE THOUSAND EIGHT HUNDRED SEVENTY NINE & 00/100 dollars
($2,681,879.00, lawful money of the United States of America, to be paid
to the Contracting Party and the Authority, for which payment well and truly
to be made, the Contractor and the Surety do hereby bind themselves jointly
and severally and their, and each of their executors, administrators, successors
and assigns firmly by these presents.
B-1
<PAGE>
FORM OF PERFORMANCE BOND
WHEREAS, the Contractor is seeking to enter, or has entered, into a contract
known as Contract W-333725, a copy of which Contract is annexed to and hereby
made a part of this bond as though herein set forth in full:
NOW, THEREFORE, the conditions of this obligation are such that if the
Contractor, his or its representatives or assigns, shall well and faithfully
perform the said contract and all modifications, amendments, additions and
alterations thereto that may hereafter be made, according to its terms and its
true intent and meaning, including repair and/or replacement of defective work
and guarantees of maintenance for the periods stated in the Contract, and shall
fully indemnify and save harmless the Contracting Party and the Authority from
all cost and damage which it may suffer by reason of failure so to do, and shall
fully reimburse and repay the Contracting Party and the Authority for all outlay
and expense which the Contracting Party and the Authority may incur in making
good any such default, and shall protect the Contracting Party and the Authority
against, and pay any and all amounts, damages, costs and judgments which may or
shall be recovered against the Contracting Party or the Authority or their
officer or agents or which the Contracting Party or Authority may be called upon
to pay any person or corporation by reason of any damages arising or growing out
of the doing of said work, or the repair or maintenance thereof, or the manner
of doing the same, or the neglect of the said Contractor, or his (their, its)
agents or servants, or the infringement of any patent rights by reason of the
use of any materials furnished or work done as aforesaid or otherwise, then this
obligation shall be null and void, otherwise to remain in full force and effect.
The Surety, for value received, hereby stipulates and agrees, if requested to do
so by the Authority, to fully perform and complete the Project to be performed
under the Contract, pursuant to the terms, conditions, and covenants thereof, if
for any cause, the Contractor fails or neglects to so fully perform and complete
such Project. The Surety further agrees to commence such work of completion
within twenty (20) days after written notice thereof from the Authority and to
complete such Project within such time as the Authority may fix.
The Surety, for value received, for itself and its successors and assigns,
hereby stipulates and agrees that the obligation of said Surety and its bond
shall be in no way impaired or affected by any extension of time, modification,
omission, addition, or change in or to the said Contract or the Project to be
performed thereunder, or by any payment thereunder before the time required
therein, or by any waiver of any provisions thereof, or by any assignment,
subletting or other transfer thereof or of the Project to be performed or any
moneys due or to become due thereunder; and said Surety does hereby waive notice
of any and all of such extensions, modifications, omissions, additions, changes,
payments, waivers, assignments, subcontracts and transfers, and hereby expressly
stipulates and agrees that any and all things done and omitted to be done by and
in relation to assignees, subcontractors, and other transferees shall have the
same effect as to
B-2
<PAGE>
FORM OF PERFORMANCE BOND
said Surety as though dose or omitted to be done by or in relation to said
Contractor.
IN W1TNESS WHEREOF, the Contractor and the Surety have hereunto set their hands
and seals, and such of them as are corporations have caused their corporate
seals to be hereunto affixed and these presents to be signed by their proper
officers, this 7th day of August , 1997
(Seal)
HBE ACQUISITION CORPORATION D/B/A
HENRY BROTHERS ELECTRONICS, INC.
.................................
(Contractor) (L.S.)
By [SIGNATURE ILLEGIBLE]
.........................
President
Attest:
[SIGNATURE ILLEGIBLE]
..............................
Secretary
(Seal)
UNITED PACIFIC INSURANCE COMPANY
................................
Surety
By Gary Morrissey
................................
Gary Morrissey, Attorney-in-Fact
- --------------------------------------------------------------------------------
If the Contractor is a partnership, the band should be signed by one of the
partners in the firm name.
If the Contractor is a corporation, the band should be signed in its correct
corporate name by a duly authorized officer, agent, or attorney-in-fact.
There should be executed an appropriate number of counterparts of the bond
corresponding to the number of counterparts of the Contract.
B-3
<PAGE>
FORM OF PERFORMANCE BOND
ACKNOWLEDGMENT OF CONTRACTOR, IF A CORPORATION
STATE OF NEW JERSEY )
)ss.:
COUNTY OF BERGEN )
On this 8th day of August ___, 1997 before me personally came James E.
Henry to me known, who, being by me duly sworn, did depose and say that he
resides at Lake Road, Bellvale, NY 10912 that he is the President of HBE
Acquisition Corp, DBA: Henry Bros Electronics
the corporation described in and which executed the foregoing instrument;
that he knows the seal of said corporation; that one of the seals affixed
to said instrument is such seal; that it was so affixed by order of the
directors of said corporation; and that he signed his name thereto by
like order.
Inge Foley
----------------------------------------
Notary Public
INGE FOLEY
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Oct. 19, 2000
B-4
<PAGE>
FORM OF PERFORMANCE BOND
ACKNOWLEDGEMENT OF CONTRACTOR, IF A PARTNERSHIP
STATE OF ___________)
)ss.:
COUNTY OF __________)
On this ____ day of __________________, 19__, before me personally appeared
__________________________ to me known and known to me to be one of the members
of the firm of _____________________________________________________________
described in and who executed the foregoing instrument and he acknowledged to me
that he executed the same as and for the act and deed of said firm.
-----------------------------------------
Notary Public
B-5
<PAGE>
FORM OF PERFORMANCE BOND
ACKNOWLEDGEMENT OF CONTRACTOR, IF AN INDIVIDUAL
STATE OF ___________)
)ss.:
COUNTY OF __________)
On this _____ day of _________________, 19___, before me personally
appeared _______________________________________________________________
to me known and known to me to be the person described in and who executed
the foregoing instrument and acknowledged that he executed the same.
-----------------------------------------
Notary Public
Each executed bond should be accompanied by (a) appropriate
acknowledgments of the respective parties; (b) appropriate duly certified copy
of Power of Attorney or other certificate of authority where bond is executed by
agent, officer or other representative of Contractor or Surety; (c) a duly
certified extract from By-Laws or resolutions of Surety under which Power of
Attorney or other certificate of authority of its agent, officer or
representative was issued, and (d) duly certified copy of latest published
financial statement of assets and liabilities of Surety.
Affix Acknowledgments and Justification of the Surety.
B-6
<PAGE>
ACKNOWLEDGEMENT OF CONTRACTOR, IF A CORPORATION
STATE OF ___________)
)ss.:
COUNTY OF __________)
On the _____ day of ___________________ in the year 19___, before me
personally came __________________________ to me known, who, being by me duly
sworn, did depose and say that he resides at _____________________________, that
he is the ________________________________ of HBE ACQUISITION CORPORATION D/B/A
HENRY BROTHERS ELECTRONICS, INC., the corporation described in and which
executed the above instrument; and that he signed his name thereto by order of
the Board of Directors of said corporation.
-----------------------------------------
NOTARY PUBLIC OR COMMISSIONER
OF DEEDS
ACKNOWLEDGEMENT OF SURETY
STATE OF NEW YORK )
)ss:
COUNTY OF NASSAU )
On the 7th day of AUGUST in the year 1997, before me personally came GARY
MORRISSEY to me known, who, being by me duly sworn, did depose and say that he
resides at NANUET, NY, that he is the ATTORNEY-IN-FACT of UNITED PACIFIC
INSURANCE COMPANY, the corporation described in and which executed the above
instrument; and that he signed his name thereto by order of the board of
directors of said corporation.
Jean C. Speirs
-----------------------------------------
NOTARY PUBLIC OR COMMISSIONER
OF DEEDS
JEAN C. SPEIRS
NOTARY PUBLIC, State of New York
No. 01SP5073687
Qualified in Nassau County
Commission Expires March 3, 1999
<PAGE>
RELIANCE SURETY COMPANY RELIANCE INSURANCE COMPANY
UNITED PACIFIC INSURANCE COMPANY RELIANCE NATIONAL INDEMNITY COMPANY
ADMINISTRATIVE OFFICE, PHILADELPHIA, PENNSYLVANIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that RELIANCE SURETY COMPANY is a corporation
duly organized under the laws of the State of Delaware, and that RELIANCE
INSURANCE COMPANY and UNITED PACIFIC INSURANCE COMPANY, are corporations duly
organized under the laws of the Commonwealth of Pennsylvania and that RELIANCE
NATIONAL INDEMNITY COMPANY is a corporation duly organized under the laws of the
State of Wisconsin (herein collectively called "the Companies") and that the
Companies by virtue of signature and seals do hereby make, constitute and
appoint Gary Morrissey, Richard Guarini, John H. Treiber, H. Craig Treiber, of
Garden City, New York their true and lawful Attorney(s)-in-Fact, to make,
execute, seal and deliver for and on their behalf, and as their act and deed any
and all bonds and undertakings of suretyship and to bind the Companies thereby
as fully and to the same extent as if such bonds and undertakings and other
writings obligatory in the nature thereof were signed by an Executive Officer of
the Companies and sealed and attested by one other of such officers, and hereby
ratifies and confirms all that their said Attorney(s)-in-Fact may do in
pursuance hereof.
This Power of Attorney is granted under and by the authority of Article
VII of the By-Laws of RELIANCE SURETY COMPANY, RELIANCE INSURANCE COMPANY,
UNITED PACIFIC INSURANCE COMPANY, and RELIANCE NATIONAL INDEMNITY COMPANY which
provisions are now in full force and effect, reading as follows:
ARTICLE VII - EXECUTION OF BONDS AND UNDERTAKINGS
1. The Board of Directors, the President. the Chairman of the Board,
any Senior Vice President, any Vice President or Assistant Vice President or
other officer designated by the Board of Directors shall have power and
authority to (a) appoint Attorney(s)-in-Fact and to authorize them to execute
on behalf of the Company, bonds and undertakings, recognizances, contracts of
indemnity and other writings obligatory in the nature thereof, and (b) to
remove any such Attorney(s)-in-Fact at any time and revoke the power and
authority given to them.
2. Attorney(s)-in-Fact shall have power and authority, subject to the
terms and limitations of the Power of Attorney issued to them, to execute
deliver on behalf of the Company, bonds and undertakings, recognizances,
contracts of indemnity and other writings obligatory in the nature thereof.
The corporate seal is not necessary for the validity of any bonds and
undertakings recognizances, contracts of indemnity and other writings
obligatory in the nature thereof.
3. Attorney(s)-in-Fact shall have Power and authority to execute
affidavits required to be attached to bonds, recognizances, contracts of
indemnity or other conditional or obligatory undertakings and they shall also
have power and authority to certify the financial statement of the Company and
to copies of the By-Laws of the Company or any article a section thereof.
This Power of Attorney is signed and sealed by facsimile under and by authority
of the following resolution adopted by the Executive and Finance Committees of
the Boards of Directors of Reliance insurance Company, United Pacific Insurance
Company and Reliance National Indemnity Company by Unanimous Consent dated as of
February 28, 1994 and by the Executive and Financial Committees of the Board of
Directors of Reliance Surety Company by Unanimous Consent dated as of March 31.
1994.
"Resolved that the signatures of such directors and officers and the
seal of the Company may be affixed to any such Power of Attorney or any
certificates relating thereto by facsimile, and any such Power of
Attorney or certificate bearing such facsimile signatures facsimile
seal shall be valid and binding upon the Company and any ouch Power so
executed and certified by facsimile signatures and facsimile seal shall
be valid and binding upon the Company, in the future with respect to
any bond or undertaking to which it is attached."
IN WITNESS WHEREOF, the Companies have caused these presents to be signed and
their corporate seals to be hereto affixed, this November 22, 1994.
RELIANCE SURETY COMPANY
RELIANCE INSURANCE COMPANY
UNITED PACIFIC INSURANCE COMPANY
RELIANCE NATIONAL INDEMNITY COMPANY
[SEAL] [SEAL] [SEAL] [SEAL] CHARLES B. SCHMALZ
--------------------------------
STATE OF Pennsylvania )
) ss.
COUNTY OF Philadelphia )
On this, NOVEMBER 22, 1994, before me, Tammy Sue Kayati, personally appeared
Charles B. Schmalz, who acknowledged himself to be the Executive Vice President
of the Reliance Surety Company, and the Vice President of Reliance Insurance
Company, United Pacific Insurance Company, and Reliance National Indemnity
Company and that as such, being authorized to do so, executed the foregoing
instrument for the purpose therein contained by signing the name of the
corporation by himself as it duly authorized officer.
In witness whereof, I hereunto set my hand and official seal.
<TABLE>
<S> <C> <C>
- -----------------------------------
NOTARIAL SEAL TAMMY SUE KAYATI
TAMMY SUE KAYATI, Notary Public [SEAL] --------------------------------------------------
City of Philadelphia, Phila. County Notary Public in and for the State of Pennsylvania
My Commission Expires July 20, 1998 Residing at Philadelphia
- ------------------------------------
</TABLE>
I. Anita Zippert, Secretary of RELIANCE SURETY COMPANY, RELIANCE INSURANCE
COMPANY. UNITED PACIFIC INSURANCE COMPANY, and RELIANCE NATIONAL INDEMNITY
COMPANY do hereby certify that the above and foregoing is a true and correct
copy of the Power of Attorney executed by said Companies, which is still in full
force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seals of said
Companies this 7th day of August 1997.
[SEAL] [SEAL] [SEAL] [SEAL] ANITA ZIPPERT
-----------------------------
Secretary
<PAGE>
UNITED PACIFIC INSURANCE COMPANY
PHILADELPHIA, PENNSYLVANIA
FINANCIAL STATEMENT DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and Bank Deposits......................................................... $ 675,398
Securities .................................................................... 97,767,144
Premium Balances (Under 90 days)............................................... (6,809,903)
Accrued Interest and Dividends................................................. 1,505,145
Federal Income Taxes........................................................... 116,235
Other Assets................................................................... 31,227,601
------------
Total ADMITTED ASSETS....................................................... $124,481,620
============
LIABILITIES
Losses and Loss Adjustment Expense............................................. $ 27,721,644
Unearned Premiums.............................................................. 8,424,070
Other Taxes.................................................................... 107,705
Other Liabilities.............................................................. 27,945,971
------------
Total Liabilities........................................................... $ 64,199,390
============
CAPITAL AND SURPLUS
Capital Paid Up................................................................ $ 3,000,000
Surplus........................................................................ 57,282,230
Total Policyholders' Surplus................................................ 60,282,230
------------
Total Liabilities, Capital and Surplus...................................... $124,481,620
============
</TABLE>
State of Washington )
SS.
County of King )
Larry C. Mitchell, being duly sworn, says: That he is Vice President of the
UNITED PACIFIC INSURANCE COMPANY; that said company is a corporation duly
organized, existing, and engaged in business as a surety by virtue of the laws
of the Commonwealth of Pennsylvania, and has duly complied with all the
requirements of the laws of said state applicable to said company and is duly
qualified to act as surety under such laws; that said company has also complied
with and is duly qualified to act as surety under the Act of Congress of
September 13, 1982, as amended (31 U.S.C. 'ss' 9301 et seq.); that the foregoing
is a full, true and correct statement of the financial condition of said company
on the 31st day of December 1996.
Sworn to me this 14th day of March, 1997.
<TABLE>
<S> <C> <C>
Janis J. Crossland [SEAL] [SIGNATURE ILLEGIBLE]
Vice President
[SEAL]
Janis J. Crossland, Notary Public, State of Washington, County of King. My
Commission Expires February 5, 2000.
</TABLE>
<PAGE>
FORM OF PAYMENT BOND
CONTRACT W-33725
Bond No. U2806893
Know All Men by These Presents, That
HBE Acquisition Corporation D/B/A Henry Brothers Electronics, Inc. 280
Midland Avenue, Saddle Brook, NJ 07662 (hereinafter called the "Contractor") and
United Pacific Insurance Company 112 Haddontowne Court, Suite 303 Cherry Hill,
NJ 08034
(hereinafter called the "Surety"), are held and firmly bound unto The
City of New York
(hereinafter called the Contracting Party), and the New York City Transit
Authority, (hereinafter called the "Authority"), in the sum of TWO MILLION SIX
HUNDRED EIGHTY ONE THOUSAND EIGHT HUNDRED SEVENTY NINE & 00/100THS dollars
($2,681,879.00), lawful money of the United States of America, to be paid to
the Contracting Party and the Authority, for which payment will and truly to be
made, the Contractor and the Surety do hereby bind themselves jointly and
severally and their, and each of their executors, administrators, successors
and assigns firmly by these presents.
B-7
<PAGE>
FORM OF PAYMENT BOND
WHEREAS, the Contractor is seeking to enter, or has entered, into a contract
known as Contract W-33725, a copy of which Contract is annexed to and hereby
made a part of this bond as though herein set forth in full:
NOW, THEREFORE, the conditions of this obligation are such that if the
Contractor, his or its representatives or assigns and other subcontractors to
whom work under this Contract is sublet and his or their successors and assigns
shall promptly pay or cause to be paid all lawful claims for
(a) Wages and compensation for labor performed and services rendered by all
persons engaged in the prosecution of the Project under said Contract, and any
amendment or extension thereof or addition thereto, whether such persons are
agents, servants or employees of the Contractor or of any such subcontractor,
including all persons so engaged who perform the work of laborers or mechanics
at or in the vicinity of the site of the Project regardless of any contractual
relationship between the Contractor or subcontractors, or his or their
successors or assigns, on the one hand and such laborers or mechanics on the
other, but not including office employees not regularly stationed at the site
of the Project; and
(b) Materials and supplies (whether incorporated in the permanent structure or
not), as well as vehicles, fuels, oils, implements or machinery furnished, used
or consumed by said Contractor or any subcontractor at or in the vicinity of the
site of the Project in the prosecution of the Project under said Contract and
any amendment or extension thereof or addition thereto; then this obligation
shall be void; otherwise to remain in full force and effect.
This bond is subject to the following additional conditions, limitations and
agreements:
(a) The Contractor and Surety agree that this bond shall be for the benefit of
any materialman or laborer having a just claim, as well as the Contracting Party
or the Authority itself.
(b) All persons who have performed labor, rendered services or furnished
materials and supplies as aforesaid, shall have a direct right to action against
the Contractor and his, its or their successors and assigns, and the Surety
herein, or against either or both of any of them and their successors and
assigns. Such person may sue in his own name, and may prosecute the suit to
judgment and execution without the necessity of joining with any other person as
party plaintiff.
(c) The Contractor and Surety agree that neither of them will hold the
Contracting Party and/or Authority liable for any judgment for costs or
otherwise, obtained by either or both of them against a laborer or materialman
in a suit brought by either a laborer or materialman under this bond for moneys
allegedly due for performing work or furnishing material.
B-8
<PAGE>
FORM OF PAYMENT BOND
(d) The Surety or its successors and assigns shall not be liable for any
compensation recoverable by an employee or laborer under the Worker's
Compensation Law.
(e) In no event shall the Surety, or its successor or assigns, be liable for a
greater sum than the amount of his bond or be subject to any suit, action or
proceeding hereon that is instituted by any person, firm, or corporation
hereunder later than two years after the complete performance of said Contract
and final settlement thereof.
The Contractor, for himself and his successors and assigns, and the Surety, for
itself and its successors and assigns, do hereby expressly waive any objection
that might be interposed as to the right of the Contracting Party or the
Authority to require a bond containing the foregoing provisions, and they do
hereby further expressly waive any defense which they or either of them might
interpose to an action brought hereon by any person, firm or corporation,
including subcontractors, materialmen and third persons, for work, labor,
services, supplies or material performed, rendered, or furnished as aforesaid
upon the ground that there is no law authorizing the Contracting Party or the
Authority to require the foregoing provisions to be placed in this bond.
And the Surety, for value received, for itself and its successors and assigns,
hereby stipulates and agrees that the obligation of said Surety, and its bond
shall be in no way impaired or affected by any extension of time, modification,
omission, addition, or change in or of the said Contract or the work to be
performed thereunder, or by any payment thereunder before the time required
therein, or by any waiver of any provision thereof, or by any assignment,
subletting or other transfer thereof or of any part thereof, or of any work to
be performed or any monies due or to become due thereunder and said Surety
does hereby waive notice of any and all of such extensions, modifications,
omissions, additions, changes, payments, waivers, assignments, subcontracts
and transfers, and hereby expressly stipulate and agrees that any and all things
done and omitted to be done by and in relation to assignees, subcontractors,
and other transferees shall have the same effect as to said Surety as though
done or omitted to be done by or in relation to said Contractor.
B-9
<PAGE>
FORM OF PAYMENT BOND
IN WITNESS WHEREOF, the Contractor and the Surety have hereunto set their hands
and seals, and such of them as are corporations have caused their corporate
seals to be hereunto affixed and these presents to be signed by their proper
officers, this 7th day of August, 1997 of
(Seal)
HBE ACQUISITION CORPORATION D/B/A/
HENRY BROTHERS ELECTRONICS, INC.
..................................
(Contractor)
By [SIGNATURE ILLEGIBLE]
...............................
President
Attest:
[SIGNATURE ILLEGIBLE]
.................................
Secretary
(Seal)
UNITED PACIFIC INSURANCE COMPANY
...................................
Surety
By Gary Morrissey
.................................
Gary Morrissey, Attorney-in-Fact
================================================================================
If the Contractor is a partnership, the bond should be signed by one of the
partners in the firm name.
If the Contractor is a corporation, the bond should be signed in its correct
corporate name by a duly authorized officer, agent, or attorney-in-fact.
There should be executed an appropriate number of counterparts of the bond
corresponding to the number of counterparts of the Contract.
B-10
<PAGE>
FORM OF PAYMENT BOND
ACKNOWLEDGEMENT OF CONTRACTOR, IF A CORPORATION
STATE OF New Jersey )
)ss.:
COUNTY OF Bergen )
On this 14th day of August, 1997, before me personally came James E. Henry
to me known, who, being by me duly sworn, did depose and say that he resides
at Laek Rd, Bellvale, NY that he is the President of HBE Acquisition Corp DBA:
Henry Bros Electronics the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that one of
the seals affixed to said instrument is such seal; that it was so affixed by
order of the directors of said corporation, and that he signed his name
thereto by like order.
Inge Foley
............................
Notary Public
INGE FOLEY
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Oct. 19, 2000
B-11
<PAGE>
FORM OF PAYMENT BOND
ACKNOWLEDGEMENT OF CONTRACTOR, IF A PARTNERSHIP
STATE OF ...............)
) ss.:
COUNTY OF ..............)
On this .................... day of ............................, 19.....,
before me personally appeared .............................................
to me known and known to me to be one of the members of the firm of .......
...........................................................................
described in and who executed the foregoing instrument and he acknowledged to me
that he executed the same as and for the act and deed of said firm.
...............................
Notary Public
B-12
<PAGE>
FORM OF PAYMENT BOND
ACKNOWLEDGEMENT OF CONTRACTOR, IF AN INDIVIDUAL
STATE OF ...............)
) ss.:
COUNTY OF ..............)
On this .............. day of ........................., 19..., before
me personally appeared ....................................................
to me known and known to me to be the person described in and who executed
the foregoing instrument and acknowledged that he executed the same.
...............................
Notary Public
Each executed bond should be accompanied by (a) appropriate acknowledgements
of the respective parties; (b) appropriate duly certified copy of Power of
Attorney or other certificate of authority where bond is executed by agent,
officer or other representative of Surety; (c) a duly certified extract from
By-Laws or resolutions of Surety under which Power of Attorney or other
certificate of authority of its agent, officer or representative was issued, and
(d) duly certified copy of latest published financial statement of assets and
liabilities of Surety.
Affix Acknowledgements and Justification of the Surety.
B-13
<PAGE>
ACKNOWLEDGEMENT OF SURETY
STATE OF NEW YORK
COUNTY OF NASSAU
ON THIS 7TH DAY OF AUGUST 1997 BEFORE ME PERSONALLY CAME GARY MORRISSEY TO ME
KNOWN, WHO, BEING BY ME DULY SWORN DID DEPOSE AND SAY THAT HE RESIDES AT
NANUET, NY THAT HE IS THE ATTORNEY-IN-FACT OF THE UNITED PACIFIC INSURANCE
COMPANY THE CORPORATION DESCRIBED IN AND WHICH EXECUTED THE FOREGOING
INSTRUMENT; THAT HE KNOWS THE SEAL OF SAID CORPORATION; THAT ONE OF THE SEALS
AFFIXED TO THE FOREGOING INSTRUMENT IS SUCH SEAL; THAT IT WAS SO AFFIXED BY
ORDER OF THE BOARD OF DIRECTORS OF SAID CORPORATION; AND THAT HE SIGNED HIS
NAME THERETO BY LIKE ORDER.
JEAN C. SPEIRS
---------------------------------
NOTARY PUBLIC
JEAN C SPEIRS
NOTARY PUBLIC, State of New York
No. 01SP5073687
Qualified in Nassau County
Commission Expires March 3, 1999
<PAGE>
RELIANCE SURETY COMPANY RELIANCE INSURANCE COMPANY
UNITED PACIFIC INSURANCE COMPANY RELIANCE NATIONAL INDEMNITY COMPANY
ADMINISTRATIVE OFFICE, PHILADELPHIA, PENNSYLVANIA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that RELIANCE SURETY COMPANY is a corporation
duly organized under the laws of the State of Delaware, and that RELIANCE
INSURANCE COMPANY and UNITED PACIFIC INSURANCE COMPANY, are corporations duly
organized under the laws of the Commonwealth of Pennsylvania and that RELIANCE
NATIONAL INDEMNITY COMPANY is a corporation duly organized under the laws of the
State of Wisconsin (herein collectively called "the Companies") and that the
Companies by virtue of signature and seals do hereby make, constitute and
appoint Gary Morrissey, Richard Guarini, John H. Treiber, H. Craig Treiber., of
Garden City, New York their true and lawful Attorney(s)-in-Fact, to make,
execute, seal and deliver for and on their behalf, and as their act and deed any
and all bonds and undertakings of suretyship and to bind the Companies thereby
as fully and to the same extent as if such bonds and undertakings and other
writings obligatory in the nature thereof were signed by an Executive Officer of
the Companies and sealed and attested by one other of such officers, and hereby
ratifies and confirms all that their said Attorney(s)-in-Fact may do in
pursuance hereof.
This Power of Attorney is granted under and by the authority of Article
VII of the By-Laws of RELIANCE SURETY COMPANY, RELIANCE INSURANCE COMPANY,
UNITED PACIFIC INSURANCE COMPANY, and RELIANCE NATIONAL INDEMNITY COMPANY which
provisions are now in full force and effect, reading as follows:
ARTICLE VII - EXECUTION OF BONDS AND UNDERTAKINGS
1. The Board of Directors, the President. the Chairman of the Board,
any Senior Vice President, any Vice President or Assistant Vice President a
other officer designated by the Board of Directors shall have power and
authority to (a) appoint Attorney(s)-in-Fact and to authorize them to execute
on behalf of the Company bonds and undertakings, recognizances, contracts of
indemnity and other writings obligatory in the nature thereof and (b) to remove
any such Attorney(s)-in-Fact at any time and revoke the power and authority
given to them.
2. Attorney(s)-in-Fact shall have power and authority, subject to the
terms and limitation of the Power of Attorney issued to them, to execute deliver
on behalf of the Company, bonds and undertakings, Recognizances, contracts of
indemnity and other writings obligatory in the nature thereof. The corporate
seal is not necessary for the validity of any bonds and undertakings,
recognizances, contracts of indemnity and other writings obligatory in the
nature thereof.
3. Attorney(s)-in-Fact shall have Power and authority to execute
affidavits required to be attached to bonds, recognizances, contracts of
indemnity or other conditional or obligatory undertakings and they shall also
have power and authority to certify the financial statement of the Company and
to copies of the By-Laws of the Company or any article or section thereof.
This Power of Attorney is signed and sealed by facsimile under and by authority
of the following resolution adopted by the Executive and Finance Committees of
the Boards of Directors of Reliance Insurance Company, United Pacific Insurance
Company and Reliance National Indemnity Company by Unanimous Consent dated as of
February 28, 1994 and by the Executive and Financial Committee of the Board of
Directors of Reliance Surety Company by Unanimous Consent dated as of March 31.
1994.
"Resolved that the signatures of such directors and officers and the
seal of the Company may be affixed to any such Power of Attorney of any
certificates relating thereto by facsimile, and any such Power of
Attorney or certificate bearing such facsimile signatures or facsimile
seal shall be valid and binding upon the Company and any such Power so
executed and certified by facsimile signatures and facsimile seal shall
be valid and binding upon the Company, in the future with respect to
any bond or undertaking to which is attached."
IN WITNESS WHEREOF, the Companies have caused these presents to be signed and
their corporate seals to be hereto affixed, this November 22, 1994.
RELIANCE SURETY COMPANY
RELIANCE INSURANCE COMPANY
UNITED PACIFIC INSURANCE COMPANY
RELIANCE NATIONAL INDEMNITY COMPANY
[SEAL] [SEAL] [SEAL] [SEAL] CHARLES B. SCHMALZ
--------------------------------
STATE OF Pennsylvania )
COUNTY OF Philadelphia ) ss.
On this, NOVEMBER 22, 1994, before me, Tammy Sue Kayati, personally appeared
Charles B. Schmalz, who acknowledged himself to be the Executive Vice President
of the Reliance Surety Company, and the Vice President of Reliance Insurance
Company, United Pacific Insurance Company, and Reliance National Indemnity
Company and that as such, being authorized to do so, executed the foregoing
instrument for the purpose therein contained by signing the name of the
corporation by himself as it duly authorized officer.
In witness whereof, I hereunto set my hand and official seal.
<TABLE>
<S> <C> <C>
- -----------------------------------
NOTARIAL SEAL TAMMY SUE KAYATI
TAMMY SUE KAYATI, Notary Public [SEAL] --------------------------------------------------
City of Philadelphia, Phila. County Notary Public in and for the State of Pennsylvania
My Commission Expires July 20, 1998 Residing at Philadelphia
- ------------------------------------
</TABLE>
I. Anita Zippert, Secretary of RELIANCE SURETY COMPANY, RELIANCE INSURANCE
COMPANY. UNITED PACIFIC INSURANCE COMPANY, and RELIANCE NATIONAL INDEMNITY
COMPANY do hereby certify that the above and foregoing is a true and correct
copy of the Power of Attorney executed by said Companies, which is still in full
force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seals of said
Companies this 7 day of August 1997.
[SEAL] [SEAL] [SEAL] [SEAL] ANITA ZIPPERT
-----------------------------
Secretary
<PAGE>
UNITED PACIFIC INSURANCE COMPANY
PHILADELPHIA, PENNSYLVANIA
FINANCIAL STATEMENT DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and Bank Deposits......................................................... $ 675,398
Securities .................................................................... 97,767,144
Premium Balances (Under 90 days)............................................... (6,809,903)
Accrued Interest and Dividends................................................. 1,505,145
Federal Income Taxes........................................................... 116,235
Other Assets................................................................... 31,227,601
------------
Total Admitted Assets....................................................... $124,481,620
============
LIABILITIES
Losses and Loss Adjustment Expense............................................. $27,721,644
Unearned Premiums.............................................................. 8,424,070
Other Taxes.................................................................... 107,705
Other Liabilities.............................................................. 27,945,971
------------
Total Liabilities........................................................... $64,199,390
============
CAPITAL AND SURPLUS
Capital Paid Up................................................................ $ 3,000,000
Surplus........................................................................ 57,282,230
------------
Total Policyholders' Surplus................................................ 60,282,230
------------
Total Liabilities, Capital and Surplus...................................... $124,481,620
============
</TABLE>
State of Washington )
)SS.
County of King )
Larry C. Mitchell, being duly sworn, says: That he is Vice President of the
UNITED PACIFIC INSURANCE COMPANY; that said company is a corporation duly
organized, existing, and engaged in business as a surety by virtue of the laws
of the Commonwealth of Pennsylvania, and has duly complied with all the
requirements of the laws of said state applicable to said company and is duly
qualified to act as surety under such laws; that said company has also complied
with and is duly qualified to act as surety under the Act of Congress of
September 13, 1982, as amended (31 U.S.C. 'SS' 9301 et seq.); that the foregoing
is a full, true and correct statement of the financial condition of said company
on the 31st day of December 1996.
Sworn to me this 14th day of March, 1997.
<TABLE>
<S> <C> <C>
Janis J. Crossland [SEAL] [SIGNATURE]
Vice President
[SEAL]
</TABLE>
Janis J. Crossland, Notary Public, State of Washington, County of King. My
Commission Expires February 5, 2000.
<PAGE>
NEW YORK CITY TRANSIT AUTHORITY
DIVISION OF MATERIEL
REQUEST FOR PROPOSAL
W-33725
FURNISHING AND INSTALLING
SECURITY SYSTEM UPGRADES AT THE TRANSPORTATION BUILDING
AND THE MASPETH FACILITY IN THE BOROUGHS
OF BROOKLYN AND QUEENS
Part II
Contract Terms and Conditions
<PAGE>
Contract W-33725
This Contract is for the furnishing, installing upgrades to and maintaining
of an electronic intrusion detection/access control and CCTV monitoring/
recording systems.
THIS AGREEMENT, made this _________ day of ___________________, 1997
between THE METROPOLITAN TRANSPORTATION AUTHORITY (hereinafter the "MTA"),
acting by THE NEW YORK CITY TRANSIT AUTHORITY (hereinafter. the "Authority"),
with offices at 370 Jay Street, Brooklyn, New York 11201; and HBE Acquisition
Corp, D/B/A Henry Brothers Electronics (hereinafter the "Contractor"), with
offices at 280 Midland Ave, Saddle Brook, NJ 07663.
WITNESSETH:
WHEREAS, the MTA plans to purchase electronic intrusion detection/access
control and CCTV monitoring/recording systems;
and
WHEREAS, the MTA, requires the Contractor to furnish, deliver, install and
maintain the systems as well as conduct training of Authority personnel to
operate them;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained the parties hereto agree as follows:
II-1
<PAGE>
W-33725
Special Conditions
SC 1 Permits
A. The Contractor, at no additional expense to the Contracting Party, shall
apply for, obtain approvals for, request, process, obtain and keep in force
all permits and approvals required for, necessary for, or in connection
with the Project and he shall do so only with the prior knowledge and
approval of the Engineer. The parties designated in Article 6.01
Indemnified Parties, shall be named as insureds in any additional policy or
certificate of insurance required to obtain any permit.
B. The Authority shall not be liable for any injuries (including death) or
damage sustained or caused by the Contractor's operations. These permits
shall not act as a waiver of liability for any injury (including death) or
damage that might result from the Contractor's operations, whether due to
his negligence or the negligence of any of the parties, designated in
Article 6.01 of the Contract Terms and Conditions as Indemnified Parties,
or otherwise. Such permits shall not affect the Contractor's responsibility
or liability under Article 6.02 Responsibility for Injuries to Persons and
Property.
SC 2 Beneficial Use
The Engineer will, as provided in Article 2.02, issue a separate Beneficial Use
Certification for each portion of work described below when all the work
required by the Contract Documents has been completed. As a condition precedent
to the issuance of a Beneficial Use Certification, as-built drawings and
operation and maintenance manuals approved by the Engineer must be delivered to
the Authority.
Portions:
A. All work at the Transportation Building, 370 Jay Street, Brooklyn, NY.
B. All work at the Maspeth Facility, 55004 Maspeth Avenue, Queens, NY.
SC 3 Specific Guarantees
A. Mechanical and Electrical Equipment
1. The Contractor hereby guarantees all apparatus, devices, workmanship and
materials furnished and installed under Divisions 15 and 16, (hereinafter
referred to as the "Equipment"), for a period of one year from the date of
issuance by the Authority of the Certificate of Substantial Completion,
except that, if made applicable for this category of work by SC2, in case a
Beneficial Use Certification is issued for all of any part prior to said
date, said guarantee shall be for one year from the date of issuance of the
Beneficial Use Certification, except further that in no event shall the
guarantee period begin until the Contractor has furnished all applicable
as-built drawings and all applicable Operation and Maintenance Data
required in the Technical Specifications, Division 1 General Requirements,
Section 10, and Section 1L. Under this guarantee the Contractor shall
immediately, upon demand from the Authority, repair or replace at no
additional expense to the Contracting Party, any part or parts which fail
to perform the respective duties for which they are intended. The
Contractor also agrees to repair or replace, during the period of this
guarantee, at no additional expense to the Contracting Party, any and all
parts of the Railroad which may be damaged due to defects in, or failure
of, such parts or of any other part or parts of the Equipment furnished and
installed under this Contract. In case the Contractor shall fail to repair
or replace said defective or damaged part or parts in accordance with the
terms of this guarantee, or if immediate repair or replacement is necessary
to maintain operation of the Equipment
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and Railroad, the Contracting Party acting by the Authority shall have the
right to cause such repair or replacement to be made-at the expense of the
Contractor.
2. The forgoing guarantee period of one year shall be extended in
accordance with the requirements of Article 9.07(e). After any such repair
or replacement, the Authority reserves the right to inspect such repaired
or replaced part or parts and also to direct all retesting of the Equipment
necessary in the opinion of the Engineer to determine that such Equipment
or part or parts thereof are performing in accordance with their intended
function or purpose.
3. The Contractor shall deposit with the Authority, before the Certificate
of Substantial Completion under Article 2.02 shall be issued by the
Authority and before any deposit of cash or securities or any part thereof
given by the Contractor as security for the performance of this Contract
shall be surrendered, a bond to the Contracting Party, its successors and
assigns, in such form as the Authority shall require and duly executed and
acknowledged, in the amount of twenty one thousand dollars ($21,000) with
one or more sureties to be corporations or persons approved by the
Authority, conditioned for the faithful performance by the Contractor of
all his obligations under paragraphs (1) and (2) above, and other
provisions of this Contract with respect to such Equipment furnished and
installed under provisions of Divisions 15 and 16.
B. Communications work
1. The Contractor hereby guarantees all apparatus, devices, workmanship and
materials furnished and installed under Division 19 (hereinafter referred
to as the "Equipment"), for a period of one (1) year from the date of
issuance by the Authority of the Certificate of Substantial Completion,
except that, if made applicable for this category of work by SC2, in case a
Beneficial Use Certification is issued for all or any part thereof prior to
said date, said guarantee shall be for one (1) year from the date of
issuance of.the Beneficial Use Certification. However, no period of
guarantee shall begin until the conditions specified in Section 1C and
Division 19 concerning manuals, instruction books, parts lists, and final
tracings and drawings have been fulfilled. If the manuals, instructions
books, parts lists, and final tracings and drawings scheduled to be
delivered after the guarantee begins are not submitted when due, the
guarantee period will be suspended for that period that the Contractor has
failed to furnish all manuals, instruction books, parts lists, final
tracings and drawings and the guarantee period shall be extended for that
corresponding period.
2. The foregoing guarantee period of one year shall be extended in
accordance with the requirements of Article 9.07 (e). After any such repair
or replacement, the Authority reserves the right to inspect such repaired
or replaced part or parts and also to direct all retesting of the Equipment
necessary in the opinion of the Engineer to determine that such Equipment
or part or parts thereof are performing in accordance with their intended
function or purpose.
3. Under this guarantee the Contractor shall immediately, upon demand from
the Engineer, repair or replace without expense to the Contracting Party
any part or parts of the Equipment which fail to perform the respective
purposes for which they are intended. In case the Contractor shall fail to
repair or replace said defective part or parts in accordance with the terms
of this guarantee, or if immediate repair or replacement is
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necessary to maintain operation of the Equipment, the Contracting Party
acting by the Authority, will have the right to cause such repair or
replacement to be made at the expense of the Contractor. The Contractor
also agrees to repair or replace, during the period of this guarantee
(including extension thereof as hereinbefore provided) without expense to
the Authority or Contracting Party, any and all parts of the Railroad which
may be damaged due to defects in or failure of such parts or of any other
part or parts of Equipment furnished and installed under this Contract. In
case the Contractor shall fail to repair or replace said defective or
damaged part or parts in accordance with the terms of this guarantee, or if
immediate repair or replacement is necessary to maintain operation of the
Equipment, the Contracting Party acting by the Authority shall have the
right to cause such repair or replacement to be made at the expense of the
Contractor and the Contractor shall promptly pay the amount of such expense
to the Contracting Party.
4. The Contractor shall deposit with the Authority, before the Certificate
of Substantial Completion under Article 2.02 shall be issued by the
Authority and before any deposit of cash or securities or any part thereof
given by the Contractor as security for the performance of this Contract
shall be surrendered, a bond to the Contracting Party, its successors and
assigns, in such form as the Authority shall require and duly executed and
acknowledged, in the amount of one hundred fifty eight thousand dollars
($158,000) with one or more sureties to be corporations or persons approved
by the Authority, conditioned for the faithful performance by the
Contractor of all his obligations under paragraphs (1) (2) and (3) above,
and other provisions of this Contract with respect to such Equipment
furnished and installed under provisions of Division 19
B. If in connection with any work performed under any guarantee set forth in
these Special Conditions the Authority finds it necessary for the Contractor to
employ flagmen, watchmen, or other employees of the New York City Transit System
to divert service, to "single-track" trains, to use work trains, to provide
access to the Work Site, or to insure the safety of passengers and the safe and
efficient operation of traffic on the Railroad, the contractor shall pay all
costs of such work, labor and services as specified in the Authority's "Schedule
of Rates for Services Rendered to Outside Parties" then in effect.
SC 4 Required License
All work required by the Technical Specifications shall be performed in a
workmanlike manner by craftsmen who are experienced in the installation of the
required equipment and licensed by New York State as security system installers
as per General Business Law, Article 6D.
SC 5 Furnish. Delivery, Installation. Acceptance and Rejection
The Contractor shall furnish all the work described in the Contract
Documents.
The Contractor is responsible for the complete installation of all
equipment. All equipment will be installed according to manufacturers'
specifications.
The work shall undergo a series of tests during the installation and
modification process in accordance with the Technical Specifications. These
tests shall provide-basic assurance that the various components of the work
operate as specified in the Technical Specifications. Upon request, the
Contractor shall be prepared to demonstrate any function of the work prior to
the start of acceptance tests. The Authority will not make changes to the system
during the formal acceptance period.
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Delivery and installation shall not be made on a Saturday, Sunday, or `
Authority observed holidays unless authorized by the Program Manager.
Upon certification by the Contractor that various components of the work
meet the design requirements, and upon completion of the functional
demonstration, a thirty (30) day acceptance test period shall commence.
In the event the required level of reliability is not demonstrated to
satisfaction of the Authority, the System Acceptance Test will be restarted and
re-run until the required performance level has been demonstrated for thirty
(30) consecutive days.
Upon successful-completion of the thirty (30) day Acceptance Test the
Program Manager will issue a Certificate of Substantial Completion.
Prior to delivery and installation of the work, the Contractor shall give
the Authority at least two (2) weeks advance notice by contacting the Project
Manager.
The Contractor shall be responsible for ensuring that the work conforms to
the standard described in the Technical Specifications.
The right of inspection by the Authority herein is provided solely for the
Authority's benefit; and the Contractor represents that to its knowledge that
the work performed finder this Contract is free from patent and latent defects,
which the Authority is not in any manner bound by inspection or otherwise to
discover.
The Authority reserves the right to temporarily suspend the performance of
part or all work, if it deems it in the best interest to do so without
compensation to the Contractor for such suspension, except for extending the
time for completing the work and Impact Costs as described herein.
SC 6 Warranty for Security System
A. All work furnished under this Contract shall be unconditionally
warranted against failures or defects for a period of one (1) year after the
Final Acceptance Test of the entire Security System.
1. Notwithstanding inspection and acceptance by the Authority of the
software and the hardware furnished under the Contract or any condition of
this Contract concerning the conclusiveness thereof, the Contractor
warrants that all software and hardware are:
a. Of the quality to pass without objection in the trade under the
Contract description.
b. Fit for the intended purpose.
c. Within the variations permitted by the Contract, if any, of even
kind, quality, and quantity within each unit and among all unit.
d. Adequately contained, packaged and marked as required by Contract.
e. In Conformance with the promises or affirmations of fact made on
the container
2. The rights and remedies of the Authority provided in this Article are
in addition to and do not limit any rights afforded to the Authority by any
other Article contained herein.
3. The Contractor assumes responsibility for all defects for the entire
system. The Contractor must ensure the entire system is free from defects
and must fix all problems at no cost to the Authority during the warranty
period.
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4. Beneficial Use: In case a Beneficial Use Certification is issued for all
or any part of the Work, the warranty shall be for one (1) year from the
date of the Beneficial Use Certification, except that in no event shall the
warranty period begin until the Contractor has furnished all applicable
Operation and Maintenance Manuals, all drawings including, but not limited
to, as-built documentation and drawings, all technical manuals, and all
documentation and source code required pursuant to the Contract Documents.
Notwithstanding anything to the contrary set forth herein, the
warranty for any such portion(s) of the work shall not expire prior to the
issuance of the Certificate of Substantial Completion.
5. All parts are unconditionally warranted against failures or defects for
a period of one (1) year commencing .as set forth below. The one (1) year
warranty period shall commence at such time, as defined hereinbelow.
6. Warranty
a. Notwithstanding inspection and acceptance by the Authority of parts
furnished under this Contract, or any; condition of this Contract
concerning the conclusiveness thereof, the Contractor warrants that for a
period of one (1) year after the issuance of the Certificate of Substantial
Completion:
(1) All parts furnished under this Contract shall be free from
defects in material or workmanship and shall conform with all
requirements of this Contract.
(2) The Contractor shall provide one day replacement service for
inoperable parts. Whether or not a part is inoperable for reasons of
warranty failure or due to damage caused by user abuse, the parts
shall be replaced within one (1) calendar day of notice to the
Contractor. All replacement parts shall be refurbished/reconditioned
in order to allow any person to use the replacement parts without
adverse health concerns.
(a) In the case of the return of a part for reasons due to
warranty failures, the Contractor shall bear all replacement
costs including, but not limited to, the cost of the warranty
repair, the cost of refurbishing/reconditioning the part, and all
Postage/shipping costs.
(b) In the case of the return of a part for reasons due in
part to warranty failures and in part to damage caused by user
abuse, the Authority will bear only the cost to repair damage
caused solely by user abuse, and the Contractor shall bear all
other replacement costs including, but not limited to, the cost
of the warranty repair, the cost of refurbishing/reconditioning
the parts, and all postage/shipping costs.
(c) In the case of the return of. a part for reasons caused
solely by user abuse, or if the Authority elects to return a
part for refurbishing/reconditioning without the need for repair,
the Authority will bear all replacement
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costs including, but not limited to, the cost of the repair
caused solely by user abuse, the cost-of refurbishing/
reconditioning the parts, and all postage/shipping costs.
(3) Any parts or parts thereof, corrected or furnished in
replacement under this Article, shall also be subject to the terms of
this Article, for the unexpired balance of the one (1) year warranty
period, to the same extent as, parts initially delivered.
7. Shrinkwrap Software - Shrinkwrap software shall be warranted to the
Authority in accordance with the warranty provisions provided with the
software by the third-party vendor. The Contractor shall coordinate
software support for the Authority with the third-party vendors of such
shrinkwrap software during the one (1) year warranty period.
B. By way of amplification of the warranty requirements set forth in SC3
above, and not in derogation thereof, during the warranty period the Contractor
warrants that the system including, but not limited to, software and hardware
and communications work, shall comply with the same requirements as are set
forth herein.
C. In cases where the Contractor is notified of the; need to repair and/or
replace the Work, the existing warranty will not apply to the extent that such
failure is caused by user or Authority abuse. Several examples of user abuse are
noted below:
1. Work damaged by external fire;
2. Work damaged by water; or
3. Work damaged in collision.
D. 1. In case the Contractor shall fail to repair or replace any part or
do any Work in accordance with the terms of the warranty, or if
immediate replacement or repair is necessary to maintain operation of
the Work, the Project Manager shall have the right to cause such
replacement or repair to be made at the expense of the Contractor in
accordance with the Authority's "Schedule of Rates for Services
Rendered to Outside Parties" in effect at the time replacement is
made.
2. In the event of a delay(s) in the performance of any warranty Work
over the time limit(s) required pursuant to paragraph A.6.a.(2) above,
or beyond the period to which such time may be extended by the
Authority as herein provided, the Authority shall be paid damages for
such delay. Such damages shall be in addition to any amounts due
pursuant to paragraph D.1., above. Inasmuch as the amount of such
damages and the loss to the Authority will be extremely difficult to
ascertain, it is hereby expressly agreed that such damages will be
liquidated and paid as follows:
(a) The Contractor shall pay. the Authority for each and every
day of unexcused delay, such sum(s) as is(are) set forth in
Chapter 2, Article 2.04 of the Contract Terms and Conditions,
which-sum(s) is(are) hereby agreed upon not` as a penalty but as
liquidated damages.
(b) The Authority shall have the right to deduct such liquidated
damage assessments from any monies due or which may
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thereafter become due to the Contractor under this Contract; and
in case the amount which may become due hereunder shall be less
than liquidated damages due to the Authority, the Contractor
shall pay the difference upon demand by the Authority.
E. Each and every piece of equipment, component or part thereof that is
replaced, repaired, adjusted or serviced in any manner under the terms of
the warranty by the Contractor during the warranty period shall be reported
to the Project manager on forms supplied by the Authority. Each report
shall indicate in detail all replacement, repairs, adjustments and
servicing to each and every component, unit or parts thereof.
F. Any warranty work shall be accomplished with minimum disruption to the
Authority's operating facilities. The Project Manager at his sole
discretion shall determine the availability of facilities for warranty
work.
G. The Warranties under this Contract shall not in any way or manner
decrease, modify, affect, relieve or excuse the Contractor, Subcontractor
or Suppliers from their responsibility or liability under applicable law
for breach of which they would be responsible and liable in damages to the
Authority or any other person and persons.
H. 1. The Contractor shall obtain all Manufacturers' and suppliers'
warranties and guarantees of the Work in the name of the Authority
and shall deliver copies to the Project Manager.
2. Irrespective of the Manufacturer's or Supplier's warranties,
guarantees, terms and conditions, the Contractors guarantees and
warranties for the Work shall be under the terms and for the period as
stated in this Contract, except as specifically noted for Shrinkwrap
Software.
I. The Project Manager shall have the right to inspect all Work done under
this warranty subject to the same terms applicable to the Work under this
Contract.
J. The Contractor along with an Authority representative shall inspect any
failure or defect in the Work during the warranty period to determine that
the failure or defect is covered by the warranty provisions.
K. During the warranty period, a field service.representative shall be
available to perform warranty work at the Authority's Work location 24
hours per day, 7 days per week.
L. The warranties set forth in this Contract are the only warranties made
by the parties and replace all other warranties, express or implied,
including the implied warranties of merchantability and fitness for a
particular.purpose.
SC 7 Rights In Data
Data as used in this Article, means recorded information regardless of the
form or medium on which it may be recorded. The term includes technical data and
documentation.
Unlimited rights, as used in this Article, means the right of the Authority
to use, disclose, reproduce, prepare derivative works, distribute copies to the
public, and perform and display publicly in any manner and for any purpose, and
to have or permit others to do so.
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Allocation of Rights
As a part of the work the Contractor shall create certain original
materials and data for the Authority, specifically the Station Inspection File
and the Autodial Code (Materials). Additional materials, if any, shall be
designated in the Design Document. Contractor relinquishes all rights and grants
to the Authority any and all ownership interests and acknowledges that the
Authority possesses all ownership interest in and ownership of copyright to the
Materials. Airy and all copyrights and patents on such materials shall belong to
the Authority. Contractor shall provide all source code and complete
documentation for Materials. As owner of the Materials, the Authority shall have
unlimited rights to said Material.
Upon request of the Authority, the Contractor shall immediately execute, or
shall cause its officers, agents, successors, and assigns to execute a transfer
of rights set forth in the preceding paragraph.
The Authority, at its option may treat this Contract as an assignment by
the Contractor of its rights to all Materials developed hereunder.
To the extent that any Materials include pre-existing items, the Contractor
grants to the Authority an irrevocable, nonexclusive, worldwide license to use,
execute, reproduce, display, perform, and.distribute copies of such pre-existing
items. Such pre-existing items which are contained in Materials may be:
Used or copied for use in or with the computer (s) for which it was
acquired, including use at any Authority installation Lo which such
computer(s) may be transferred.
Used or copied for use in a backup or such other computer as the
Authority may choose.
Reproduced for safekeeping (archives) or backup purposes.
Modified, adapted, or combined with other computer software provided
that the modified, combined, or adapted portions of the derivative software
incorporating any of the delivered, restricted computer software shall be
subject to same restrictions set forth in this Contract; and the Contractor
agrees that the Authority's right to use said computer software in such an
application shall not be an infringement on any copyright that the
Contractor may now have or shall in the future procure.
Disclosed to and reproduced for use by support service of their
subcontractors, subject to the same restrictions set forth in this
Contract.
Used or copied for use in or transferred to a replacement computer.
The Authority shall have:
Unlimited rights in all Materials.
The right to limit exercise of claim to copyright in Materials
produced in the performance of this Contract and to obtain assignment of
copyright of such Materials.
The right to limit the release and use of certain Materials. The
Contractor shall have, to the extent permission is granted, the right to
establish claim to copyright subsisting in Materials first produced in the
performance of this Contract.
Copyright
Materials first produced in the performance of this Contract. The
Contractor-agrees not to assert, establish or authorize Withers to assert or
establish any claim-to copyright subsisting in any Material first produced in
the performance of this Contract without written permission from the Authority.
Pre-existing data not first produced in the performance of this Contract.
The Contractor shall not, without prior permission of the Authority
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incorporate in data delivered under this Contract any data not first produced in
the performance of this Contract and which contain copyright notice of 17 U.S.C.
401 or 402, unless the Contractor identifies such data and grants to the
Authority, or acquires on its behalf a license of the same scope as set forth
herein.
Release and use restrictions. Except as otherwise specifically provided
for herein, the Contractor shall not use for purposes other than the
performance of this Contract, nor shall the Contractor release, Third-party
software (commonly known as Shrinkwrap Software), which shall be procured by
the Contractor in the name of the New York City Transit Authority and delivered
to the Authority.
Indemnity. Contractor's obligation to save harmless, idemnify, and its
obligation to defend the Indemnified Parties shall be in accordance with Article
6.03 of the Contract Terms and Conditions. The Contractor shall have no
obligation to save harmless, idemnify and defend the Indemnified Parties and the
Authority with respect to claims based solely on any modification(s) to data and
Materials made by the Authority without the Contractor's concurrence. The
Contractor shall not withhold its concurrance except based upon reasonable,
sound and technologically valid bases.
SC 8 Commercial Computer Software - Restricted Rights
As used in here, restricted computer software means any computer program,
computer data base, or documentation thereof that either is a trade secret, is
commercial or financial and confidential or privileged or is published and
copyrighted. Restricted computer software shall include:
Third-party software (commonly known as Shrinkwrap Software), which shall
be procured by the Contractor in the name of the New York City Transit Authority
and delivered to the Authority.
Licensed software and software supplied to the Contractor by its
subcontractor/supplier that is delivered to the Authority shall include license
agreements.
With respect to the restricted computer software and -.otwithstanding any
provisions to the contrary contained in any of the Contractor's or of its
subcontractors or suppliers standard commercial license. or lease agreement
pertaining to such restricted computer software delivered under this Contract
and irrespective of whether any such agreement has been proposed prior to or
after issuance of this Contract or of the fact that such agreement may be
affixed to or accompany the restricted computer software upon delivery,
Contractor for itself, its officers, agents, successors and assigns, agrees that
the Authority shall have the rights that are set forth herein to use, duplicate
or disclose any restricted computer software delivered under this Contract. The
terms and provisions of this Contract, including any commercial lease or license
agreement, shall be subject to Federal, State, and Local laws.
The restricted computer software! delivered under this Contract shall not
be used, reproduced or disclosed by the Authority except as provided for herein
or as expressly stated otherwise in this Contract.
The restricted computer software described may be utilized as follows:
Used or copied for use in or with the computers) for which it was
acquired, including use at any Authority installation to which such
equipment may be transferred.
Modified, adapted or combined with other computer software provided
that these changes are within the restrictions as set.forth in this
Contract and the Contractor agrees that the Authority's right to use said
computer software in any such application shall not be an infringement on
any present or future Contractor copyrights.
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Disclosed to and reproduced for use by support service contractors or
their subcontractors, subject to their acknowledgment that all rights to a
restricted computer software are held by the respective owners of such
software and that the support service contractors or their subcontractors
are subject to the same restrictions as set forth in this Contract.
Used or copied for use in or transferred to a replacement computer.
The Authority shall require support service contractors and their
subcontractors to execute a non-disclosure agreement acknowledging that
copyright, patent rights, intellectual property rights and all other rights to
restricted computer software are held by the respective owners and that the
support service contractors and subcontractors shall be bound by the terms and
conditions regarding use and duplication of restricted computer software.
If the restricted computer software delivered under this Contract is
published or copyrighted it is licensed to the Authority unless expressly stated
otherwise in this Contract.
To the extent feasible the Contractor shall affix a Notice substantially as
follows to any restricted computer software delivered under this Contract. If
the Contractor does not affix the following notice the Authority will have the
right to do so. "Notice-Notwithstanding any other lease or license agreement
that may pertain to or accompany the delivery of this software, the rights of
the Authority regarding its use, reproduction and disclosure are in accordance
with Contract W-33725."
SC 9 Maintenance Contract
The Authority has the option to award a maintenance contract to the Contractor
based upon the terms and conditions as set forth herein. The Authority may
exercise said option by giving written notice to the Contractor at any time
prior to May 1, 2000. The term of the maintenance agreement shall be for four
years following the expiration of the one year warranty/maintenance term at the
cost specified in the letter agreement attached to the Price Schedule. The cost
of the agreement includes spare parts.
The Contractor shall provide the maintenance necessary to maintain
Equipment in good working order, which is defined to be working in accordance
with the requirements listed in the technical specifications and with
manufacturer specifications. the Contractor shall provide on-site support as
needed.
The Project Manager shall notify the Contractor by telephone of the need
for remedial maintenance. The Contractor shall effect the necessary repairs
within twenty-four (24) hours of notification.
At a minimum, preventive maintenance shall be performed quarterly during
Warranty and Maintenance periods.
The Authority shall be provided with all software upgrades, updates and
revisions during the Warranty and Maintenance period.
Invoices for maintenance work performed and accepted the preceding month
shall be submitted the fifteenth day of each month subject to the Contractor's
compliance with the submission requirements contained hereunder and all other
provisions in the Contract documents.
SC 10 Further Warranty by Contractor
The Contractor expressly warrants and agrees that it shall not install,
nor shall permit the installation of any type of software or hardware program,
or device which would allow any person or entity to electronically repossess or
otherwise render inoperative, alter, damage or destroy any software,
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hardware, work or services provided under this Contract or any other software,
hardware or data used by the Authority. Prohibited devices or programs shall
include, but not be limited to, back doors, trap doors, drop dead devices, booby
traps, software locks, software time bombs, and logic bomb codes. There shall be
no pre-programmed devices which would cause any software and/or data utilized by
the Authority to become erased or become inoperable or incapable of processing
accurately and in accordance with the warranties specified herein and with the
Contract Documents including, but not limited to the Technical Specifications.
These provisions shall apply to Contractor, its subcontractors and suppliers and
their respective employees, officers, agents, successors, and assigns and shall
survive the completion, expiration or other termination of this Contract.
In the event of any dispute hereunder, the Contractor agrees that there
shall be no interference with the use of software, hardware, work or services
provided under this contract or any other software, hardware or data used in any
way by the Authority. Disputes shall be resolved in accordance with the disputes
resolution provisions of this Contract.
SC 11 Most Favored Customer
The Contractor warrants and represents that the prices, warranties,
benefits and terms set forth herein are at least equal to or more favorable to
the Authority than the prices, warranties, benefits, and terms now charged or
offered by the Contractor to other customers under similar circumstances and
terms and conditions, or that may be charged or offered during the term hereof
for the same or substantially similar products or services.
SC 12 Software
A. Upon the Award Date, the Contractor shall grant the Authority by virtue
thereof and without the necessity of any other or further document or act, a
nonexclusive, nontransferrable, perpetual license to use all software as set
forth herein and any other software and software upgrades and modifications
developed by the Contractor required to perform this Contract.
B. The irrevocable license granted hereunder shall entitle the Authority to use
the applicable software upgrades and modifications in perpetuity. It is
expressly understood in this regard that, no title to, or ownership of the
intellectual property of the licensed software, or any part thereof, is
transferred to the Authority, unless the Contractor decides to provide the
Authority with ownership rights, except that the Authority shall have ownership
of the physical medium on which such software is stored. The Contractor shall
represent that the software and all its elements, including, but not limited
to, documentation and source code, shall meet and be maintained by the
Contractor to conform with the software standards issued by the American
National Standards Institute (ANSI).
C. The Authority will be authorized to use any and all software on any equipment
manufactured, furnished and installed by the Contractor.
D. The Authority will be authorized to upgrade, modify or otherwise alter such
software to meet a specific need of the Authority. The Authority shall have the
right to copy the software, in whole or in part, for archival and back-up
purposes to replace a worn or defective copy, or to otherwise maintain equipment
integrity. The Authority will include the Contractor's copyright notice or other
proprietary notice on or in any copies provided that such notices do not set
forth any restriction which is more restrictive than the terms hereof.
E. The Contractor shall guarantee that the Authority will be entitled to any
future software upgrades. The Contractor shall guarantee that no future
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version of the software used on the equipment will degrade the performance of
the equipment.
SC 13 Source Code and Associated Documentation
The Contractor shall provide the Authority with copies of the source code
resident in the equipment furnished. All source code updates or new versions
thereto shall be accompanied with documentation, including, as a minimum, user
documentation, development tools and explanatory material as the Contractor has
determined, in the good faith exercise of its reasonable judgment, will enable
the Authority to use, operate, upgrade, modify, and generally support the
equipment furnished.
SC 14 Prosecution of the Work
A. If, during the prosecution of the Work, unforeseen difficulties of any nature
be encountered, the Contractor shall take every necessary or proper precaution
to overcome the unforeseen difficulty according to the direction of the Project
Manager and as provided in these Contract Documents.
B. All goods and workmanship shall be of the best class in every respect, and
the Project Manager shall be the sole judge of quality and efficiency.
C. In all operations connected with the Work, all local laws and ordinances of
the City of New York; and all laws of the State of New York which control or
limit in any way the actions of those engaged in the Work, or affecting the Work
belonging to or used by them, shall be strictly complied with, and further, the
Contractor shall comply with all applicable Federal, State and Municipal
Regulations regarding the transportation of goods in and around the City and
State of New York.
D. The Contractor shall employ only competent, skillful, and faithful personnel
to do the Work.
E. The Contractor hereby represents that prior to submitting his proposal, he
examined the locations of the Technical Specifications in detail and satisfied
himself as to the intent of the Technical Specifications relating to the Work to
be performed, and he shall not at any time make any claim for damage or
extension of time, or any other demand because of any misinterpretation or
misunderstanding of the Technical Specifications, or because of any lack of
information.
F. All goods of whatever kind which, during their installation, and before
completion of the Acceptance Test, become damaged from any cause whatsoever,
shall be removed and shall be replaced by new, undamaged goods with no
additional cost to the Contracting Party.
G. The Contractor shall furnish all labor, material, plant, tools supplies and
other means necessary to perform the Work described in the Contract Documents in
accordance with the Technical Specifications; and shall perform such Work within
the direction and to the satisfaction of the Project Manager.
H. The Contractor agrees to deliver and install conforming goods in accordance
with the Technical Specifications.
I. Delivery and installation by the Contractor shall be within the time
specified and in accordance with the negotiated schedule, but in all cases
completion will be within 29 months from the Notice of Award. If for any reason
delivery and installation cannot be performed by the date or dates
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specified, the Contractor must immediately furnish the Authority with written
notice of such delay and reason thereof. Extension of time will be granted only
if the delay is deemed by the Authority to be unavoidable as provided for in
Paragraph K below.
J. Time of delivery and installation is of the essence of this Contract. In the
event of a delay in the delivery and installation of such goods, for which the
Contractor is not entitled to an extension of time under Paragraph K, the
Authority may recover all damages for such delay.
K. If the delivery and installation of conforming goods under this Contract
should be unavoidably delayed, the Authority may extend the time for completion
of the Contract for the determined number of days of excusable delay provided
the Contractor advised the Authority as required under Paragraph I above. A
delay is unavoidable only if the delay was substantial and in fact caused the
Contractor to miss delivery dates and arose from unforeseen causes beyond the
Contractor's control, provided the Contractor has taken reasonable precautions
to prevent delays due to such causes and further provided such delays were not
caused directly or substantially by acts, omissions, negligence, or mistakes of
the Contractor, the Contractor's suppliers, or their agents, and could not
adequately have been guarded against by contractual or legal means.
L. The Contractor agrees to make no claim for damages for delay in performance
of this Contract occasioned by any act or omission of the Authority or any of
its representatives, and agrees that any such claim shall be fully compensated
for by an extension of time to complete performance of the Work as provided
herein.
M. The delivery, installation and acceptance of any goods after the date fixed
for completion of performance shall not be deemed a waiver of the right of the
Authority to terminate this Contract with respect to the undelivered portion
thereof or to require the delivery of any undelivered goods in accordance with
this Contract.
SC 15 Waste Material
A. Waste material of any character will under no conditions be permitted to
remain at or near the Site(s), but must immediately be carted away and disposed
of by the Contractor at no additional expense to the Contracting Party. The
Contractor shall thoroughly clean and keep clean all enclosures and other parts
of the Installation Site(s) in which the Work hereunder is to be done, or which
is to be used in connection therewith.
B. In the event that waste material, refuse, debris or rubbish is not so removed
from the Site(s) by the Contractor, the Project manager reserves the right to
have the said waste material, refuse, debris or.rubbish removed by the forces of
the Authority or others, end the expense of said removal and disposal shall be
charged to the Contractor, and the amount of such expense shall be deducted
from any monies due or becoming due to the Contractor thereunder. Nothing
contained in this provision shall be construed to relieve the Contractor of the
obligation, responsibility, and duty to remove, dispose, and cart away the waste
material, nor shall it be construed to absolve or relieve the Contractor from
its responsibility and liability for any and all loss or damage due to any cause
whatsoever as may occur by reason of the failure to remove said waste material,
refuse, debris and/or rubbish.
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SC 16 Removal of Rejected Goods
The Contractor shall remove from the Site (s) at no additional expense to
the Contracting Party and within a reasonable time (not to exceed fifteen (15)
Days after notification of rejection), any goods rejected by the Authority prior
to installation as non-conforming or during or after installation where the
Contractor fails to remedy defective or non-conforming Work or installation.
Such goods shall be deemed abandoned and the Authority shall have the right to
dispose of any such goods left longer than fifteen (15) Days after notification
of rejection and apply the proceeds, if any, of such disposition to the
Contractor's account, after deducting reasonable expenses for such disposal,
without any further liability or responsibility on the part of the Authority.
SC 17 Expertise
The Contractor represents that its employees possess the technical
expertise necessary to perform the Maintenance, equipment installation and other
Work required hereunder.
SC 18 Acceptance Testing
A. The Contractor shall conduct the Acceptance Test, i.e., System Acceptance
Test, in accordance with the requirements of the Technical Specifications and
this Article. In doing so, the Contractor shall prepare .acceptance Test
procedures. Upon approval by the Authority, such procedures shall thereupon
become incorporated as if fully set forth herein.
B. Acceptance of equipment or the System for either the segment (s) or full
system implementation shall occur when such equipment or the System has met the
"Standard of Performance" as hereinafter defined.
C. The Standard of Performance for the equipment and for the System as a whole
shall have been met if the equipment or System, as the case may be, operates in
accordance with the functional and performance requirements as set forth in the
Technical Specifications at an average "Effectiveness Level", as hereinafter
defined, of 100% for a period of thirty (30) consecutive Days. This period shall
start on the equipment's or system's Installation Date and shall continue for a
period of thirty (30) consecutive calendar Days. If the Standard of Performance
is not met during the initial thirty (30) Day period, the Performance Test
Period shall be continued on a day-by-day basis until the Standard of
Performance is achieved. Any such thirty (30) Day period during which the
Standard of Performance is measured shall be known as the "Performance Test
Period".
D. The Authority may delay the start of the Performance Test Period, for up to
thirty (30) consecutive calendar Days. The Performance Test Period may not,
however, start later than the 31st day after the Installation Date.
E. Equipment shall not be accepted, and no charges shall be paid, until such
equipment achieves the stated Standard of Performance. The Contractor, with an
Authority representative, shall perform all Acceptance Tests, including all
repeated tests, at no additional expense to the Contracting Party.
SC 19 Environmental Conditions
Contractor hereby acknowledges and warrants that it is aware of the Site
conditions and environmental tolerances within which this Contract shall
operate.
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SC 20 Recission
In the event that the Authority elects to execute this Contract prior to
submission by the Contractor of any required document, such as insurance
policies, performance bond and MBE/WBE documentation, and approval of such items
by the Authority, the Authority may, in its sole discretion, rescind this
Contract if all such matters have not been resolved to the Authority's
satisfaction within thirty (30) Days after execution hereof.
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CONTRACT TERMS AND CONDITIONS
CHAPTER 1
GENERAL PROVISIONS AND DEFINITIONS
ARTICLE 1.01 WORK TO BE DONE
(a) The Contractor shall do all work including furnishing all labor, materials,
plant, tools, supplies and other means of construction necessary for completion
of the Project in accordance with the Contract Documents.
(b) Miscellaneous and Incidental Work. The Contractor will protect, support and
maintain all structures, which includes the Railroad, and any other real
property whether owned by the Authority or any other person or entity, with
their appurtenances and connections as the .same may be affected by the
Contractor's performance of the Work; and promptly reconstruct and restore all
structures which are damaged thereby to at least as good a condition as existed
before the construction was begun. All such work shall be known as
"Miscellaneous and Incidental Work."
(c) The words "Work" or "Project" shall mean all matters and things herein
agreed to be constructed, furnished, installed, or done, by or on the part of
the Contractor and includes Miscellaneous and Incidental Work.
ARTICLE 1.02 DEFINITIONS
(1) The words "addendum" or "addenda" to mean the additional contract provisions
issued in writing by the Authority prior to the receipt of bids.
(2) The word "Authority", or the initial letters "NYCTA", or "TA", or initial
letters of like import to mean the New York City Transit Authority, a public
benefit corporation existing by virtue of the Public Authorities Law - Title 9
of Article 5 - and any other authority, board, body, commission, official or
officials to which or to whom the powers now belonging to the said Authority in
respect to the location, construction, equipment, maintenance and operation of
transit facilities shall, by virtue of any act or acts, hereafter pass or be
held to appertain.
(3) The words "Award Date" to mean the date the Notice of Award is issued.
(4) The words "Beneficial Use" shall mean a written determination by the
Engineer that a discrete portion of the Work or identified equipment is
sufficiently complete and fit for its intended purpose, in accordance with the
Contract, that the Authority is able to physically occupy such portion of the
Work or utilize such equipment. The portions of the Work and the equipment
subject to a determination of Beneficial Use, if any, are identified in the
Special Conditions.
(5) The words "City" or "New York" to mean the City of New York according to its
boundaries at the date of this contract unless in the case of the words "New
York" the context indicates that the State of New York is intended.
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CONTRACT TERMS AND CONDITIONS
(6) The word "Consultant" to mean the consulting engineer or other person or
firm hired by the Authority to act on behalf of the Engineer to perform certain
services, including but not limited to design or inspection relating to the
Project. For purposes of this Contract, the Consultant, his officers and
employees shall be deemed agents of the Authority.
(7) The words "Contract" and "Contract Documents" to mean collectively the
Information for Bidders, the Bidder's Proposal, the Contract Terms And
Conditions, the Specifications, all Addenda issued, the Special Conditions, the
Forms Of Bonds, the Appendix, the Contract Drawings, and the Notice Of Award,
as applicable.
(8) The word "Contractor" to mean the individual, firm or corporation, its
successors and assigns, that enters into the Contract to perform the Project.
For convenience, the Contractor is hereinafter referred to as if the Contractor
were an individual.
(9) The words "Critical Path Method" or "Bar Chart" or the letters "CPM" to mean
Contractor's proposed schedule of work as set forth in Article 2.03.
(10) The words "daily newspapers" to mean any newspaper regularly published in
New York every day or every day except Saturdays, Sundays and holidays.
(11) The words "directed", "required", "permitted", "ordered", designated,"
"selected", "prescribed" or words of like import used in the specifications or
upon the drawings to mean respectively, the direction, requirement, permission,
order, designation, selection or prescription of the Engineer; and similarly the
words "approved", "acceptable", "satisfactory", "equal", "necessary", or words
of like import to mean, respectively, approved by, or acceptable or satisfactory
to, or equal, or necessary in the opinion of the Engineer.
(12) The letters "DOT" to mean the United States Department of Transportation.
(13) The word "Engineer" to mean the individual designated in the Notice of
Award to administer the Contract, or any replacement for SUCH INDIVIDUAL WHO
shall be subsequently designated by the Authority. The words "Chief Engineer" to
mean the officer designated by the Authority to resolve technical disputes as
set forth in Article 8.03 herein.
(14) The words "Excusable Delay" to mean delays which satisfy the criteria set
forth in Article 2.05 paragraphs (a) and (b).
(15) The words "existing structure" to mean all real PROPERTY, USED, OWNED or
leased by the Authority in place at the date of the Notice of Award of this
Contract or installed thereafter by other contractors, the City, or persons or
firms employed by the Authority during the life of this Contract.
(16) The words "Extra Work" to mean the changes to the contract as fully set
forth in Article 4.03.
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CONTRACT TERMS AND CONDITIONS
(17) The words "Final Completion" to mean the completion of all Work to the
satisfaction of the Engineer, including all Remaining Work, in the opinion of
the Engineer, as set forth in Chapter 2.
(18) The words "Final Payment" to mean the payment described in Article 3.07.
(19) The words "Force Majeure" to mean acts of God, fire, earthquake, explosion,
epidemic, riots, civil disturbance, strike, war, injunctions of governmental
entities, embargoes and blockades.
(20) The words "furnish" or "furnishing" to mean providing, manufacturing,
fabricating and delivering to the site of the Project all materials, plant,
power, tools, patterns, supplies, appliances, vehicles and conveyances necessary
or required for the completion of the Project.
(21) NOT USED.
(22) The words "Gross Sum Bid" or "Aggregate Total Bid" to mean the total of the
items set forth in the Price Schedule of the Bidder's Proposal as stated in
paragraph 5 of the Bidder's Proposal.
(23) The words "Guarantee Work" or "Warranty Work" to mean all work required to
be done by Contractor to meet its obligations under Articles 9.07, 9.08 and
9.09.
(24) The words "Impact Costs" to mean the equitable adjustment to which
Contractor may be entitled it accordance with Article 2.07, paragraph (c).
(25) The word "Inspector" to mean any representative of the Engineer designated
by him to act as inspector.
(26) The words "installation" or "install" or "installing" to mean completely
assembling, erecting and connecting all material, parts, components, appliances
and supplies and related equipment necessary or required for the completion of
the Project.
(27) The words Miscellaneous and Incidental Work to mean the work described in
Article 1.01.
(28) The letters "MTA" to mean the Metropolitan Transportation Authority, and
any other board, body, commission, official or officials to which or to whom the
powers now belonging to the said authority in respect to the location,
construction, equipment, maintenance and operation of transit facilities or the
purchase of rapid transit cars under the provisions of Article 5, Title 11 of
the Public Authorities Law of the State of New York shall, by virtue of any act
or acts, hereafter passed or be held to appertain.
(29) The words "New York City Transit System" or the letters "NYCTS" to mean the
rapid transit and surface transit facilities of the Authority including all
rolling stock, appurtenances and equipment.
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CONTRACT TERMS AND CONDITIONS
(30) The word "notice" to mean any written notice, direction or similar
communication.
(31) The words "Notice of Award" shall mean the document that apprises the
Contractor that this Contract is in full force and effect.
(32) The words "Preliminary Estimate" or "Preliminary Estimate Certificate"
shall mean the document prepared by the Engineer in connection with the amount
to be invoiced by Contractor during a billing period.
(33) The words "Progress Payment" shall mean the periodic payment to be made to
the Contractor by the Authority in accordance with Article 3.05.
(34) The words "Project Site" or "Work Site" to mean the site or sites of the
Work.
(35) The words "Punch List Work" to mean the minor defects or omissions
identified by the Engineer in determining that the Work is Substantially
Complete, which are to be completed prior to Final Completion of the Work as set
forth in Article 2.02(c).
(36) The word "Railroad" to mean the rapid transit facilities of the Authority,
including all appurtenances, rolling stock and equipment. .
(37) The words "Remaining Work" to mean the work which. is to be completed after
Substantial Completion as set forth in Article 2.02 (c).
(38) The words "State" or "New York State" to mean the State of New York.
(39) The words "Stop Work Order" shall mean the suspension of the Work as set
forth in Article 2.08.
(40) The word "Subcontractor" to mean any person, firm or corporation, other
than the employees of the Contractor, who contracts to furnish labor, or labor
and materials, at the Work Site or in connection with the Project, whether
directly or indirectly on behalf of the Contractor and whether or not in privity
of contract with the Contractor.
(41) The words "Substantial Completion" or "Substantially Complete" to mean the
event fully set forth in Article 2.02.
(42) The words "Certificate of Substantial Completion" to mean the document
issued by the Engineer in connection with Substantial Completion.
(43) The word "Supplier" to mean any individual, firm or corporation that
contracts to furnish materials, equipment or supplies for incorporation in or in
connection with the Project.
(44) The words "Total Contract Price" or "TCP" shall mean the total amount
payable to the Contractor in accordance with Chapter 3 - PRICE AND PAYMENT for
the Work (as same may be adjusted in accordance with Chapter 4 - CHANGES TO
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CONTRACT TERMS AND CONDITIONS
THE CONTRACT) and is based on the Gross Sum Bid (as extended based upon the
actual quantities thereof ordered or required and provided in accordance with
the Contract Documents) stipulated in the Price Schedule of the Bidder's
Proposal.
(45) The letters "UMTA" or "FTA" to mean the United States Department of
Transportation, Ft-eral Transit Administration (formerly known as Urban Mass
Transportation Administration).
(46) The words "Work" or "Project" shall be as described in Article 1.01 (c).
(47) (Not Used)
(48) Elevation 100 as referred to in this Contract is 2.653 feet above mean sea
level at Sandy Hook, United States Coast and Geodetic Survey datum.
(49) The words "Schedule Document" shall mean the Bar Chart or CPM, as E
required by Article 2.03 and the Specifications.
ARTICLE 1.03 NOTICES
(a) The delivery of any notice, direction, or communication to the Contractor at
the address set forth in the Bidder's Proposal or to the Authority at the
address specified in the Notice of Award shall be made by depositing the same.
in a postpaid wrapper directed to the aforesaid addresses in any post office box
regularly maintained by the United States Postal Service and shall be deemed to
be sufficient service thereof as of the earlier of the date of such actual
delivery or three days after such depositing. The address may be changed at any
time by notice in writing from the Contractor to the Engineer. Nothing contained
herein shall be deemed to preclude or render inoperative the service of any
notice, direction or communication personally upon the Contractor, or if the
Contractor be a corporation, upon any officer, director or designated agent
thereof.
(b) Nothing in the above paragraph shall be deemed to serve as a waiver by the
Authority of any requirements for the service of notice or process with respect
to the filing of a claim or the institution of an action or proceeding as
provided by law or elsewhere in this Contract.
ARTICLE 1.04 GENERAL RULES OF INTERPRETATION
(a) References to a specific paragraph, section, or schedule shall be construed
as references to that specified paragraph, section or schedule in this Contract,
unless otherwise indicated.
(b) References to any agreement o-- other instrument shall be deemed to include
such agreement or other instrument as it may, from time to time, be modified,
amended, supplemented, or restated in accordance with its terms.
(c) The terms "hereof," "herein," "hereby," "herewith," "hereto," and
"hereunder" shall be deemed to refer to this Contract.
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CONTRACT TERMS AND CONDITIONS
(d) The headings of the paragraphs are inserted for convenience only and shall
not affect the construction or interpretation of this Contract.
(e) All references to "days" shall be deemed to be calendar days, unless
otherwise expressly indicated.
(f) All references to "business days" shall be deemed to be references to the
days of Mondays through Fridays, exclusive of Authority-observed holidays.
(g) All notices hereunder must be in writing, in accordance with Article 1.03,
unless expressly indicated otherwise.
(h) As used herein the singular shall mean and include the plural; the masculine
gender shall mean and include the feminine and neuter genders; and vice versa.
ARTICLE 1.05 CHARACTER OF WORK
(a) The Project is to be constructed for actual use and operation as part of an
intraurban transit system according to the best rules and usages of engineering,
construction, and transit system equipment.
(b) In work of this character it is impossible either to show all details in
advance or to forecast all exigencies precisely. The Contract Documents are to
be taken, therefore, as indicating the amount of work, its nature and the method
of construction.
Where no specific requirements are given, the Work shall conform to the latest
applicable standards of nationally recognized associations which sponsor the
particular type of work involved and materials shall conform to the standards of
the Institute of Electrical and Electronic Engineers, the Electronic Industries
Association, American Society of Mechanical Engineers, American Society of
Heating and Ventilating Engineers, American National Standards Institute,
American Society for Testing and Materials, and the National Board of Fire
Underwriters.
In the event of any doubt as to the meaning of any portion of the Specifications
or Contract Drawings, or in the event a standard of workmanship or material is
not specified, the Contract shall be interpreted as requiring the Contractor to
perform the work in the best and most workmanlike manner and to supply materials
of the best class. The Contractor shall also perform the work with the highest
regard to the safety of life and property and according to the lines, levels and
directions given by the Engineer, and to the satisfaction of the Authority, as
well as any provision set forth in the specifications.
ARTICLE 1.06 DIFFERING SITE CONDITIONS
(a) The Contractor shall promptly, and before such conditions are disturbed,
notify the Engineer in writing of: (1) latent physical conditions at the site
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CONTRACT TERMS AND CONDITIONS $
differing materially from those indicated in the Contract Documents, or (2)
physical conditions at the site, of an unusual nature, differing materially
from those ordinarily encountered and generally recognized as occurring in work
of the character provided for in this Contract but unknown to the Contractor
until encountered during prosecution of the Work. The Engineer shall promptly
investigate such condition(s) to determine if the condition(s) constitute a
differing site condition as described in sub-clauses (1) or (2) above. Should
the Engineer determine that a differing site condition exists which causes an
increase or decrease in the Contractor's cost of, or the time required for,
performance of any part of the Work, the Engineer shall notify Contractor of
same, and within a reasonable time, not to exceed fifteen (15) days, Contractor
shall provide a detailed Change Order Proposal in accordance with Article 4.04.
The Engineer's determination shall be subject to review by the Contractual
Disputes Review Board as set forth in Article 8.03(b)(2).
(b) No claim for an extension of time and/or an equitable adjustment by the
Contractor due to a differing site condition under this Article shall be allowed
unless the Contractor has given the notice required in (a) above and met all
requirements in Article 2.05 Extensions of Time.
(c) The requirements of Articles 4.04 and 4.05 concerning equitable adjustments
for compensation for Extra Work shall apply to any change under this Article for
differing site conditions. No claim by the Contractor for an equitable
adjustment hereunder shall be allowed if asserted after final payment under this
Contract.
ARTICLE 1.07 CONSENT OF AUTHORITY REQUIRED FOR SUBLETTING OR ASSIGNMENT
If the Contractor assigns, transfers, conveys, sublets, or otherwise disposes,
of this Contract or its right, title or interest in or to the same or any part
thereof without the previous consent in writing of the Authority such action
shall be an Event of Default under Article 7.01. Nothing herein shall either
restrict the right of the Contractor to assign monies due or to become due
pursuant to Section 9-318 of the New York State Uniform Commercial Code or be
construed to hinder, prevent or affect any assignment by the Contractor for the
benefit of his creditors, made pursuant to applicable law.
ARTICLE 1.08 SUBCONTRACTS
(a) To the extent that approval of a Subcontractor or Supplier would be required
by paragraph 16 of the Information for Bidders, but was not secured prior to
Contract Award, then Contractor must obtain Authority approval prior to
utilizing any such Subcontractor or Supplier. The Authority shall review
requests for approval in accordance with the criteria and requirements of
paragraph 16 of the Information For Fidders. If a proposed Subcontractor or
Supplier is not approved, the Contractor may propose another Subcontractor or
Supplier, or, if it chooses to perform such portion of the Work itself,
Contractor should so notify the Engineer. In addition, the Contractor shall
apprise the Engineer of the addition, deletion or substitution of any
Subcontractor or Supplier it proposes to make, including pertinent information
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CONTRACT TERMS AND CONDITIONS
or reasons(s) therefor. The Authority reserves the right to disapprove such
proposed Subcontractor or Supplier for reasonable cause.
(b) Regarding any Subcontractor or Supplier, whether approved prior to or after
the Award Date, or whether approval is required, the Contractor shall fully
inform the Subcontractor of all, provisions and requirements of this Contract
relating either directly or indirectly to the work to be performed and the
materials to be furnished under such subcontract agreement or purchase agreement
and the agreement shall expressly stipulate that labor performed and/or
equipment/materials furnished shall comply with the requirements of the
Contract. The agreement between the Contractor and each Subcontractor/Supplier
shall contain terms and conditions that are in accordance with applicable law
regarding payments by contractors, and unless proscribed by law, such agreements
between Contractor and Subcontractor/Supplier relating to payment and retainage
shall be no less favorable to the Subcontractor /Supplier than are those with
respect to the Contractor as set forth in this Contract. Approval of any
Subcontractor or Supplier by the Authority shall not operate as a waiver of any
right against the Contractor or third parties nor shall it relieve the
Contractor of any of its obligations to perform the Work as herein set forth.
Each of the foregoing provisions shall be applicable to any further subletting
of any part of the work by a subcontractor to another subcontractor and, for the
purposes of this Article, upon such further subletting, the subcontractor of the
first tier shall be deemed the Contractor.
ARTICLE 1.09 COORDINATION WITH OTHER CONTRACTORS
During the progress of the Work, it may be necessary for other contractors and
other persons (including personnel of the Authority or Contracting Party) to do
work in or about the Work Site. The Authority reserves the right to permit and
put such other contractors and such persons to work and to afford them access to
the Work Site at such time. and under such conditions as- does not unreasonably
interfere with Contractor. The Contractor shall prosecute its work continuously
and diligently and shall conduct its work so as to minimize interference with
such other work. If, notwithstanding Contractor's compliance with the foregoing,
such other work interferes with Contractor's performance, then Contractor shall
be entitled to an equitable adjustment as set forth in Article 2.07
In the event of an emergency creating danger to life or property at the Work
Site, the Authority may do anything necessary to alleviate such an emergency
situation, including performing work at the Work Site, or directing another
contractor to perform work at the Work Site.
ARTICLE 1.10 PRELIMINARY OCCUPANCY
The Authority reserves the right at all times to deliver, place and install
furnishings and equipment in the Project as the Work progresses, as long as
there is no interference with the Contractor. Such preliminary occupancy
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CONTRACT TERMS AND CONDITIONS 4
shall in no event be construed as Substantial Completion or Beneficial Use;
however, where the Authority is occupying a portion of the Work (which had not
been contemplated by the Parties to be co-occupied during the performance of the
Work), the Authority will be responsible for damage or loss to such portion of
the Work caused by the Authority's preliminary occupancy.
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CONTRACT TERMS AND CONDITIONS
CHAPTER 2
PROVISIONS RELATING TO TIME
ARTICLE 2.01 TIME FOR COMMENCEMENT AND COMPLETION OF WORK
The Contractor shall begin the Work within 10 days after the date of the Notice
of Award, and shall thenceforth prosecute the Work continuously and diligently.
The Contractor shall within
(See Information for Bidders Data Sheet)
from the date of the Notice of Award substantially complete the Work as set
forth in ARTICLE 2.02. The conclusion of this period of time, as it may be
extended under Article 2.05, shall be the "Substantial Completion Date".
ARTICLE 2.02 SUBSTANTIAL COMPLETION AND FINAL COMPLETION
(a) The Work shall be deemed Substantially Complete when, in the opinion of the
Engineer, the Work is complete such that there are no material and substantial
variations from the Contract Documents and the Work is fit for its intended
purpose. Upon Substantial Completion the Engineer shall issue a Certificate of
Substantial Completion. The issuance of this Certificate shall not relieve the
Contractor from its obligation hereunder to complete the Work.
(b) When the Contractor is of the opinion that the Work is Substantially
Complete, Contractor may submit to the Engineer a written request that the
Engineer inspect the Work so as to determine whether Substantial Completion has
been achieved. Upon such request, the Authority must respond within twenty-five
(25) days of its receipt with either (i) a Certificate of Substantial Completion
or (ii) an explanation of the reasons why the Work is not Substantially
Complete, including a list of open items necessary to achieve Substantial
Completion. Nothing in this Article precludes the Engineer from making a
determination of Substantial Completion in the absence of a request therefor by
the Contractor.
In the event any portion of the Work is set forth in the Special Conditions as
subject to a Beneficial Use certification, then the procedure set forth above
for issuance of a Certificate of Substantial Completion shall be used, i.e., the
Engineer shall respond to such request within 25 days of its receipt with either
(i) a "Beneficial Use Certification" identifying the applicable portions of the
Work so certified and a punch list, or (ii) an explanation of the reasons why
the Beneficial Use Certification cannot be issued, including a list of open
items necessary to achieve Beneficial Use.
(c) The work remaining after Substantial Completion to complete the Work shall
be known as the "Remaining Work". The Remaining' Work shall be limited to minor
omissions and defects known as "Punch List Work" except the Engineer may in his
sole discretion, include the following two types of work as part, of Remaining
Work, (i) street restoration and permanent pavement work which can not be done
because of seasonal factors such as cold weather (but provided
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sufficient temporary pavement is complete) and (ii) work which cannot be done
until the Authority or third persons perform other work which is not the
Contractor's responsibility under the Contract. The Engineer shall issue a
Remaining Work list within ten (10) days of the issuance of the Certificate of
Substantial Completion.
(d) The Engineer shall advise the Contractor of the time reasonably required to
complete all Remaining Work. The time set by the Engineer to complete Punch List
Work shall be no more than ninety (90) days from the issuance of the Certificate
of Substantial Completion. When in the opinion of the Engineer the Remaining
Work is properly complete, the Engineer shall issue a Final Completion
Certificate.
In the event of an emergency or that Contractor fails to diligently prosecute
the Remaining Work or punch list work in connection with Substantial Completion
or Beneficial Use, the Authority may complete such Remaining Work or punch list
work, either by its own forces or by other contractors and deduct the
Authority's costs thereof from the Final Payment, except that if the Authority
completes the Remaining Work because of an emergency, then the amount deducted
from the Final Payment shall be based on Contractor's costs for completing the
Remaining Work. If such costs exceed the amount due the Contractor, the
Contractor shall immediately upon demand pay such excess to the Authority.
(e) Substantial Completion will not be declared by the Engineer until the
following work is completed: (i) all operating systems, including but not
limited to mechanical and electrical systems, and their component parts, have
been tested and have been approved and found operational by the Engineer; (ii)
all final operation and maintenance manuals have been submitted and approved by
the Engineer; and (iii) final as-built drawings for the Work have been submitted
and approved by the Engineer.
(f) Upon Substantial Completion, the Contractor shall remove its tools,
materials and equipment from the Work Site, except for the tools, materials and
equipment needed to complete the Remaining Work, or unless otherwise authorized
in writing by the Engineer.
ARTICLE 2.03 CONTRACTOR'S DETAILED SCHEDULE OF WORK
(a) The Contractor shall schedule the Project in accordance with the technical
requirements set forth in the applicable section of the Specifications (See
Information for Bidders Data Sheet). The Contractor shall have broad discretion
in scheduling the: Project. The Authority's basis for disapproval of any
Schedule Document shall generally be limited to a determination that the work
sequence lacks logic, is unreasonable, is incomplete or is inconsistent with any
other contractual requirement, such as a phasing plan.
(b) With respect to any submission by the Contractor under this Article, no
review, acceptance or approval by the Engineer shall release or relieve the
Contractor from its obligation to fully and properly complete the Work, or any
other duty, responsibility or liability imposed on it under this Contract,
including, but not limited to the obligation to complete the Work within the
time set forth in Article 2.01. No such review, acceptance or approval shall
constitute an agreement, concurrence or acquiescence on the part of the
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Authority that the Contractor will be able to proceed with or complete the
Project in accordance with the schedule contained in the reviewed, accepted or
approved document, nor be deemed to constitute notice to the Authority as
required by law or by Article 1.03.
(c) Receipt by the Authority of an updated or revised Schedule Document shall
not be construed to mean that the Engineer agrees that the progress of the Work
is as shown or indicated therein or that the updated or revised Schedule
Document is acceptable to the Engineer.
(d) Neither the inclusion of changes into a Schedule Document by the Contractor
nor the acceptance or approval of or acquiescence in, by the Engineer thereof
shall be construed as constituting extensions of time to the Contract duration
as set forth in Article 2.01. Such changes are to be deemed to be for the
purpose of keeping the schedule up-to-date in order to reflect the work to be
accomplished and to include the best time estimate for work yet to be completed.
(e) The Schedule Document must be submitted to the Engineer in proper form and
in a timely manner, as required by this Article and the applicable section of
the Specifications. Receipt by the Engineer of the required Schedule Document
shall be a condition precedent to the Contractor's entitlement to any payment
which may otherwise be due. While the Contractor shall be under a continuing
obligation to meet all such Specification requirements pertaining to Schedule
Documents, in determining whether the Contractor is entitled to a given payment,
the Engineer will apply the standard set forth in paragraph (a), above.
(f) In the event that the Contractor submits, and the Engineer approves, a
Project schedule calling for a shorter Substantial Completion of the Project, or
shorter intermediate Substantial Completions (in the case where the Contract
Documents so provide), than that set forth in Article 2.01, the approved shorter
Substantial Completion. date(s) shall be deemed to be the Contract Substantial
Completion date(s) for purposes of Article 2.01.
(g) In the event that an updated Schedule Document is not timely submitted by
the Contractor or is determined by the Engineer to be grossly inadequate, the
Authority may, in its discretion and for its own internal use, update the
Schedule Document with its own forces or through a consultant/ contractor and
charge the Contractor the costs thereof, provided, however, that this shall not
relieve the Contractor of its obligation to submit such updated Schedule
Document.
ARTICLE 2.04 AUTHORITY DAMAGES IN CASE O1' DELAY
(a) The Contractor is firmly obligated and guarantees to meet the stipulated
completion date(s). In the event of a delay in Substantial Completion beyond the
Substantial Completion Date, as such time may be extended by the Authority as
hereinafter provided in this Chapter, the Authority shall be paid damages for
such delay. Inasmuch as the amount of such damages and the loss to the Authority
will be extremely difficult to ascertain, It is Hereby Expressly agreed that
such damages will be liquidated and paid as follows:
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The Contractor shall pay to the Authority for each and every day of unexcused
delay, except Sundays and legal holidays, the sum of
(See Information for Bidders Data Sheet)
which sum is hereby agreed upon not as a penalty but as liquidated damages.
(b) The Authority shall have the right to deduct such liquidated damage
assessments from any monies due or which may thereafter become due to the
Contractor under this Contract; and in case the amount which may become due
hereunder shall be less than the amount of liquidated damages due to the
Authority, the Contractor shall pay the difference upon demand by the Authority.
ARTICLE 2.05 EXTENSIONS OF TIME
(a) If the Contractor is delayed at any time during the progress of the Work
beyond the Substantial Completion Date, by the neglect or failure of the
Authority or by a Force Majeure, then the Substantial Completion Date under
Article 2.01 shall be extended by the Authority subject to the following
conditions:
1. the cause of the delay arises after the Notice of Award and neither
was nor could have been anticipated by the Contractor by reasonable
investigation before such award;
2. the Contractor demonstrates that the completion of the Work will be
actually and necessarily delayed;
3. the effect of such cause cannot be avoided or mitigated by the
exercise of all reasonable precautions, efforts and measures whether
before or after the occurrence of the cause of delay; and
4. the Contractor makes written request and provides other information to
the Authority as described in paragraph (d) below.
A delay meeting all the conditions of this paragraph (a) shall be deemed an
Excusable Delay. Any concurrent delay which does not constitute an Excusable
Delay shall not be the sole basis for denying a request hereunder.
(b) Any reference in this Article to the Contractor shall be deemed to include
materialmen, suppliers and permitted subcontractors, whether or not in privity
of contract with the Contractor, all of whom shall be considered as agents
of the Contractor for the purpose of this Article.
(c) The Authority reserves the right to rescind or shorten any extension
previously granted if subsequently, the Authority determines that any
information provided by Contractor in support of a request for an extension of
time was erroneous; provided however, that such information or facts, if known,
would have resulted in a denial of the request for an Excusable Delay.
Notwithstanding the above, the Authority will not rescind or shorten any
extension previously granted if the Contractor acted in reliance upon the
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granting of such extension and such extension was based on information which,
although later found to have been erroneous, was submitted in good faith by the
Contractor.
(d) The request required under paragraph (a) above, shall be made within ten
(10) days after the time when Contractor knows or should know any cause for
which it may claim an extension of time and shall provide any actual or
potential basis for an extension of time, identifying such cause and describing,
as fully as practicable at that time the nature and expected duration of the
delay and its effect on the completion of that part of the Work identified in
the request. The Authority may require the Contractor to furnish such additional
information or documentation as the Authority shall reasonably deem necessary or
helpful in considering the requested extension. The Contractor must also comply
with requirements set forth in the Specifications regarding Contractor's
Detailed Schedule for Performance.
Contractor shall not be entitled to an extension of time unless the Contractor
affirmatively demonstrates that it is entitled to such extension.
(e) Within thirty (30) days of its receipt of all such information and
documentation (or within thirty (30) days of Contractor's filing of the original
request in the event the Authority requires no such additional material) the
Authority shall advise the Contractor of its decision on such requested
extension; except that, where it is not reasonably practicable for the Authority
to render such decision in the thirty day period, it shall, prior to the
expiration of such period, advise the Contractor that it will require additional
time and the approximate date upon which it expects to render such decision.
(f) In regard to an injunction, strike or interference of public authority which
may delay the Project, the Contractor shall promptly give the Authority a copy
of the injunction or other orders and copies of the papers upon which the same
shall have been granted. The Authority shall be accorded the right to intervene
or become a party to any suit or proceeding in-which any such injunction shall
be obtained and to move to dissolve the same or otherwise, as the Authority may
deem proper.
(g) Neither the permitting of the Contractor to proceed with the Project
subsequent to the date specified ire Article 2.01 (as such date may have been
extended pursuant to Article 2.05), the making of any payments to the
Contractor, nor the issuance of any Change Order, shall operate as a waiver on
the part of the Authority of any rights under this Contract, including but not
limited to the assessment of liquidated damages or declaring Contractor in
default.
ARTICLE 2.06 EXTENSION OF TIME NOT CUMULATIVE
In case the Contractor shall be delayed at any time or for any period by
two or more of the causes above-mentioned in Article 2.05, the Contractor shall
not be entitled to a separate extension for each one of the causes but only one
period of extension shall be granted for the delay.
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ARTICLE 2.07 CONTRACTOR'S DAMAGES FOR DELAY
(a) Except as otherwise specifically provided for in this Contract, the
Contractor agrees to make no claim for damages for delay of any kind in the
performance of this Contract whether occasioned by any act or omission of the
Contracting Party or the Authority or any of their representatives (whether it
is an Excusable Delay within the meaning of Article 2.05 or otherwise) and
Contractor agrees that any such claim shall be compensated for solely by an
extension of time to complete performance of the Work as provided in Article
2.05. In this regard, the. Contractor alone hereby specifically assumes the risk
of such delays, including without limitation: delays in processing or approving
shop drawings, samples or other submittals; or the failure to render
determinations, approvals, replies, inspections or tests of the Work, in a
timely manner.
(b) In the went the Authority fails to provide access to the Work Site in a
manner constituting Excusable Delay pursuant to Article 2.05 hereof, or issues a
Stop Work Order pursuant to Article 2.08, or issues a Change Order in accordance
with Chapter 4, and as a result of any of the foregoing, the Contractor is
actually and necessarily delayed in performance of the Work, the Contractor
shall be entitled to Impact Costs, to the extent if any, hereinafter set forth.
However, the parties acknowledge that any failure by the Authority to provide a
service such as, but not limited to, flagging, diversions or work trains shall
not constitute a failure to provide access to the Work Site and therefore is not
subject to an assessment of Impact Costs. Impact Costs shall only be allowed for
Excusable Delays which are not concurrent with any other non-Excusable Delays
and which are actually, reasonably and necessarily incurred. Impact Costs shall
include only the following:
1. Increased wages related to work being performed in a higher wage
period.
2. Overtime payments to accelerate the work needed to mitigate the delay
and to the extent that acceleration of the work was necessary for
Contractor to meet the Substantial Completion Date.
3. Increased field office expenses.
4. Increased cost to purchase and/or store materials.
5. Cost incurred to keep the Work Site open, such as temporary power and
sanitary facilities.
6. Extended insurance and bonding.
7. With respect to rented equipment, the lesser of the actual rental cost
or the reasonable rental value for idled equipment on the Work Site.
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CONTRACT TERMS AND CONDITIONS
(c) In no event will the Authority be required to pay Impact Costs for the
aforementioned delays which are in the nature of consequential damages, lost
profits or indirect costs (generally, indirect costs are those costs which are
not exclusively identified with this Contract, such as Contractor's home office
overhead and general and administrative expenses). Acceptance by the Contractor
of any payments made by the Authority in connection with this Article shall
serve as a release to the Authority and Contracting Party from all claims and
liability to the Contractor arising out of such delay.
(d) The Contractor shall have no right to rescind or terminate this Contract,
and Contractor shall have no cause of action under any theory of quasi-contract
or quantum meruit by reason of any delay, obstruction, or interference of any
kind or duration whatsoever, and whether or not compensable hereunder.
ARTICLE 2.08 STOP WORK ORDER
(a) The Authority may, at any time, by written order to the Contractor, require
the Contractor to stop all, or any part, of, the Work for a period of ninety
(90) days (or any lesser period), commencing no sooner than the date the order
is delivered to the Contractor, and for any further period to which the parties
may agree. Any such order shall be specifically identified as a "Stop Work
Order" issued, pursuant to this Article. Within the period of ninety (90) days
(or the lesser period specified) after a Stop Work Order is delivered to the
Contractor, or within any extension of that period to which the parties shall
have agreed, the Authority shall either:
(i) cancel the stop work order, or
(ii) terminate the work covered by such order as prcvided in ARTICLE 2.09
TERMINATION FOR CONVENIENCE BY THE AUTHORITY.
(b) If a Stop Work Order issued under this Article is cancelled or the period of
the order or any extension thereof expires, the Contractor shall resume work
without compensation to the Contractor for such suspension other than (i)
extending the time for the Contract Completion Date to the extent that, in the
opinion of the Engineer, the Contractor may have been delayed by such suspension
and (ii) Impact Costs as described in Article 2.07; except that in the event the
Engineer determines that the suspension of work was necessary due to
Contractor's defective or incorrect work, unsafe work conditions caused by the
Contractor or any other reason caused by Contractor's fault or omission the
Contractor shall be entitled to neither compensation nor an extension of time of
any nature as a result of the issuance of this Stop Work Order.
ARTICLE 2.09 TERMINATION FOR CONVENIENCE BY THE AUTHORITY
In addition to cancellation or termination as otherwise provided in the Contract
Documents, the Authority (as agent for the Contracting Party) may at any time,
in its sole discretion, with or without cause, terminate this Contract by
written notice to the Contractor and in such event:
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CONTRACT TERMS AND CONDITIONS
(a) The Contractor shall, upon receipt of such notice, unless otherwise directed
by the Authority:
1. stop work on the date specified in the notice ("the Effective Date");
2. take such action as may be necessary for the protection and
preservation of the Authority's materials and property;
3. cancel all cancellable orders for material and equipment:
4. assign to the Authority and deliver to the site or any other location
designated by the Engineer any non-cancellable orders for material and
equipment that is not capable of use except in the performance of this
Contract and has been specifically fabricated for the sole purpose of
this Contract and not incorporated in the Work;
5. take no action which will increase the amounts payable by the
Authority under this Contract: and
6. take reasonable measure to mitigate the Authority's liability under
this Article.
(b) In the event that the Authority exercises its right to terminate the
Contract pursuant to this Article the Authority will pay the Contractor:
1. its actual cost or the fair and reasonable value, whichever is less,
of (i) the portion of the Work completed in accordance with the
Contract up to the Effective Date, and (ii) non-cancellable material
and equipment that is not capable of use except in the performance of
this Contract and has been specifically fabricated for the sole
purpose of this Contract but not incorporated in the Work; and
2. ten (10%) of the difference between the Total Contract Price and the
aggregate of all payments made apart from those due pursuant to
sub-paragraph (b)1. above.
(c) To the extent practical, the fair and reasonable value shall be based upon
Total Contract Price. In no event shall any payments under this Article exceed
the contract price of such items.
(d) The amount due hereunder shall be offset by all payments made to the
Contractor.
(e) All payments pursuant to this Article shall be accepted by the Contractor in
full satisfaction of all claims against the Contracting Party and Authority
arising out of the termination including, without limitation, lost profits,
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CONTRACT TERMS AND CONDITIONS
overhead or other consequential damages. Further, the Authority may deduct or
set off against any sums due and payable pursuant to this Article and claims it
may have against the Contractor.
(f) All payments pursuant to this Article are subject to audit.
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CONTRACT TERMS. AND CONDITIONS
CHAPTER 3
PRICE AND PAYMENTS
ARTICLE 3.01 PRICE TO INCLUDE
The Authority shall pay and the Contractor shall accept the amounts set
forth in the Price Schedule of the Bidder's Proposal as full compensation for
all costs and expenses of completing the Work in accordance with the Contract,
including, but not limited to, all labor and material required to be done or
furnished under this Contract; all overhead, expenses, fees and profits
including the cost of providing storage yard or facilities; all risks and
obligations set forth in the Contract; any applicable fees or taxes; and all
expenses due to any unforeseen difficulty encountered in the prosecution of the
Work, except as otherwise expressly set forth in Article 1.06.
ARTICLE 3.02 VARIABLE QUANTITIES CLAUSE
With respect to any unit price item as to which an estimated quantity
is set forth in the Bidder's Proposal, such unit price shall apply regardless of
the actual quantity of such item ultimately utilized in, or required by, the
Work; except that, if the actual quantity for a unit price item differs from the
estimated quantity in the Price Schedule by more than ten percent (10%), then
the Engineer shall review whether application of the Unit Price would cause a
substantial inequity to either party, and, if so, the Unit Price for such item
will be equitably adjusted, upward or downward, as determined by the Engineer.
ARTICLE 3.03 DETAILED COST BREAKDOWN FOR LUMP SUM ITEMS
Not later than 30 days from the Notice of Award, the Contractor shall
submit to the Engineer, for approval, quintuplicate copies of a detailed cost
breakdown of all items of work, labor and materials included in the following
lump sum Items:
(See Information for Bidders Data Sheet)
The cost breakdown for each lump sum Item ("DCB Price") shall include its
proportionate share of overhead, profit, premium on bond, insurance and all
other expenses involved. The quantities and unit prices shall be extended to
show the total amount for each item of work and the sum of these amounts shall
total in each case the exact amount of the lump sum price(s) for the item. The
DCB Prices shall be in proper balance and shall be subject to approval by the
Engineer. The Contractor shall revise the detailed estimate, if necessary, to
make it consistent with the approved CPM or Bar Chart, as applicable.
ARTICLE 3.04 PROMPT PAYMENT
(a) All payments will be made pursuant to Section 2880 of the Public Authorities
Law (the Prompt Payment Law) and the Authority's implementing rules, officially
called the Statement of Rules and Regulations With Respect
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CONTRACT TERMS AND CONDITIONS
To Prompt Payment (the "Prompt Payment Statement"). Any terms used in this
chapter which are not defined herein, shall have the meanings ascribed in the
Prompt Payment Statement. A copy of the Prompt Payment Statement may be obtained
from the Engineer.
(b) In accordance with the Prompt Payment Statement, all payments will be made
within 30 days, excluding legal holidays, of the Receipt of Invoice, as defined
for Progress Payments, Payment on Substantial Completion, and Final Payment, in
Articles 3.05, 3.06 and 3.07, respectively, subject to paragraphs (c) and (d)
below.
(c) The Authority reserves the right to conduct an inspection or audit of any
Preliminary Estimate, the Substantial Completion Payment Estimate and the Final
Payment Estimate to verify that the amount to be paid is in accordance with the
provisions of the Contract. The applicable "Receipt of Invoice" date under
Articles 3.05, 3.06 and 3.07 will be deemed extended ten (10) business days in
the event the Authority elects to perform this function.
(d) Notwithstanding anything to the contrary in the Contract, the 30 day payment
period in paragraph (b) above will be tolled as set forth below, whenever the
audit or inspection reveals a defect in delivered materials. or services, or
suspected improprieties of any kind, which might include, but is not limited to,
a determination by the Engineer that the Contractor is in breach of a material
term of this Contract. In any such case, the date of "Receipt of Invoice" date
shall be tolled to the date that acceptable goods or services are delivered or
provided, or the date that the impropriety is resolved.
(e) Interest for late payments hereunder shall be payable in accordance with the
Prompt Payment Statement.
(f) The Designated Payment Office shall mean the office of the Project Manager
described in the Notice of Award which may be changed at any time by the
Authority upon notification in writing to the Contractor.
ARTICLE 3.05 PROGRESS PAYMENTS
(a) Progress Payments will be made periodically for the value of the work
performed and for materials not incorporated into the Work in accordance with
paragraph (c) of this Article. For a Progress Payment, the Receipt of Invoice
shall mean the later of the dates that ( ) the Preliminary Estimate is issued or
(ii) the Supporting Documentation is received at the Designated Payment Office,
as described respectively in paragraphs (b) and (d) below.
(b) The following will constitute the procedure for the issuance of a
Preliminary Estimate:
1. At the Contractor's request, but not more often than once a month,
the Engineer and the Contractor shall perform a joint inspection of the
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Work and/or materials not incorporated into the Work. Upon completion of the
joint inspection, the Engineer shall prepare the Preliminary Estimate based upon
the Engineer's determination of the reasonable value of (i) the work performed,
including materials incorporated in the Work and (ii) materials meeting the
requirements set forth in paragraph (c) below, which have not been included in
any other Preliminary Estimate. The Engineer's determination shall be based upon
the prices set forth in the Bidder's Proposal, or the detailed cost breakdown,
as applicable. Where a detailed cost breakdown is required, the Preliminary
Estimate shall not include any amount for work covered by a detailed cost
breakdown which has not been approved by the Engineer. Notwithstanding the
foregoing, a Preliminary Estimate will not be issued unless the total value is
at least equal to Ten Thousand ($10,000) Dollars.
2. The Contractor shall sign the Preliminary Estimate upon
acknowledging thereon the items with which 'it agrees and which it disputes
(including items omitted). The date the Contractor delivers to the Engineer such
Preliminary Estimate (the "Preliminary Estimate Delivery Date"), shall be the
date the Preliminary Estimate is issued for the amount agreed between the
Engineer and the Contractor thereunder.
3. The amount in the Preliminary Estimate in dispute is subject to the
disputes resolution provisions (Article 8.03) of the Contract. The Preliminary
Estimate Delivery Date shall also be deemed to be the date of Engineer's
determination for purposes of Article 8.03. If the Contractor prevails with
respect to any disputed amount, then the Preliminary Estimate shall be deemed
issued for such amount retroactive to the Preliminary Estimate Delivery Date.
(c) The reasonable value or cost, whichever is less, of materials not yet
incorporated in the Work, which are on the Work Site or off the Work Site,
shall be included in a Preliminary Estimate, provided the conditions precedent
set forth below are met. If such materials are stored off the Work Site, the
Contractor agrees to pay any additional costs incurred by the Authority in
connection with any inspection of such materials.
1. The Engineer determines that such materials appear to meet the
requirements of the Specifications and are suitably stored and secured.
2. The Contractor submits to the Engineer (i) proof satisfactory to the
Authority that Contractor has free and clear title to such materials, and (ii)
the Contractor's representation that all such materials shall remain free and
clear of and from all debts, claims, liens, mortgages, taxes- and encumbrances.
3. If any such material is off the Work Site, the Authority may also
require a lease of or license to use the real property where such materials are
stored. Such lease shall be without cost to the Authority in form and substance
satisfactory to the General Counsel to the Authority.
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4. If any such materials are stored outside the City, the Contractor
agrees to accept responsibility for and to pay all sales, compensation, use,
personal and property taxes that may be levied against the Authority by any
state or subdivision thereof on account of such material.
5. The Contractor, at its expense, shall transfer title to any such
materials to be included in a Preliminary Estimate free and clear of and from
all debts, claims, liens, mortgages, taxes and encumbrances by conveyance in
form and substance satisfactory to the General Counsel to the Authority.
6. For any materials included in a Preliminary Estimate which may
subsequently become lost, damaged or unsatisfactory, the amount thereof as
allowed by the Engineer shall be deducted from succeeding payments to the
Contractor.
(d) Supporting Documentation: The required supporting, documentation for
Progress Payments under this Contract, set forth below, shall be a condition
precedent to the issuance of the payment to the related Preliminary Estimate.
1. Contractor's affidavit certifying that its Subcontractors and
Suppliers have been paid the amount due to them for the work performed and
materials furnished by each of them which were encompassed by any previous
progress payments made to the Contractor.
2. Contractor's certification of compliance with the minimum wage rates
and other provisions and stipulations in accordance with applicable law, where
required.
3. Where this Contract calls for submittal and use of Schedule
Documents, the Contractor's certification endorsed by the Engineer that it is in
compliance with any provisions thereof which are listed as conditions precedent
to payment.
4. Where this Contract requires reporting on progress toward
fulfillment of an MBE/WBE goal(s), the Contractor's certification that it is in
compliance with any provisions thereof listed as conditions precedent to
payment.
5. Any submission specified in paragraph (c) above with respect to
materials not yet incorporated into the Work.
6. Any other document specified in the Contract as a condition
precedent for purposes of Progress Payments.
ARTICLE 3.06 PAYMENT UPON SUBSTANTIAL COMPLETION
(a) The "Receipt of Invoice" for the Payment on Substantial Completion shall
mean the later of the date (i) the Substantial Completion Payment Estimate is
issued, or (ii) the Supporting Documentation is received at the Designated
Payment Office, as described respectively in paragraphs (b) and (c) below.
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(b) The Engineer shall, concurrently with the issuance of the Certificate of
Substantial Completion, as provided in Article 2.02, prepare a Substantial
Completion Payment Estimate covering (i) the entire value of the work performed
that has not been the subject of previous Progress Payments and is still due and
owing to the Contractor; and (ii) the amount of retainage held pursuant to
Article 5.02, less an amount equal to twice the value of any Remaining Work, as
determined by the Engineer in accordance with Article 2.02 and less any other
withholdings, reductions or set-offs permitted under the Contract.
1. The Contractor shall sign the Substantial Completion Payment
Estimate upon acknowledging thereon the items which it agrees and disputes
(including items omitted). The date the Contractor delivers to the Engineer such
Substantial Completion Payment Estimate (the "Substantial Completion Estimate
Delivery Date") shall be the date the Substantial Completion Payment Estimate is
issued for the amount agreed between the Engineer and the Contractor thereunder.
2. The amount in the Substantial Completion Payment Estimate in dispute
is subject to the disputes resolution provisions (Article 8.03) of the Contract.
The Substantial Completion Estimate Delivery Date shall also be deemed to be the
date of Engineer's determination for purposes of Article 8.03. If the Contractor
prevails with respect to any disputed amount, then the Substantial Completion
Payment Estimate shall be deemed issued for such amount retroactive to the
Substantial Completion Estimate Delivery Date.
(c) In addition to the Supporting Documentation required for a Progress Payment
detailed in Article 3.05, paragraph (d), above, the required supporting
documentation for the Payment on Substantial Completion is as follows:
1. A release by the Contractor of the Contracting Party and the
Authority, in a form approved by the General Counsel of the Authority, of all
claims and liability to the Contractor for anything theretofore done or
furnished for, or in any way relating to, the Work, except those claims
expressly deleted from the scope of said release and those claims or potential
claims pertaining to monies being withheld by the Authority.
2. A statement in writing of each and all alleged claims of the
Contractor against the Contracting Party or the Authority.
3. Any other document or item specifically required by the Contract as
a condition precedent to the Payment on Substantial Completion.
ARTICLE 3.07 PROVISIONS RELATING TO FINAL PAYMENT
(a) The Receipt of Invoice for the Final Payment shall be the later of-the date
that (i) the Authority issues the Final Payment Certificate, and (ii) the
Supporting Documentation is received at the Designated Payment Office, as
described respectively in paragraphs (b) and (c) below.
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CONTRACT TERMS AND CONDITIONS
(b) The Engineer shall, concurrently with the issuance of the Final Completion
Certificate, prepare a Final Payment Estimate covering any monies due and owing
to the Contractor.
1. The Contractor shall sign the Final Payment Estimate upon
acknowledging thereon.the items which it agrees and disputes (including items
omitted). The dace the Contractor delivers to the Engineer such Final Payment
Estimate (the "Final Payment Estimate Delivery Date"), shall be the date the
Final Payment Estimate is issued for the amount agreed between the Engineer and
the Contractor thereunder.
2. The amount in the Final Payment Estimate in dispute is subject to
the disputes resolution provisions (Article 8.03) of the Contract. The date of
the Final Payment Estimate Delivery Date shall also be deemed to be the date of
Engineer's determination for purposes of Article 8.03. If the Contractor
prevails with respect to any disputed amount, then the Final Payment Estimate
shall be deemed issued for such amount retroactive to the Final Payment Estimate
Delivery Date.
(c) In addition to the Supporting Documentation required for a Progress Payment
detailed in Article 3.05 paragraph (d), above, as applicable, the required
supporting documentation for the Final Payment is as follows:
1. Subcontractor and Supplier guarantee(s), if any, specifically set
forth in the Contract Documents.
2. Any other supporting document or item specifically stated by the
Contract to be a condition precedent to the Final Payment.
ARTICLE 3.08 PAYMENTS BELATED TO GUARANTEE OBLIGATIONS
(a) The Authority may withhold from any payments to be made subsequent to the
commencement of any applicable guarantee period, such sums as may reasonably be
necessary to ensure completion of guarantee obligations with respect to
defective work, equipment, or materials which have been identified by the
Engineer.
(b) The Authority may deduct from any payment due the Contractor an amount equal
to its costs incurred on account of the Contractor's failure to fully perform
its guarantee obligations.
(c) The Engineer, prior to withholding or deducting any monies hereunder, shall
give the Contractor notice of the defective work, equipment or material and the
basis for the withholding or deduction.
(d) Upon the Engineer's certification chat the Contractor has fulfilled its
guarantee obligations, the Authority will pay the Contractor any sums of money
so retained as provided in paragraph (a), above, subject to. Contractor's
submission of, or compliance with, any remaining documentation or obligation, as
the case may be, in accordance with this Contract.
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CONTRACT TERMS AND CONDITIONS
ARTICLE 3.09 SET OFFS, WITHHOLDINGS AND DEDUCTIONS
(a) The Authority may set off, deduct, or withhold from any payment due the
Contractor, such sums as may be specifically allowed in the Contract or by
applicable law including, without limitation, the following:
1. an amount of any claim by a third party, as provided in
Article 5.03.
2. any amounts allowed under Articles 2.02, 2.04 or 3.08.
3. any unpaid legally enforceable debt owed by the Contractor to
the Authority and/or the Contracting Party, as provided in
the Authority's Prompt Payment Statement.
(b) Any withholding which is ultimately held to have been wrongful, shall be
paid to Contractor in accordance with the Prompt Payment Statement.
ARTICLE 3.10 PAYMENT BY THE CONTRACTOR TO SUBCONTRACTOR(S) AND SUPPLIER(S)
The Contractor agrees to make all payments with respect to its
Subcontractors and Suppliers in accordance with Section 139-f of the State
Finance Law. Nothing provided therein or herein shall create any obligation on
the part of the Authority or Contracting Party to pay or to see to the payment
by the Contractor of any monies to any Subcontractor or Supplier, nor create any
relationship in contract or otherwise, implied or expressed, between any such
Subcontractor or Supplier and the Authority or Contracting Party. The Contractor
shall include in all subcontracts that:
(a) within fifteen (15) calendar days of the receipt of any payment
from the Authority, the Contractor shall pay each of its Subcontractors and
Suppliers the proceeds from the payment representing the value of the work
performed and/or materials furnished by the Subcontractor and/or Supplier and
reflecting the percentage of the Subcontractor's work completed or the
Supplier's material supplied in the invoice approved by the Authority and based
upon the actual value of the subcontract or purchase order, less an amount
necessary to satisfy any claims, liens or judgments against the Subcontractor or
Supplier which have not been suitably discharged, and less any retained amount
as described in Section 139-f (2) of the State Finance Law;
(b) within fifteen (15) calendar days of the receipt of payment from
the Contractor, the Subcontractor an i/or Supplier shall pay each of its
subcontractors and suppliers in the same manner as the Contractor has paid the
Subcontractor/Supplier;
(c) any payment for work performed or materials supplied that has been
properly invoiced and is more than thirty (30) days due, shall bear interest at
the rate set from time to time by the State Tax Commission.
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ARTICLE 3.11 NO ESTOPPEL AND NO WAIVER
(a) The Authority and the Contracting Party shall not be precluded or estopped
by any payment. or certificate made or given by the Contracting Party,
Authority, the Engineer or other officer, agent or appointee thereof under any
provision of this Contract from, at any time either before or after the
completion of all of the Contractor's obligations under this Contract and
payment therefor pursuant to any Preliminary Estimate, Substantial Completion
Payment Estimate, or Final Payment Estimate, showing the true and correct
classification, amount, quality and character of the work done and materials
furnished by the Contractor, or from showing at any time that such certificate
is untrue or incorrect or improperly made in any particular or that the work and
materials or any part thereof do not in fact conform to the requirements of this
Contract. The Authority and the Contracting Party shall not be precluded or
estopped, notwithstanding any certificate and payment in accordance therewith,
from demanding and recovering from the Contractor such damages as it may sustain
by reason of its failure to comply with the Contract Documents.
(b) Neither the acceptance by the Authority or the Engineer or any of the
employees of the Authority, nor any order, measurement or certificate by the
Engineer nor any order by the Authority for payment of money nor any payment
for, nor acceptance of, the whole or part of the Work nor any extension of time,
nor any possession taken by the Authority or the employees of the Authority
shall operate as a waiver of any portion of this Contract or of any power herein
reserved to the Authority or of any right to damages herein provided; nor shall
any waiver of any breach of this Contract be held to be a waiver of any other or
subsequent breach.
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CONTRACT TERMS AND CONDITIONS
CHAPTER 4
CHANGES TO THE CONTRACT
ARTICLE 4.01 NO ORAL CHANGES
Except to the extent expressly set forth in the Contract, no change in or
modification, termination or discharge of this Contract, in any form whatsoever,
shall be valid or enforceable unless it is in writing and signed by the party to
be charged therewith or its duly authorized representative.
ARTICLE 4.02 CLARIFICATION OF CONTRACT DRAWINGS
The Authority shall have the right during the progress of the Work to
clarify the Contract Drawings to the extent that such does not materially alter
such drawings and to add explanatory specifications without the same being
deemed a change to the Contract.
ARTICLE 4.03 EXTRA WORK
(a) The Authority reserves the right to order changes which may result in
additions to or reductions from the amount, type or value of the Work shown in
the Contract Documents and which are within the general scope of the Contract in
accordance with this Article. Any such changes will be known as "Extra Work".
(b) No Extra Work shall be performed except pursuant to written orders of
the Engineer expressly and unmistakably indicating his intention to treat the
work described therein as Extra Work. In the absence of such an order, if the
Engineer shall direct, order or require any work which the Contractor deems to
be Extra Work, the Contractor shall nevertheless comply therewith and shall
promptly and in no event after beginning the performance thereof or incurring
costs attributable thereto, give written notice to the Engineer stating why he
deems such work (hereinafter "Disputed Work") to be Extra Work. Said notice is
for the purposes of (1) affording an opportunity to the Engineer to cancel
promptly such order, direction or requirement; (2) affording an opportunity to
the Engineer to keep an accurate record of the materials, labor and other items
involved; and (3) affording an opportunity to the Authority to take such action
as it may deem advisable in light of such Disputed Work.
ARTICLE 4.04 CHANGE ORDER PROCEDURE AND BASIS FOR PAYMENT
(a) Extra Work shall result in an equitable adjustment (increase or
decrease) to the Total Contract Price representing (i) the reasonable costs or
the reasonable financial savings related to the change in the Work, and (ii)
Allowable Impact Costs. Allowable Impact Costs with respect to the Extra Work
shall be computed in accordance with Article 2.07; provided in no event shall
Allowable Impact Costs hereunder include any item of cost and expense otherwise
payable under the Contract, including the related Extra Work Order or Extra Work
Directive, as the case may be. Extra Work shall also result in
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an equitable adjustment in the Contract schedule for performance for both
the Extra Work and any other work on the critical path necessarily affected by
the Extra Work.
(b) The Authority shall initiate the Extra Work procedure by a notice to
Contractor (hereinafter called "Notice of Proposed Change Order") setting forth
the proposed Extra Work. As promptly as practical, but in no event more than
fifteen (15) calendar days of the Contractor's receipt of Notice of a Proposed
Change Order (or such longer period as the Engineer may allow, under exceptional
circumstances), the Contractor shall provide to the Engineer a detailed Change
Order Proposal which shall include requested revisions to the Contract,
including but not limited to adjustments to the Total Contract Price and
schedule for performance, as provided above. The Contractor is required to
provide sufficient data in support of the cost proposal demonstrating its
reasonableness. In furtherance of this obligation, the Authority may require
that the Contractor submit any or all of the following: a cost breakdown of
material cost, labor cost, labor rates by trade and work classification and
overhead rates in support of Contractor's Change Order Proposal. The Contractor
must utilize the most recent updated CPM or bar chart which had been submitted
to the Authority in its proposal to establish the price and schedule
modifications. Contractor's Change Order Proposal must include a schedule subnet
and an explanation of the cost and schedule impact of the Extra Work on the
Project. The Contractor must clearly demonstrate how it proposes to incorporate
the Extra Work into the schedule document. If Contractor fails to notify the
Engineer of the schedule changes associated with a Notice of Proposed Change
Order by submitting a revised schedule document, it will be deemed to be an
acknowledgment by Contractor that the proposed Extra Work will not have any
scheduling consequences. The Contractor agrees that the Change Order Proposal
with respect to price will in no event include a combined profit and home office
overhead rate in excess of twenty-one (21) percent of the direct labor and
material costs, unless the Engineer determines that the complexity and risk of
the Extra Work is such that an additional factor is appropriate. The Change
Order Proposal may be accepted or modified by negotiations between the
Contractor and the Authority. If an agreement is reached, an Extra Work Order
shall be executed in writing by both parties. The execution by Contractor of
such Extra Work Order shall operate as a release of the Contracting Party AND
THE AUTHORITY from all claim and liability to the Contractor relating to, or in
connection with, the Extra Work Order, including any impact claims and further
including any prior act, neglect, fault or default of the Authority relating to
the Extra Work.
ARTICLE 4.05 EXTRA WORK DIRECTIVE
(a) If the parties fail to reach agreement with respect to the proposed
Extra Work, or in case of exigent circumstances, the Authority may nevertheless
issue a directive to do the proposed Extra Work ("Extra Work Directive"). Any
modifications to the proposed Extra Work set forth in the Notice of Proposed
Change Order must be previously reflected in a revised Notice of Proposed Change
Order submitted in accordance to Article 4.04. Immediately upon receipt, the
Contractor shall be obligated to proceed with the work set forth in an Extra
Work Directive.
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CONTRACT TERMS AND CONDITIONS
(b) Except as provided in Paragraph (c) below, the Contractor shall be
entitled to initiate a Dispute pursuant to Article 8.03 by furnishing a written
statement to the Engineer within 5 days of the Extra Work Directive, based upon
any aspect of such Extra Work which the Contractor disputes; provided, however,
that such dispute must (i) relate to specific matters raised or specific matters
reserved by the Contractor in its proposal and (ii) have not been resolved prior
to the issuance of the Extra Work Directive. The written statement must set
forth all details of Contractor's claims including the manner that the disputed
item was specified in the Contractor's proposal. During the pendency of any
dispute hereunder, the Contractor must proceed with work as set forth in the
Extra Work Directive unless OTHERWISE ADVISED BY the Engineer's written
instructions. In the event that there is a dispute as to price, the Contractor
will be paid in accordance with paragraph (c) below, which payments will be in
full satisfaction of Contractor's claim for an adjustment to the Total Contract
Price except for claims related to Allowable Impact Costs.
(c) Compensation for Extra Work in the event of the parties inability to
agree upon a mutually satisfactory price in accordance with paragraph(b)
hereof shall be as follows:
(1) If Extra Work calls for the performance of additional items of work or
materials or omission of items of work or materials which are either of the same
type as those for which unit prices have been included in the Bidder's Proposal
or deemed by the Engineer to be included in any lump sum item for which a
detailed cost breakdown estimate has been required and the Engineer determines
that such unit price or detailed cost breakdown estimate provides a basis upon
which to reasonably calculate such price for the Extra Work, then the
compensation to be paid therefor or the amount to be deducted from the payments
to the Contractor shall be computed on the basis of the unit price in the
Bidder's Proposal or such items in the detailed cost breakdown relating to the
lump sum item, as the case may be. However, in NO EVENT WILL payments to
Contractor for work performed by other than Contractor's own employees, as set
forth below, exceed "Actual and Necessary Net Cost" computed in the manner set
forth below plus 21 percent of such net cost, WHETHER or not the work is
performed by a Subcontractor or Contractor itself.
(2) If, in the opinion of the Engineer, compensation for Extra Work may not
be calculated in accordance with sub-paragraph (1) above, the Contractor shall
be compensated for the Actual and Necessary Net Cost therefor, as defined below,
plus 21 percent of such net cost as follows:
"Actual and Necessary Net Cost" shall be deemed to include the actual and
necessary cost of the Extra Work for (i) labor, including in addition to wages,
contributions, if any, made by the Contractor as employer pursuant to bona fide
collective bargaining labor agreements applicable to the work, (ii) an
engineering field survey party, consisting exclusively of a chief of party, an
instrument person, and one or more rodmen, the number of rodmen to be subject to
the approval of the Engineer, which cost in addition to wages shall include
contributions, if any, made by the Contractor as employer
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CONTRACT TERMS AND CONDITIONS
pursuant to bona fide collective bargaining labor agreements applicable to
the work, (iii) insurance upon the aforementioned labor and field survey party
under the Workers' Compensation law but in no event to exceed Contractor's
present rates, (iv) contributions pursuant to the State Unemployment Insurance
Law, (v) excise taxes pursuant to the Federal Social Security Act, (vi) any
increase in premiums for public liability and property damage insurance or
performance and payment bonds occasioned solely by the Extra Work, (vii) all
materials used upon doing the work or incorporated in the work, (viii) the
actual and necessary operating expense of plant (except the expense of supplies
and small tools not operated by mechanical or electric power), power for such
plant and a reasonable rental for the same (including small power tools), as
determined by the Engineer, and (ix) furnishing and installing temporary
lighting and heating facilities required solely for the Extra Work and, when and
as determined by the Engineer, the cost, if any, of power or fuel expended
therefor; but the amount of labor, materials, plant, facilities and power to be
paid for shall not exceed the amount which, in the opinion of the Engineer, is
necessary in the performance of such Extra Work.
Except as otherwise specifically provided in subparagraph (c)(1), the said
21 percent shall be deemed to include the cost of heat, light, use and upkeep of
tools, supplies, administration, engineering, superintendence, insurance,
(except as otherwise provided as direct charge in subparagraph 1) and all
loss, damages, risks and expenses, herein mentioned in Chapter 6.
The amount of insurance upon such labor and field survey party under the
Workers Compensation Law shall be determined by the amount of the wages actually
and necessarily paid for such labor and field survey party and the rate of
insurance for such labor and field survey party either in the State Insurance
Fund or in any stock corporation or mutual association authorized to transact
the business of workers' compensation insurance in this State, as the case may
be. If the Contractor shall NOT HAVE INSURED EITHER IN SUCH STATE Insurance Fund
or in any such stock corporation or mutual association, the rate allowed will be
the rate which it would have been required to pay for such insurance in the
State Insurance Fund had it insured therein.
In case any work or materials shall be required to be done or furnished
under the provisions of this Article, the Contractor shall at the end of each
day furnish to the Authority such documentation as the Authority may require to
support all costs of the Extra Work. If payments on account are desired as the
work progresses, the Contractor shall render an itemized statement showing the
total amount expended for each class of labor and for each kind of material on
account of each item of such work as a condition precedent to the inclusion of
such payment in any partial estimate. Upon the request of the Authority, the
Contractor shall produce for audit by the Authority books, vouchers, collective
bargaining labor agreements, records or other documents showing the actual cost
for labor and materials. Such documents shall not be binding on the Authority.
Any question or dispute as to the correct cost of such labor or materials or
plant shall be determined by the Engineer.
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CONTRACT TERMS AND CONDITIONS
In case the Contractor is ordered to perform work under this Article,
which, in the opinion of the Engineer, it is impracticable to have performed by
the Contractor's own employees, the Contractor will, subject to the approval of
the Engineer, be paid the actual cost to Contractor of such work, and in
addition thereto five (5) percent to cover the Contractor's superintendence,
administration and other overhead expenses.
Payment of any amount under the foregoing subparagraphs of this Article
shall be subject to subsequent audit and approval, disapproval, modification or
revision by representatives of the Authority, the Contracting Party, the State
and the Government.
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CONTRACT TERMS AND CONDITIONS
CHAPTER 5
SECURITY FOR THE PERFORMANCE OF WORK
ARTICLE 5.01 PERFORMANCE AND PAYMENT BONDS
(a) The Contractor stall be required to furnish Performance and Payment Bonds as
set forth in Paragraph 17 of the Information for Bidders.
(b) In case a surety shall become insolvent, its license is revoked or
suspended, or in the case of a surety approved on the basis that it is listed as
an approved federal surety, that such federal approval is revoked or suspended,
the Contractor, within ten (10) days after notice by the Authority, shall
substitute other and sufficient surety or sureties. If the Contractor fails to
do so, such failure shall be an Event of Default.
(c) In lieu of defaulting the Contractor under paragraph (b) above, the
Authority may allow the Contractor to continue the Work, in which event the
Authority may deduct from any monies then due or which thereafter may come due
to the Contractor the amount for which the surety shall be held and bound upon
the said bond. The monies so deducted may be held by the Authority as
collateral security for the performance of the conditions of the bonds and such
monies shall in such case be deemed to have been paid to the Contractor under
this Contract.
ARTICLE 5.02 RETAINED PERCENTAGE
As additional security for the faithful performance of this Contract, the
Authority shall deduct and retain from all progress payments 5 percent of the
amount certified to be due thereunder.
ARTICLE 5.03 WITHHOLDING MONEY DUE CONTRACTOR TO MEET CLAIMS, LIENS OR JUDGMENTS
(a) If at any time a claim, lien or judgment shall be made by any person or
corporation against the Contractor, the Contracting Party, the Authority, the
State or the Government for which Contractor is liable under this Contract or
otherwise by law, with respect to matters pertaining to the Work, the amount of
such claim, lien or judgment or so much thereof as may be deemed reasonable
shall be retained by the Authority, in addition to the other sums herein
authorized by the Contract to be so retained, out of any monies then due or
thereafter becoming due to the Contractor hereunder as security for the payment
of such claim, lien or judgment. If the liability of any such party on such
claim(s) or lien(s) shall have been finally adjudicated by a judgment of a court
of competent jurisdiction or such claim(s) or lien(s) shall have been admitted
by the Contractor to be valid, then the claim or lien or judgment may be paid
from the amount so retained hereunder, credited against the payments due to the
Contractor, and the balance, if any, paid to the Contractor.
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(b) Should any claim, lien or judgment remain unsatisfied at the time the
Substantial Completion or Final Payments are due, the Authority shall have the
right to retain out of either payment a sum it determines to be sufficient to
protect the Contracting Party and the Authority in regard to all such
unsatisfied claims, liens and judgments. In lieu of the foregoing, the
Authority may require other security.
(c) In case the amount thus retained should be insufficient to pay the amount
adjudicated to be due upon such claim, lien or judgment, the Contractor shall
pay the amount of the deficiency to the Authority.
(d) Notwithstanding anything in this Article to the contrary, in the event of a
claim by persons or corporations other than the Contracting Party or Authority,
the Authority shall not withhold money due to the Contractor provided the
Authority receives adequate written assurance from the Contractor's insurance
carrier or surety on bonds required hereunder that the insurer or surety will
assume all responsibility in connection with the claim including defending the
Contractor, Contracting Party or Authority in any lawsuit, and paying any
judgment based on said claim. The Authority shall have sole discretion to
determine the adequacy of the assurance furnished.
ARTICLE 5.04 SUBSTITUTION OF APPROVED SECURITIES
(a) The Contractor may from time to time withdraw portions of the amounts so
retained under ARTICLE 5.02 RETAINED PERCENTAGE or monies otherwise withheld
under the Contract provided any such monies have not been applied by the
Authority for reimbursement to itself or a third party in accordance with
applicable provisions of the Contract by depositing with the Fiscal Officer of
the Authority approved securities with a market value equal to the amount to be
withdrawn.
(b) The Contractor shall pay to the Authority the service charges then in effect
for the custodial safekeeping of securities deposited with the Authority by the
Contractor pursuant to the terms of this Contract.
(c) Approved securities are: securities of the United States Government, State
of New York, City of New York, New York City Transit Authority, Metropolitan
Transportation Authority or Triborough Bridge and Tunnel Authority. Other
securities may be submitted for Authority approval. All such securities must be
payable to, run in favor of, or be transferred to, the Authority. In case the
securities shall, during the term of the Contract, diminish in market value in
the opinion of the Authority, or are sold as set forth in Article 5.05, then,
within 10 days after notice, the Contractor shall deposit cash or securities to
restore the value to that originally stated.
A failure by the Contractor to deposit such cash or securities in accordance
herewith shall be an Event of Default.
In lieu of defaulting the Contractor, the Authority may allow the Contractor to
proceed with the Work and may deduct from any monies then due or which
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CONTRACT TERMS AND CONDITIONS
thereafter may become due to the Contractor the amount necessary to restore the
original valuation of such securities, and to hold such amount in lieu thereof.
(d) The Authority shall pay to the Contractor all interest, dividends and other
income on the securities, when and as collected. If the securities are in the
form of coupon bonds, the coupons as they respectively become due shall be
delivered to the Contractor; provided, however, that the Contractor shall not be
entitled to interest, dividends or other income on any securities the proceeds
of which shall be used or applied as authorized under the Contract.
ARTICLE 5.05 USE OF MONIES WITHHELD
Deposits, retainage or other monies withheld, whether in cash or securities
substituted shall be security for the faithful performance of the Contract by
the Contractor. In case any default causes loss, damage or expense to the
Contracting Party or the Authority, then the Authority may apply the amount
necessary to restore such loss, damage or expense including liquidated damages,
out of the said securities (which may be sold), deposits, retainage or other
monies.
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CONTRACT TERMS AND CONDITIONS
CHAPTER 6
CONTRACTOR'S LIABILITY AND INSURANCE
ARTICLE 6.01 INDEMNIFIED PARTIES
The term Indemnified Parties, whenever referred to in this Contract shall
consist of the following parties including their officers, employees and agents:
<TABLE>
<S> <C>
1. The City
2. The Authority
3. The State
4. The MTA
</TABLE>
ARTICLE 6.02 RESPONSIBILITY FOR INJURIES T0 PERSONS AND PROPERTY
(a) The Contractor shall be solely responsible for (1) all injuries (including
death) to persons, including but not limited to employees of the Contractor and
Subcontractors and Indemnified Parties and (2) damage to property, including
but not limited to property of the Indemnified Parties, the Contractor or its
Subcontractors. The liability hereunder shall be limited to such injuries or
damage. occurring on account of, or in connection with, the performance of the
Work, whether or not the occurrence giving rise to such injury or such damage
happens at the Project Site or whether or not sustained by persons or to
property while at the Project Site, but shall exclude injuries to such persons
or damage to such property to the extent caused by the negligence of the
Contracting Party or the Authority.
(b) The Contractor's liability hereunder includes any injury (including death)
or damage to property related to the performance of, including the failure to
perform, Miscellaneous and Incidental Work.
(c) The Contractor expressly acknowledges that it has reviewed the Contract
Documents and if the Work be done without fault or negligence on the part of the
Contractor, such Work will not cause any damage to the foundations, walls or
other :arts of, adjacent, abutting or overhead buildings, railroads, bridges,
structures or surfaces.
ARTICLE 6.03 INDEMNIFICATION
(a) The Contractor shall indemnify and save harmless the Indemnified Parties,
to the fullest extent permitted by law, from loss and liability upon any and all
claims and expenses, including but not limited to attorneys' fees, on account of
such injuries to persons or such damage to property, irrespective of the actual
cause of the accident, irrespective of whether it shall have been due in part to
negligence of the Contractor or its subcontractors or negligence of the
Indemnified Parties, or of any other
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persons, but excepting bodily injuries and property damage to the extent caused
by the negligence of the Contracting Party or the Authority.
(b) The term "loss and liability", as used herein, shall be deemed to include,
but not be limited to, liability for the payment of workers' compensation
benefits under the Workers' Compensation Law of the State of New York, or of
judgments under the Federal Employees' Liability Act or similar statutes.
(c) Except as otherwise provided in (a) above, the liability of the Contractor
under this Article is absolute and is not dependent upon any question of
negligence on its part or on the part of its agents, officers or employees. The
approval of the Authority of the methods of doing the Work or the failure of the
Authority to call attention to improper or inadequate methods or to require a
change in methods or to direct the Contractor to take any particular precautions
or to refrain from doing any particular thing shall not excuse the Contractor in
case of any such injury to person or damage to property.
(d) In case any damage shall occur to any part of the New York City Transit
System (except only for the removal of such parts thereof as the Contractor is
specifically required by this Contract to remove) on account of the WORK, AND
THE Contractor is responsible therefor, the Authority shall have the right to
cause such damage to be repaired and to charge the expense of such repairs to
the Contractor. In the event that such work is performed by the Authority, then
the Authority shall deduct the amount of such expense that may be incurred in
repairing any such damage.from any monies due or to become due to the Contractor
under this Contract or any other agreement between the Contractor and the
Contracting Party or the Authority.
ARTICLE 6.04 RISK OF LOSS TO THE WORK
(a) The Contractor assumes risk of loss or damage to the Work to the fullest
extent permitted by applicable law, irrespective of whether such loss or damage
arises from acts or omissions (whether negligent or not) of the Contractor, the
Authority or third persons, or from any cause whatsoever, excepting loss or
damage arising solely from negligent or willful acts of the Authority, occurring
prior to Substantial Completion and risk of loss or damage to Remaining Work
until Final Completion of all the Work, except that if the failure to complete
the Remaining Work causes damage to the Work or other parts of the N.Y.C.T.S.,
the Contractor shall be responsible for all resulting loss or damage. When risk
of loss to the Work (or a portion thereof) is transferred to the Authority, the
Authority shall thereafter assume responsibility for the care, protection and
ordinary upkeep (excluding Contractor's warranty obligations) for said Work,
except to the extent that Contractor remains responsible for Remaining Work or
is otherwise responsible for loss or damage as provided in this chapter.
(b) In the event that a part of the Work is identified in the Special
Conditions as subject to the Authority's determination of Beneficial Use, then
risk of loss for the specified part of the Work shall transfer to the Authority
upon the Beneficial Use Certification, except that if the absence of any work
awaiting completion subsequent to issuance of the Beneficial Use Certification
causes damage to the Work or the N.Y.C.T.S., the Contractor shall be responsible
for all resulting loss or damage.
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CONTRACT TERMS AND CONDITIONS
(c) Contractor's obligation hereunder is to, immediately repair, replace and
make good such loss or damage so as to RESTORE THE WORK TO THE SAME character
and condition as before the loss or damage in accordance with the Contract
Documents without cost to the Authority.
(d) Risk of loss or damage to work trains, cranes, or special equipment
supplied and operated by the Authority shall be on the Authority, but the
Contractor shall be responsible for loss or damage thereto arising out of
Contractor's failure to fulfill a contractual obligation hereunder or the
negligence or willful act of the Contractor, its subcontractors and suppliers.
ARTICLE 6.05 REQUIRED INSURANCE
(a) Except as otherwise provided in the Special Conditions, the Contractor
shall procure, at its sole cost and expense, and shall maintain in force at all
times during this Contract until Final Completion, policies of insurance as
hereinbelow set forth, written by companies approved by the Authority and shall
deliver to the Authority evidence of such policies. These policies must: (i) be
written in accordance with the requirements of subparagraphs 1-4 below, as
applicable; (ii) be endorsed in form acceptable to the Authority to include a
provision that the policy will not be cancelled, materially changed, or not
renewed without at least 30 days prior written notice to the Authority,
attention Director -- Risk Management, Room 1064, 130 Livingston Street,
Brooklyn, New York 11201, by Certified Mail, return receipt requested; and (iii)
state or be endorsed to provide that the coverage afforded under the policies
shall apply on a primary and not on an excess or contributing basis with any
policies which may be available to the Authority. Policies written on a
"claims-made" basis are not acceptable. At least two weeks prior to the
expiration of the policies evidence of renewal or replacement policies of
insurance, with terms and limits no less favorable as the expiring policies,
shall be delivered to the Authority. Deductibles or self-insured retentions
above $25,000 will require approval from the Authority.
1. A Commercial General Liability insurance policy (I.S.O. Form CG 00 01 11
88 or equivalent approved by the Authority in the Contractor's name with
the New York City Transit Authority (NYCTA), the Manhattan and Bronx
Surface Transit Operating Authority (MaBSTOA), the Staten Island Rapid
Transit Operating Authority (SIRTOA), the Metropolitan Transportation
Authority (MTA) including its subsidiaries and affiliates, and the City
of New York (City) named as Additional Insureds (I.S.O. Form CG 20 10
11 85 or equivalent approved by the Authority) with limits of liability
in the amount of $2,000,000 each occurrence on a combined single limit
basis for injuries to persons (including death) and damage to property.
Such policies shall include .contractual coverage for liability assumed
by the Contractor (including construction work within proximity to the
Railroad tracks and property if applicable), shall include "XCU"
coverage (Explosion, Collapse, and Underground Hazards),
Products-Completed Operations Coverage, Independent Contractors
Coverage, and shall not contain any exclusion unacceptable to the
Authority and Contracting Party.
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CONTRACT TERMS AND CONDITIONS
2. Automobile and Truck Liability Insurance Policy in the Contractor's name
with the New York City Transit Authority (NYCTA), the Manhattan and
Bronx Surface Transit Operating Authority (MaBSTOA), the Staten Island
Rapid Transit Operating Authority (SIRTOA), the Metropolitan
Transportation Authority (MTA) including its subsidiaries and
affiliates, and the City of New York (City) named as Additional Insureds
(I.S.O. Form CG 20 10 11 85 or equivalent approved by the Authority)
with limits of liability in the amount of $2,000,000 each occurrence on
a combined single limit basis for claims for bodily injuries (including
death) to persons and for damage to property arising out of the
ownership, maintenance or use of any owned, hired or non-owned motor
vehicle.
3. Worker's Compensations Insurance (including Employer's Liability
Insurance with limits of not less than $1,000,000) meeting the statutory
limits of New York State.
4. Any additional insurance policies necessary to obtain required permits
or otherwise comply with applicable law, ordinances or regulations
regarding the performance of the Work.
(b) Certificates of Insurance may be supplied as evidence of such
aforementioned policies; however, if requested by the Authority, the Contractor
shall deliver to the Authority within 45 days of the request a copy of such
policies, certified by the insurance carrier as being true and complete. If a
Certificate of Insurance is submitted it must: (1.) indicate the I.S.O. Form
used by the carrier; (2.) be signed by an authorized representative of the
insurance carrier; (3.) disclose any deductible, self-insured retention,
aggregate limit or any exclusions to the policy that materially change the
coverage; (4.) indicate that the Authority and Contracting Party are Additional
Insureds on all policies except Worker's Compensation); (5.) reference the
Contract by number on the face of the certificate; and (6.) expressly reference
the inclusion of all required endorsements. If requested by the Authority, the
Contractor must furnish within 30 days of a request proof that the person
signing the Certificate is authorized by the insurance carrier.
(c) If, at any time during the period of this Contract, insurance as
required is not in effect, or proof thereof is not provided to the Authority,
the Authority shall have the options to: (i) direct the Contractor to suspend
work with no additional cost or extension of time due on account thereof; (ii)
obtain the required insurance at Contractor's expense providing the Authority
with coverage immediately; or (iii) treat such failure as an Event of Default.
(d) The Contractor shall immediately file with the Authority's Torts
Division (with a copy to the Engineer), 130 Livingston Street, 10th Floor,
Brooklyn, New York 11201, a notice of any occurrence likely to result in a claim
against the Authority, and shall also file with the Torts Division detailed
sworn proof of interest and loss.within sixty (60) days from the date of loss.
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CONTRACT TERMS AND CONDITIONS
CHAPTER 7
CONTRACTOR'S DEFAULT
ARTICLE 7.01 EVENT OF DEFAULT
(a) An Event of Default shall mean a material breach of the Contract by the
Contractor which, without limiting the generality of the foregoing and in
addition to those instances specifically referred to in the Contract as a
material breach or an Event of Default, shall include a determination by the
Engineer that: (i) performance of this Contract is unnecessarily or unreasonably
delayed; (ii) the Contractor is willfully violating any of the provisions of the
Contract Documents or is not executing the same in good faith and in accordance
with this Contract; (iii) the Contractor has abandoned the Work; (iv) Contractor
has become insolvent (other than as a bankrupt), or has assigned the proceeds of
this Contract for the benefit of creditors, or taken advantage of any
insolvency statute or debtor or creditor law or if his property or affairs have
been put in the hands of a receiver; (v) Contractor has failed to obtain an
approval required by the Contract; or (vi) the Contractor has failed to
provide "adequate assurance" as required under paragraph (b) hereof.
(b) When, in the opinion of the Engineer, reasonable grounds for insecurity
exist with respect to the Contractor's ability to perform the Work or any
portion thereof, the Authority may request that Contractor, within a reasonable
time, provide written adequate assurance of its ability to perform in accordance
with the Contract. Such assurance must be provided by Contractor within the time
set forth in the Authority's request.
ARTICLE 7.02 NOTICE OF DEFAULT/OPPORTUNITY TO CURB
If an Event of Default occurs, the Authority may so notify the Contractor
("Default Notice"), specifying the basis(es) for such default, and advising the
Contractor that, unless such default be rectified to the satisfaction of the
Authority within seven (7) days from such Default Notice, the Contractor shall
be in default; except that, at its sole discretion, the Authority may extend
such seven (7) day period for such additional period as the Authority shall deem
appropriate without waiver of any of its rights hereunder. The Default Notice
shall specify the date the Contractor is to discontinue all Work (the
"Termination Date"), and thereupon, unless previously rescinded by the
Authority, the Contractor shall discontinue the Work upon the Termination Date.
ARTICLE 7.03 REMEDIES IN THE EVENT OF DEFAULT
(a) Upon Contractor's default, the Authority shall have the right to either
complete the Work with its own forces and/or other contractors or to require the
Surety to complete the Work under the Performance Bond hereunder. The Authority,
in connection with its right to complete the Work, may take possession of and
use any or all of the materials, plant, tools, equipment,
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CONTRACT TERMS AND CONDITIONS
supplies and property of every kind provided by the Contractor, and/or procure
other materials, plant, tools, equipment, supplies and property for the
completion of the same, and to charge the expense of said labor, materials,
plant, tools, equipment, supplies and property to the Contractor.
(b) If a Default occurs, Contractor shall be liable for all damages resulting
from the Default, including the difference between the Total Contract Price and
the amount actually expended by the Authority to complete the Work, and further
including the liquidated damages herein referred to for delay in the completion
of the Work beyond the Substantial Completion Date. The Contractor shall also
remain liable for any other liabilities and claims related to the Contract. All
damages may be deducted and paid out of such monies due the Contractor.
(c) The Authority may also bring any suit or proceeding for specific performance
or for injunction or to recover damages or to obtain any other relief or for any
other purpose proper under this Contract.
(d) The Authority may in its sole discretion waive a default by the Contractor,
but no such waiver, and no failure by the Authority to take action in respect to
any default, shall be deemed a waiver of any subsequent default.
(e) If the Authority makes a determination pursuant to this Chapter to hold the
Contractor in default and/or terminate the Contract for cause, and it is
determined subsequently for any reason whatsoever that either such determination
was improper, unwarranted or wrongful, then any such termination shall be deemed
for all purposes to have been a termination for convenience in accordance with
ARTICLE 2.09 TERMINATION FOR CONVENIENCE BY THE AUTHORITY. The Contractor agrees
that it shall be entitled to no damages, allowance or expenses of any kind other
than as provided for in said Article 2.09 in connection with any such
termination.
ARTICLE 7.04 THE CONTRACTING PARTY AND THE AUTHORITY MAY AVAIL THEMSELVES
OF ALL REMEDIES
The Contracting Party and the Authority may avail themselves of each and every
remedy herein specifically given to them or now or hereafter existing at law or
in equity or by statute, and each and every such remedy shall be in addition to
every other remedy so specifically given or otherwise so existing and may be
exercised from time to time and as often and in such order as may be deemed
expedient by the Authority, and the exercise, or the beginning of the exercise,
of one remedy shall not be deemed to be a waiver of the right to exercise, at
the same time or thereafter, any other remedy.
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CONTRACT TERMS AND CONDITIONS
CHAPTER 8
AUTHORITY OF THE ENGINEER: DISPUTES AND CLAIMS.
ARTICLE 8.01 AUTHORITY OF THE ENGINEER
(a) The Contractor hereby authorizes the Engineer to determine in the first
instance all questions of any nature whatsoever arising out of, under, or in
connection with, or in any way related to or on account of, this Contract
including without limitation: questions as to the value, acceptability and
fitness of the Work; questions as to either party's fulfillment of its
obligations under the Contract, negligence, fraud or misrepresentation before or
subsequent to acceptance of the Bidder's Proposal; questions as to the
interpretation of the Specifications and Contract Drawings; and claims for
damages, compensation and losses.
(b) The Engineer may give orders to do work which he determines to be necessary
for Contractor to fulfill the Contractor's obligations under the Contract. The
Engineer may also give orders in every case in which an unsafe condition shall
arise in performance of the Work.
(c) The Engineer will promptly provide appropriate explanations and reasons for
his determinations and orders hereunder, if requested by the Contractor. All
determinations under this article shall be reasonable.
(d) The Contractor shall be bound by all determinations or orders and shall
promptly obey and follow every order of the Engineer, including the withdrawal
or modification of any previous order and regardless of whether the Contractor
agrees with the Engineer's determination or order. Orders shall be in writing
unless not practicable, in which event any oral order must be confirmed in
writing by-the Engineer as soon thereafter as practicable.
(e) The Contractor shall have a representative at the Work Site at all times
during performance of the Work authorized to receive orders from the Engineer.
ARTICLE 8.02 APPROVALS BY ENGINEER: NO LIABILITY
Any review, acceptance or approval by the Engineer shall be construed merely to
mean that the Engineer was unaware of any reason, at that time, to object
thereto. No such approval by the Engineer of any modification sample, , Schedule
Document, substitution, drawing or other matter shall impose any liability upon
the Authority or Contracting Party, nor shall any such approval change any of
the requirements of the Contract Documents or relieve the Contractor of any
responsibilities under the Contract, including without limitation, the accuracy
of drawing on any obligation under any warranty provision.
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CONTRACT TERMS AND CONDITIONS
ARTICLE 8.03 DISPUTES RESOLUTION PROCEDURE
(a) The provisions of this Article shall constitute the Contractor's sole means
for challenging any determination, order or other action of the Engineer
pursuant to Articles 8.01 or 8.02, or otherwise asserting against the
Contracting Party or Authority any claim of whatever nature arising under, or in
any way relating to, this Contract (any such challenge or assertion by the
Contractor shall be herein referred to as a "Dispute"). Exhaustion of these
dispute resolution procedures including the judicial review set forth in Article
8.06 shall be the parties' sole remedy in connection with any Dispute.
(b) The parties to this Contract hereby authorize and agree to the resolution of
all Disputes arising out of, under, or in connection with, the Contract in
accordance with the following and pursuant to the procedures set forth in
paragraph (c) hereof:
(1) With respect to any Dispute which relates in whole or primary part to
technical issue(s) under the Contract including, without limitation,
determinations as to the acceptability or fitness of any work, the
meaning or interpretation of the Specifications or Contract Drawings,
the question of whether Disputed Work falls within the scope of the
Specifications, the acceptability of any proposed substitutions,
modifications or other submission under the Contract, the disapproval
of proposed Subcontractors or- Suppliers (to the extent such
disapproval is related to technical issues), the determination of
Excusable Delay to the extent the delay claim is related to a
technical matter, the question of whether Beneficial Use, Substantial
Completion or Final Completion has been achieved, or the nature and
extent of any Remaining Work, the parties hereby authorize the Chief
Engineer of the Authority (the "Chief Engineer"), acting personally,
to render a final and binding decision.
(2) With respect to any Dispute other than those specified in
sub-paragraph (1) hereof, except where the parties agree to elect
resolution thereof by the Chief Engineer, the parties hereby authorize
the Authority's Contractual Disputes Review Board (CDRB) to render a
final and binding decision in accordance with the "Guidelines for the
Submission of Disputes to the CDRB" which are available from the
Contract Manager and incorporated herein by reference. It is
understood and agreed that the composition of the CDRB shall be
comprised of officers and employees of MTA, and/or its respective
affiliate agencies, but excluding for purposes of disputes arising
from NYCTA contracts, participants from the Authority. The parties
further agree that the above-mentioned Guidelines may be subject to
periodic amendment by the Authority; however such amendment would not
alter any substantive or due process rights accorded the Contractor
under this Article.
(c) All Disputes shall be initiated through a written submission by either party
(such submission to be hereinafter referred to as the "Dispute Notice"), to the
Chief Engineer or the CDRB, as the case may be (hereinafter jointly referred to
as "the Arbiter"), within the time specified in the Contract or, if no time is
specified, within ten (10) days of the determination which is the subject of the
Dispute. Within ten (10) days after the submission of such
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CONTRACT TERMS AND CONDITIONS
Dispute Notice, the party initiating the Dispute must provide the Arbiter with
all evidence and other pertinent information in support of the party's position
and/or claim. Within thirty (30) days from the-date of the Dispute Notice, the
party against whom the Dispute Notice was filed shall submit any and all
materials which it deems pertinent to the Arbiter. Upon submission of a Dispute
Notice to the CDRB, either party may request that the CDRB provide informal
non-binding mediation in an effort to reach a settlement of the dispute. If
requested, the CDRB shall appoint a mediator to meet with the parties in
accordance with the "Guidelines for the Submission of Disputes to the CDRB".
Each party agrees to participate in mediation at the request of the other. If
mediation is unsuccessful or is not undertaken, the Arbiter shall render its
decision in writing and deliver a copy of same to the parties within a
reasonable time not to exceed sixty (60) days after the receipt of all
materials. In rendering such decision, the Arbiter may seek such technical or
other, expertise as it shall deem necessary or appropriate (notifying both
parties to the dispute when he so seeks such other information or expertise) and
seek any such additional oral and/or written argument or materials from either
or both parties to the dispute as it deems fit. The Arbiter shall have the
discretion to extend the time for submittals required hereunder.
The Arbiter's ability to render and the effect of a decision hereunder
shall not be impaired or waived by any negotiations or settlement offers in
connection with the matter presented, whether or not the Arbiter participated
therein, or by any prior decision of others, or by any termination or
cancellation of this Contract. The decision of the Arbiter shall be final and
binding on both parties.
(d) In the event that a dispute is submitted to the CDRB pursuant to
sub-paragraph (b)(2) hereof and the party against whom the Dispute Notice was
filed asserts that such dispute is properly within the domain of the Chief
Engineer as defined in sub-paragraph (b)(1), that party shall file with the CDRB
a notice as to its position in this regard within the time otherwise permitted
for its submission of all materials pursuant to paragraph (c). The filing of
such a notice shall stay all further proceedings with respect to the Dispute,
including the submission of materials, pending disposition of such question by
the CDRB. The CDRB may request such material(s) and/or argument(s) as it deems
appropriate in connection with such question and shall render its decision
within ten (10) days of its receipt of all such material(s) and/or argument(s).
The party against whom the Dispute Notice was filed shall, within ten (10) days
of such decision, thereupon submit any and all materials which it deems
pertinent with respect to the substance of the Dispute to the Arbiter as thus
determined. Notwithstanding anything to the contrary contained in Article 8.06
hereof, any determination of the CDRB pursuant to this paragraph (d) shall be
absolute and conclusive upon both parties and subject to no further review of
any nature, whether in the form of an Article 78 proceeding or otherwise.
(e) It is expressly understood and agreed that the pendency of a Dispute
hereunder shall at no time and in no respect constitute a basis for any
modification, limitation or suspension of Contractor's obligation to fully
perform in accordance with the Contract and that Contractor shall remain fully
obligated to perform the Work notwithstanding the existence of any such Dispute.
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CONTRACT TERMS AND CONDITIONS
ARTICLE 8.04. ADDITIONAL PROVISION RELATING TO THE PROSECUTION OF CLAIMS FOR
MONEY DAMAGES
Except as otherwise provided in the Contract, if the Contractor claims or
intends to claim compensation for any damage or loss sustained by reason of any
act, neglect, fault or default of the Contracting Party or the Authority, the
Contractor shall furnish a written notice to the Engineer setting forth the
nature of the claim and the extent of the damage sustained within seven (7) days
of the incurrence of such loss or damages. This written notice shall constitute
the Contractor's submission to the Engineer for the purposes of requesting the
Engineer's determination in accordance with Article 8.01 above. Any such claim
shall state as fully as then possible all information relating thereto and shall
be supported by any then available documentation, including daily records
showing all costs incurred. Such information shall be supplemented with any and
all further information, including information relating to the quantum of losses
or damages sustained, as soon as practicable after it becomes or reasonably
should become known to the Contractor.
Any claim for compensation or monetary damages, the successful prosecution
of which necessarily depends upon a technical determination favorable to the
Contractor, may not proceed unless and until the Contractor first obtains such a
favorable determination with respect to the technical issue and must be made
within five (5) days of such determination; notwithstanding the foregoing,
Contractor must submit to the Engineer any documentation or proof in support of
the monetary claim within seven (7) days of the incurrence of such loss or
damage as otherwise set forth above in order to proceed with such a claim.
Compliance with the provisions hereof shall constitute a condition to the
Contractor's submission of a Dispute pursuant to Article 8.03(b)(2) with respect
to any claim for compensation and the Contractor shall be deemed to have waived
any claim not submitted in accordance herewith.
ARTICLE 8.05 STATUTE OF LIMITATIONS ON RIGHT TO SUE AUTHORITY OR
CONTRACTING PARTY
(a) No action shall lie or be maintained by the Contractor against the
Contracting Party or the Authority upon any claim arising out of or based upon
this Contract or by reason of any act or omission or requirement of the
Contracting Party or the Authority or their agents, unless such action shall be
commenced within six (6) months after the date of issuance of the Final Payment
Certificate mentioned in ARTICLE 3.07, or upon any claim relating to
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monies required to be retained for any period after the issuance of the said
certificate, unless such action is commenced within six months after such monies
become due and payable under the terms of the Contract, or, if this Contract is
terminated or declared abandoned under the provisions of this Contract unless
such action is commenced within six (6) months after the date of such
termination or declaration of abandonment by the Authority. No additional time
shall be allowed to begin anew any other action if an action commenced with the
time herein limited be dismissed or discontinued, notwithstanding any provision
in the Civil Practice Law and Rules to the contrary. Nothing contained herein
shall be deemed to waive, limit or modify the obligations of the Contractor
under this Chapter with respect to the resolution of disputes.
(b) Notwithstanding anything to the contrary contained herein, any proceeding
initiated by the Contractor pursuant to Article 8.06, whether in a state of
federal court, must be commenced within four (4) months of the issuance of the
final determination of the Arbiter.
ARTICLE 8.06 CHOICE OF LAW, CONSENT TO JURISDICTION AND VENUE
Any final determination of the Arbiter with respect to a Dispute initiated
pursuant to Article 8.03 shall be subject to review solely in the form of a
challenge following the decision by the Arbiter, in a Court of competent
jurisdiction of the State of New York, County of Kings or New York, under
Article 78 of the New York Civil Practice Law and Rules or a United States Court
located in New York City, under the procedures and laws applicable in that
court, it being understood the review of the Court shall be limited to the
question of whether or not the Arbiter's determination is arbitrary, capricious
or lacks a rational basis. No evidence or information shall be introduced or
relied upon in such proceeding which has not been duly presented to the Arbiter
in accordance with said Article 8.03.
This Contract shall be deemed to be executed in the City of New York, State
of New York, regardless of the domicile of the Contractor, and shall be governed
by and construed in accordance with the laws of the State of New York.
To effect this agreement and intent the Contractor agrees:
(a) If the Contracting Party or the Authority initiate any action against the
Contractor in Federal Court or in New York State Court, service of process may
be made on the Contractor either in person, wherever such Contractor may be
found, or by registered mail addressed to the Contractor at its address as set
forth in this Contract, or to such other address as the Contractor may provide
to the Authority in writing.
(b) With respect to any action between the Contracting Party or the Authority,
and the Contractor in New York State Court, the Contractor hereby expressly
waives and relinquishes any rights it might otherwise have (i) to move to
dismiss on grounds of forum non conveniens, (ii) to remove to Federal Court; and
(iii) to move for a change of venue to a New York State Court outside Kings or
New York County.
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CONTRACT TERMS AND CONDITIONS
(c) With respect to any action between the Contracting Party or the Authority
and the Contractor in Federal Court located in New York City, the Contractor
expressly waives and relinquishes any right it might otherwise have to move to
transfer the action to a United States Court outside the City of New York.
(d) If the Contractor commences any action against the Contracting Party and/or
the Authority in a court located other than in the City and State of New York,
upon request of the Authority, the Contractor shall either consent to a transfer
of the action to a court of competent jurisdiction located in the City and State
of New York as above described or, if the court where the action is, initially
brought will not or cannot transfer the action the Contractor shall consent to
dismiss such action without prejudice and may thereafter reinstitute the action
in a court of competent jurisdiction in New York City as above described.
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CONTRACT TERMS AND CONDITIONS
CHAPTER 9
INSPECTION, TESTING AND GUARANTEES
ARTICLE 9.01 INSPECTION
(a) At all times during the Contract, the Engineer shall have the right to make
the most thorough and minute inspection of the Work, including materials and
their manufacture or preparation, and to draw the attention of the Contractor to
all defects in workmanship or materials or other errors or variations from the
Contract requirements.
(b) The right of inspection by the Authority herein provided is intended solely
for the benefit of the Authority. Neither the right of inspection nor any
failure to draw attention to or point out such defects, errors or variations
shall give the Contractor any right or claim against the Contracting Party or
Authority or shall in any way relieve the Contractor from its obligations under
the terms of the Contract.
(c) If the Work or any part thereof shall be found defective, the Contractor
shall without cost to the Authority forthwith remedy such defect in a manner to
comply with the Contract.
(d) The Contractor shall at all times provide the Engineer and. his designated
representatives all facilities necessary, convenient or desirable for inspecting
the Work. The Engineer and any designated representative shall be admitted any
time without delay to any part of the Project and shall be permitted to inspect
materials at any place or stage of their manufacture, preparation, shipment or
delivery.
(e) Any inspection hereunder shall not unreasonably disrupt the Contractor's
performance of the Work.
ARTICLE 9.02 UNCOVERING FINISHED WORK
The Engineer's right to make inspections shall include the right to order
the Contractor to uncover or take down portions of finished work. Should the
work thus exposed or examined prove to be in accordance with the Contract, the
uncovering or taking down and the replacing and the restoration of the parts
removed will be treated as Extra Work for purpose of computing additional
compensation and an extension of time: but should the work exposed or examined
prove unsatisfactory, such uncovering, taking down, replacing and restoration
shall be at the expense of the Contractor. Such expenses shall also include
repayment to the Authority for any and all expenses or costs incurred by it,
including employees' salaries or otherwise, in connection with such uncovering,
taking down, replacing and restoration.
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CONTRACT TERMS AND CONDITIONS
ARTICLE 9.03 TESTS
(a) All tests required to be performed by Contractor shall be done as set forth
in the Specifications and shall be made at the expense of the Contractor.
(b) The Engineer shall be apprised of all -such tests in advance to be able to
witness any such tests.
ARTICLE 9.04 [Not Used]
ARTICLE 9.05 [Not Used]
ARTICLE 9.06 [Not Used]
ARTICLE 9.07 WARRANTY OF CONSTRUCTION
(a) For a period of one year from the date of Substantial Completion, the
Contractor warrants that the Work conforms to the Contract requirements and is
free of any patent or latent defect of the material or workmanship. Nothing in
the above intends or implies that this warranty shall apply to work which has
been abused or neglected by the Authority or the user of the structure upon
which the work is performed.
(b) Notwithstanding the foregoing, if the Special Conditions provide for
Beneficial Use, the Contractor's warranty on that part of the Work for which a
Beneficial Use Certification has been issued shall begin on the date of such
certification.
(c) The warranty hereunder shall be in addition to whatever rights the Authority
may have under law. The Contractor's obligation under this warranty shall be, at
its own cost and expense, promptly to repair or replace (including cost of
removal and installation), that item (or part or component thereof) which proves
defective or fails to comply with the Contract Documents within the warranty
period such that it complies with the Contract Documents.
(d) In case the Contractor shall fail to repair or replace defective work in
accordance with the terms of this warranty or if immediate repair or replacement
of defective work is necessary, the Authority shall have the right to cause such
repair or replacement to be made at the expense of the Contractor. All such work
performed by Authority employees shall be charged to the Contractor in
accordance with the Authority's "Schedule of Rates For Services Rendered To
Outside Parties" in effect at the time the repair or replacement is made.
(e) The warranty covering any defective work shall be reinstated for a period of
one year effective as of the date when the defect is remedied. If the defect is
found to have a significant Effect on any other part, component or item, the
reinstatement of the warranty shall then be extended to cover the part,
component or item so affected as well, and shall start as of the date the
interrelated parts, components and items function properly. The warranty
reinstatement provided for in this subparagraph shall apply only to the first
replacement or repair of any such item, part and component and, in the case of
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CONTRACT TERMS AND CONDITIONS
a failure which has a significant effect on another part, component or item, to
the first extension of the said warranty to such affected items, parts and
components.
(f) All guarantees and warranties under this Contract are fully enforceable by
the Authority acting in its own name.
ARTICLE 9.08 SPECIFIC GUARANTEES
Any additional guarantees and warranties required under the Contract are
set forth in the Special Conditions.
ARTICLE 9.09 MANUFACTURER'S WARRANTIES AND GUARANTEES
The Contractor shall obtain all manufacturers' warranties and guarantees of
all equipment and materials required by this Contract in the names of the
Authority and the Contracting Party and shall deliver same to the Authority;
provided that the delivery of such manufacturers' warranties and guarantees
shall in no respect relieve the Contractor of its obligation under the preceding
provisions of this Chapter.
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CONTRACT TERMS AND CONDITIONS
CHAPTER 10
MISCELLANEOUS PROVISIONS
ARTICLE 10.01 OPPORTUNITIES FOR MINORITY AND WOMEN-OWNED BUSINESS ENTERPRISES
This Contract is subject to Article 15-A of the New York
Executive Law (Section 310 et seq.), enacted under Chapter 261, Section 63 of
the Laws of 1988. In enacting said Article 15A, it was declared that it has been
and remains the policy of the State of New York to promote equal opportunity in
employement for all persons, without discrimination on account of race, creed,
color, national origin, sex, age, disability or marital status, to promote
equality of economic opportunity for minority group members and women, and
business enterprises owned by them, and to eradicate through effective programs
the barriers that have unreasonably impaired access by minority and women-owned
business enterprises to state contracting opportunities. The requirements of
said Article 15-A applicable to the Contract are set forth in Paragraph 19 of
the Information for Bidders and in Paragraph 9 of the Bidder's Proposal.
ARTICLE 10.02 NEW YORK STATE LABOR LAW
(a) Contractor agrees that it will cause all persons employed upon the work,
including its subcontractors, agents, officers and employees, to comply with all
applicable laws in the jurisdiction in which the work is performed. It further
agrees to comply with the requirements of the State Labor Law. More
particularly, if any part of the work falls within the purview of the State
Labor Law, the Contractor agrees as to such part of the work to comply
therewith, including Sections 220, 220-a, 220-b, 220-d, 222-a and 223 thereof,
as amended and supplemented. In conformity with such sections of the Labor Law,
the Contractor agrees and stipulates that no laborer, worker, or mechanic in the
employ of the Contractor, subcontractor or other person doing or contracting to
do the whole or a part of the work shall be permitted or required to work more
than eight hours in any one calendar day, nor more than five days in any one
week, except in cases of extraordinary emergency as defined in Section 220 of
the Labor Law; and further that the wages to be paid for a legal day's work (as
defined in Section 220) to all classes of such laborers, worker or mechanics
upon the work or upon any material to be used upon or in connection therewith
shall be not less than the prevailing rate for a day's work (as defined in
Section 220) and shall be paid in cash provided, however, that an employer may
pay his employees by check after complying with the procedures prescribed in
Section 220; and that each laborer, worker or mechanic employed by the
Contractor or by any subcontractor or other person on, about, or upon the work
shall receive the wages and supplements provided for in said Section 220 of the
Labor law.
(b) The Contractor agrees to comply with the requirements of Section 222-a of
the Labor Law, as amended and supplemented. The Contractor agrees that, where
work is performed wherein a harmful dust hazard is created for
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which appliances or methods for the elimination of harmful dust have been
approved by the board of standards and appeals, the Contractor shall install,
maintain, and effectively operate such appliances and methods. The Contractor
further agrees that, if the provisions of Section 222-a, as amended and
supplemented, are not complied with, the Contract shall be void.
(c) The schedule of wages and supplements required to be filed with the
Authority by the New York City Comptroller prior to advertisement of this
Contract in accordance with Section 220 (3) of the Labor Law is annexed hereto
in the Appendix to this Contract and is hereby incorporated herein. The
Contractor shall be fully responsible in connection with any changes or
modifications in such rates or supplements, whether mandated by statute,
judicial determination, .union contracts, or otherwise, and in no event will the
Contractor be entitled to additional compensation with respect to any such
increases in wages and supplements which may go into effect during the life of
this Contract. Where there are differences in City, State and Federal wage
rates for a particular classification of work, they shall be resolved by
applying the higher rates.
The Contractor and every Subcontractor hereunder shall post in a
prominent and accessible place on the site of the Work a legible statement of
all wage rates and supplements as specified in the contract to be paid for the
various classes of mechanics, worker, or laborers employed on the Work.
(d) Before any payments will be made under this contract, the Contractor and all
Subcontractors performing any part of the work shall file in the office of the
Chief Fiscal Officer of the Contracting Party verified statements provided for
in Section 220-a of the Labor Law, certifying to the amounts then due and owing
from the Contractor and subcontractors for daily or weekly wages or supplements
on account of labor performed upon the work under this Contract, and setting
forth therein the names of the persons whose wages or supplements are unpaid and
the amount due to each respectively. The Contractor shall set forth in his
statement the names of all its Subcontractors and each Subcontractor shall
likewise in his statement set forth names of its Subcontractors. If the
Contractor or Subcontractor has no subcontractor, it shall so state in his
statement. If there be nothing due and owing to any laborer for daily or weekly
wages or supplements on account of labor performed, verified statements to that
effect shall be filed by the Contractor and all Subcontractors before any
payments are made under this Contract. The statements required shall be verified
by the oath of the contractor or subcontractor as the case may be that it has
read such statement subscribed by it and knows the contents thereof, arid that
the same is true of its own knowledge.
The Chief Fiscal Officer may deduct, from any amount certified
under this contract to be due to the Contractor, the sum or sums admitted in the
aforesaid statements to be due and owing on account of the aforesaid daily or
weekly wages or supplements, as provided in Section 220-b of the Labor Law.
(e) If this Contract shall fall within the purview of the provisions of Chapter
615 of the Laws of 1922, known as the Workers' Compensation Law, and acts
amendatory thereof, it shall be void arid of no effect unless the person or
corporation making or performing the same shall secure compensation for the
benefit of, and keep insured during the life of this contract the employees
engaged thereon, in compliance with the provisions of said Law.
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(f) The Contractor shall keep a record card of every employee
engaged in the performance of the work under this Contract whether employed by
the Contractor or by a Subcontractor, on which shall be given:
Contract...............................................................
Project and Location ..................................................
Payroll or
Employee's Name ....................................Badge No...........
Employee's Address ....................................................
Title of position ..................................Hourly Wage........
Classification .....................................Fringe Benefits....
(Journeyman, Reg. Apprentice, Etc.)
Resided in N.Y. State since.............................................
Where born..............................................................
Naturalized.............................................................
(Date) (Court) (Location)
Employed by.............................................................
(To be signed by Contractor's representative)
Said cards shall be kept in the office of the Contractor and
shall be available for inspection by duly authorized representatives of the
Authority during business hours of the day. If required, the Contractor shall
file with the Authority the above information on duplicate cards to be furnished
by the Contractor.
The Contractor shall also submit to the Authority the completed weekly
payroll report forms issued by the office of the Comptroller and furnished by
the Authority. However, on Federally funded projects or where the Contractor
produces a computerized payroll printout, the Contractor may, with the
permission of the Authority, submit the same payroll information on Federal
regulation forms or copies of his computerized payroll in lieu of the payroll
report forms issued by the Comptroller.
ARTICLE 10.03 EQUAL OPPORTUNITY FOR MINORITY GROUP MEMBERS AND WOMEN
(a) The Contractor will not discriminate against employees or
applicants for employment because of race, creed, color, national origin, sex,
age, disability or marital status, and will undertake or continue existing
programs of affirmative action to ensure that minority group members and women
are afforded equal employment opportunities without discrimination. For purposes
of this Article affirmative action shall mean recruitment, employment, job
assignment, promotion, upgradings, demotion, transfer, layoff, or termination
and rates of pay or other form of compensation.
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(b) At the request of the Authority, the Contractor shall request
each employment agency, labor union, or authorized representative of workers
with which it has a collective bargaining or other agreement or understanding to
furnish a written statement that such employment agency, labor union or
representative will not discriminate on the basis of race, creed, color,
national origin, sex, age, disability or marital status and that such union or
representative will affirmatively cooperate in the implementation of the
Contractor's obligations herein.
(c) The Contractor shall state, in all solicitations or
advertisements for employees, that, in the performance of this Contract, all
qualified applicants will be afforded equal employment opportunities without
discrimination because of race, creed, color, national crigin, sex, age,
disability or marital status.
(d) The Contractor will include the provision of paragraphs (a),
(b) and (c), above, in every subcontract, except as provided in paragraph (f),
in such a manner that the provisions will be binding upon each subcontractor as
to work in connection with this Contract.
(e) The provisions of this Article shall not be binding upon
contractors or subcontractors in the performance of work or the provision of
services or any other activity that are unrelated, separate or distinct from
this Contract as expressed by the terms set forth herein.
(f) The requirements of this Article shall not apply to any
employment outside of New York State, or application for employment outside New
York State or solicitations or advertisements therefor, or any existing programs
of affirmative action regarding employment outside New York State.
ARTICLE 10.04 CONTRACT DOCUMENTS CONTAIN ALL TERMS -
These Contract Documents contain all the terms and conditions
agreed upon by the parties hereto, and no other agreement, oral or otherwise,
regarding the subject matter of this Contract shall be deemed to exist or to
bind any of the parties hereto, or to vary any of the terms contained herein.
ARTICLE 10.05 ALL LEGAL PROVISIONS INCLUDED
It is the intent of the parties that each and every provision of
law required to be inserted in this Contract should be and is inserted herein.
Every such provision is to be deemed to be inserted herein, and if any such
provision is not inserted or is not inserted in correct form, then this contract
shall be deemed amended by such insertion so as to comply strictly with the law
and without prejudice to the rights of either party hereunder.
ARTICLE 10.06 SEVERABILITY
If this Contract contains any provision found to be unlawful, the
same shall be deemed to be of no effect and shall be deemed stricken from the
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Contract without affecting the binding force of the Contract as it shall remain
after omitting such provision.
ARTICLE 10.07 ANTITRUST ASSIGNMENT
The Contractor hereby assigns, sells and transfers to the
Contracting Party all right, title and interest in and to any claims and causes
of action arising under the antitrust laws of New York State or. of the United
States relating to the particular goods or services purchased or procured by the
Authority under this Contract.
ARTICLE 10.08 PATENTS, COPYRIGHTS AND INFRINGEMENT CLAIMS
(a) All inventions, ideas, designs and methods contained in the Contract
Documents in which the Authority has, or acquires patent, copyright or other
related intellectual property rights (hereinafter referred to as patents or
patentable subject matter) shall remain reserved for the exclusive use of the
Authority and may not be utilized, reproduced or distributed by or on behalf of
the Contractor, or any employee, subcontractor or agent without the written
consent of the Authority except to the extent necessarily required in connection
with performance of the Work.
(b) If, pursuant to performance of the Work, the Contractor or any of its
agents, officers, employees or subcontractors shall produce any patentable
subject matter, the Authority, the Contracting Party and their respective
subsidiaries shall thereupon have, without cost or expense, an irrevocable,
non-exclusive, royalty-free license to make, have made or use, either themselves
or by another contractor or other party on their behalf, such subject matter in
connection with any work or any activity now or hereafter undertaken by or on
behalf of the Authority, the Contracting Party or any of their respective
subsidiaries. The license herein granted shall not be transferrable and shall
not extend to contractors or other parties except to the extent of their work or
activity on behalf of the. Authority, the Contracting Party or their
subsidiaries.
(c) All drawings, parts lists, data, and other papers of any type whatsoever,
whether in the form of writing, figures or delineations, which have been or may
be received from the Contractor at any time either prior or subsequent to
execution of the Contract and which are prepared in connection with the Contract
and submitted to the Authority shall become the property of the Authority.
Except to the extent that rights are held by Contractor or others under existing
valid patents and are not given to the Authority, the Authority shall have the
right to use or permit the use of all such drawings, data, and other papers, and
also any oral information of any nature whatsoever received by the Authority,
and any ideas or methods represented by such papers and information, for any
purposes and at any time without other compensation than that specifically
provided herein, and no such papers or information shall be deemed to have been
given in confidence and any statement or legend to the contrary on any of said
drawings, data, or other papers shall be void and of no effect.
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(d) The Contractor shall be liable and responsible for any claims made against
the Indemnified Parties for any infringements of patents by the use or supplying
of patented tools, articles, appliances, structures, materials, devices,
applications, methods, ways, processes or any other patent in the performance or
completion of the Work or by the use of any process or method connected with the
Work or by the use of any materials used upon the Work, except to the extent
that a claim results from the Contractor's use of a material or
product specifically required by the Authority in the Specifications. The
Contractor shall save harmless and indemnify the Indemnified Parties from and
against all costs, expenses and damages which any of them shall incur or be
obligated to pay by reason of any such infringement or claim of infringement,
and shall, at the election of the Authority, defend at the Contractor's sole
expense all such claims in connection faith any alleged infringement.
(e) If the Authority be enjoined from using-any portion of the Work as to which
the Contractor is to indemnify the Authority against patent claims, the
Authority may at its option and without thereby limiting any other right it may
have hereunder or at law or in equity, require the Contractor to supply at its
own expense, temporarily or permanently, facilities not subject to such
injunction and not infringing any patent and if the Contractor shall fail to do
so, the Contractor shall, at its expense, remove such offending facilities and
refund the cost thereof to the Authority or take such steps as may be necessary
to ensure compliance by the Authority with such injunction, to the satisfaction
of the Authority.
(f) The Contractor is responsible to determine whether a prospective Supplier or
Subcontractor is a party to any litigation involving patent infringement,
trademark, antitrust or other trade regulation claims or is subject to any
injunction which may prohibit it under certain circumstances from selling
equipment to be used or installed under this Contract. The Contractor enters
into any agreement with a party to such litigation at his own risk and the
Contracting Party and the Authority will not undertake to determine the merits
of such litigation. The Contracting Party and the Authority, however, reserve
the right to reject any article which is the subject of such litigation or
injunction when in their judgment use of such article as a result of such
circumstances would delay the Work or be unlawful.
ARTICLE 10.09 RELATIONSHIP BETWEEN CONTRACTING PARTY OR AUTHORITY AND OTHERS
Nothing contained herein shall be deemed to give any third party
claim or cause of action against the Contracting Party or Authority beyond such
as may otherwise exist without regard to this Contract.
ARTICLE 10.10 AUDIT AND INSPECTION
The Contractor shall permit authorized representatives of the
Authority, Contracting Party, Government, State or City to inspect and review
all of Contractor's work, materials, payrolls, records of personnel, invoices of
materials and other relevant construction, equipment, data and records, and to
audit the books and records pertaining to the Project or Contract.
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ARTICLE 10.11 INDEPENDENT CONTRACTOR
The Contractor agrees that, in accordance with its status as an
independent contractor, it will conduct itself with such status, that it will
neither hold itself out as nor claim to be an officer or employee of the
Authority, Contracting Party, State or City, by reason hereof, and that it will
not by reason hereof make any claim, demand or application to or for any right
or privilege applicable to an officer or employee of the Authority, Contracting
Party, State or City, including, but not limited to, Worker's Compensation
coverage, Unemployment Insurance benefits, Social Security coverage or
Retirement membership or credit.
ARTICLE 10.12 GENERAL REPRESENTATIONS AND WARRANTIES
In order to induce the Authority to enter into and perform this
Contract, Contractor represents and warrants to the Authority
that:
A. Existence; Compliance with Law. The Contractor (i) is duly
incorporated, organized, validly existing and in good
standing as a corporation under the laws of the jurisdiction
of its incorporation and is duly qualified and in good
standing under the laws of each jurisdiction where its
ownership, lease, or operation of property in the conduct of
its property or business requires, and (ii) has the power and
authority and the legal right to conduct the business in
which it is currently engaged and to enter into this
Contract.
B. Authority. The Contractor has full power, authority and legal
right to execute, deliver and perform the Contract to which
it is a party. The Contractor has taken all necessary action
to authorize the execution, delivery and performance of the
Contract.
C. No Legal Bar. The execution, delivery and performance of the
Contract do not and will not violate any provision of any
existing law, regulation, or of any order, judgment, award or
decree of any court or government or of the charter or
by-laws of the Contractor or of any mortgage, indenture,
lease, contract, or other agreement or undertaking to which
the Contractor is a party or by which the Contractor or any
of its properties or assets may be bound, and will not result
in the creation or imposition of any lien on any of its
respective properties or assets pursuant to the provisions of
any such mortgage, indenture, lease, contract or other
agreement or undertaking.
D. No Litigation. Except as specifically disclosed to the
Authority in writing prior to the date hereof, no claim,
litigation, investigation or proceeding of or before any
court, arbitrator or governmental authority is currently
pending nor, to the knowledge of the Contractor, is any
claim, litigation or proceeding threatening against the
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Contractor or against its properties or revenues (i) which
involves a claim of defective design or workmanship in
connection with any contract entered into by the Contractor
or (ii) which, if adversely determined, would have an adverse
effect on the business, operations, property or financial or
other condition of the Contractor. For purposes of this
paragraph, a claim, litigation, investigation or proceeding
may be deemed disclosed to the Authority if the Authority has
received, prior to the date hereof, detailed information
concerning the nature of the matter involved, the relief
requested, and a description of the intention of the
Contractor to controvert or respond to such matter.
E. No Default. The Contractor is not in default in any respect
in the payment or performance of any of its obligations or in
the performance of any mortgage, indenture, lease, contract
or other agreement or undertaking to which it is a party or
by which it or any of its properties or assets may be bound,
and no such default or Event of Default (as defined in any
such mortgage, indenture, lease, contract, or other agreement
or undertaking) has occurred and is continuing or would occur
solely as a result of the execution and performance of this
Contract. The Contractor is not in default under any order,
award, or decree of any court, arbitrator, or government
binding upon or affecting it or by which any of its
properties or assets may be bound or affected, and no such
order, award or decree would affect the ability of the
Contractor to carry on its business as presently conducted or
the ability of the Contractor to perform its obligations
under this Contract or any of the other financing to which it
is a party.
F. No Inducement or Gratuities.
(1) Contractor warrants that no person or selling agency has
been employed or retained to solicit or secure this Contract
upon any agreement or understanding for a commission,
percentage, brokerage, or contingent fee, excepting bona fide
employees or bona fide established commercial or selling
agencies maintained by Contractor for the purpose of securing
business.
(2) Additionally, Contractor warrants that no gratuities or
other inducements have been offered or given or will be
offered or given (in the form of entertainment, gifts, offers
of employment, or any other thing of value) to any official
or employee of the Authority. The Contractor further warrants
that during the term of the contract it shall not make any
offers of employment to any Authority employee, or solicit or
interview therefor, without obtaining the written approval of
the employee's Department Head.
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(3) For breach or violation of the foregoing warranties, the
Authority shall have the right to cancel the Contract without
liability or, at its discretion, to deduct from the Total
Contract Price or otherwise to recover the full amount of
such commission, percentage, brokerage or contingent fee, or
gratuities, and to include the occurrence of such a breach or
violation in assessments of the Contractor's responsibility
in future bids.
G. Conflict of Interest. Contractor covenants that neither it
nor any officer of the corporation or partner of the
partnership, as the case may be if Contractor be a
corporation or partnership, has any interest, nor shall it
acquire any interest, either directly or indirectly, which
would conflict in any manner or degree with the performance
of the Work hereunder. It further covenants that, in the
performance hereof, no person having such interest shall be
employed by it. It is expressly understood that breach of any
of the covenants contained in this paragraph is a material
breach hereof and shall entitle the Authority to recover
immediately damages, as well as all monies paid hereunder.
H. No Conviction or Indictment. Contractor hereby represents
that to the best of its knowledge neither it nor any of its
personnel or shareholders has been the subject of any
investigation nor has any of them been convicted or indicted
for commission of any crime. involving misconduct,
corruption, bribery, or fraud in connection with any public
contract. in the State of New York or any other jurisdiction,
except as has been specifically disclosed in writing to the
Authority, and that, should any such conviction or indictment
be obtained or any such investigation commenced prior to
the expiration of the term hereof, regardless of the date of
the occurrence giving rise to the subject matter of such
conviction, indictment or investigation, it will be disclosed
in writing to the Authority.
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CONTRACT TERMS AND
ARTICLE 10.13 PROHIBITION ON PURCHASE OF TROPICAL HARDWOODS
1. Except as hereinafter provided, New York State Finance Law
sec. 167-b, prohibits public benefit corporations (the
Authority) form requiring or permitting the use of tropical
hardwood or wood product.
2. The provisions of this Article shall not apply where the
Contracting Officer finds that:
a) no person or entity doing business in the state is
capable of performing the Contract using acceptable
non-tropical hardwood species; or
b) the restriction would violate the terms of a grant to
the Authority from the Federal Government; or
c) the use of tropical woods is deemed necessary for
purposes of historical restoration and there exists no
available acceptable non-tropical wood species.
3. As used in this Article:
a) "Non-tropical hardwood species" shall mean any and all
hardwood that grows in any geographically temperate
regions, as defined by the United States Forest Service,
and is similar to tropical hardwood in density, texture,
grain, stability or durability. Non-tropical hardwood,
the use or purchase of which is preferred under this
Article, shall include, but not be limited to the
following species:
Scientific Name Common Name
--------------- -----------
Fraxinus americana Ash
Tilia americana Basswood
Fagus grandifolia Beech
Betula papyrifera Birch
Jugians cinerea Butternut
Prunus serotina Cherry
Poulus spp. Cottonwood
Ulmus spp. Elms
Nyssa sylvatica Black gum
Liquidambar styracifula Red gum
Celtis laevigata Hackberry
Hicoria spp. Hickory
Acer spp. Maples
Quercus spp. Oaks
Hicoria spp. Pecan
Liriodendron tulipi fera Yellow poplar
Platanus occidentalis Sycamore
Juglans nigra Black Walnut
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CONTRACT TERMS AND CONDITIONS
b) "Tropical hardwood" shall mean any and all hardwood,
scientifically classified as angiosperme, that grows in
any tropical moist forest. Tropical hardwoods shall be
the following species:
Scientific Name Common Name
--------------- -----------
Vouacapous americana Acapu
Pericopsis elata Afrormosis
Shorea almon Almon
Peltogyne spp. Amaranth
Guibourtia ehie Amazaque
Aningeris spp. Aningeria
Dipterocarpus grandiflorus Apilong
Ochroma lagopus Balsa
Virola spp. Banak
Anisoptera thurifera Bella Rose
Guibourtis arnoldiana Benge
Deterium Senegalese Boire
Guibourtis demeusil Bubinga
Prioria copaifera Cativo
Antiaris africana Chenchen
Dalbergis retusa Concobola
Cordia spp. Corida
Diospyros spp. Ebony
Aucoumes Klaineana Gaboon
Chlorophors excelsa Iroko
Acacia Koa Koa
Pterygota macrocarpa Koto
Shorea negrosensis Red Lauan
Pentacme contorta White Lauan
Shores ploysprma Tanquile
Terminalia superba Limba
Aniba duckel Louro
Kyaya ivorensis Africa Mahongany
Swletenia macrophylla Amer. Mahogany
Tieghemella leckellii Makora
Distemonanthus benthamianus Movinqui
Pterocarpus soyauxii African Padauk
Pterocarpus angolensis Angola Padauk
Aspidosperma spp. Peroba
Peltogyne spp. Purpleheart
Gonystylus spp. Ramin
Dalbergia spp. Rosewood
Entandrophragma cylindricum Sapela
Shores philippinensis Sonora
Tectona grandis Teak
Lovoa trichilloides Tigerwood
Milletia laurentii Wenge
Microberlinea brazzvillensis Zebrawood
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c) "Tropical, rainforests" shall mean any and all forests
classified by the scientific term "Tropical moist
forests", the classification determined by the
equatorial region of the forest and average rainfall.
d) "Tropical wood products" shall mean any wood products,
wholesale or retail, in any form, including but not
limited to veneer, furniture, cabinets, paneling
mouldings, doorskins, joinery, or sawnwood, which are
composed of tropical hardwood except plywood.
ARTICLE 10.14 OMNIBUS PROCUREMENT ACT OF 1992
In compliance with the New York State Omnibus Procurement Act
of 1992, if the Gross Sum Bid or the Lump Sum enumerated in the
Bidder's Proposal is equal to or greater than one million dollars,
the following paragraphs shall apply to this Contract:
A. The Contractor shall document its efforts to encourage the
participation of New York State business enterprises as
suppliers and subcontractors for this Contract, as required
by Paragraph 24.(b) of the Information For Bidders.
Documented efforts by the Contractor shall consist of and be
limited to showing that the Contractor has:
1. solicited bids, in a timely and adequate manner, from New
York State business enterprises including certified
minority and women-owned business, or
2. contacted the New York State Department of Economic
Development to obtain listings of New York State business
enterprises, or
3. placed notices for subcontractors and suppliers in
newspapers, journals and other trade publications
distributed in New York State, or
4. participated in bidder outreach conferences.
If the Contractor determines that New York State business
enterprises are not available to participate on the Contract
as subcontractors or suppliers, the Contractor shall provide
a statement indicating the method by which such determination
was made. If the Contractor does not intend to use
subcontractors on the Contract, the Contractor shall provide
a statement verifying such intent.
Such documentation shall be submitted to the Project Manager,
thirty (30) business days after the Notice of Award or with
the submission of the first invoice whichever comes first.
B. The Contractor will submit a compliance report documenting
its efforts to provide notification to New York State
residents of employment opportunities arising out of this
Contract, as required by Paragraph 24.(c) of the Information
For Bidders. Such report shall be submitted to the Project
Manager, thirty (30) business days after the Notice of Award
or with the submission of the first invoice whichever comes
first.
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ARTICLE 10.15 COMPLIANCE WITH LAWS, RULES AND REGULATIONS
The Contractor and any subcontractor must comply with all local,
State and Federal laws, rules and regulations applicable to this contract and to
the Work to be done hereunder, whether or not referenced in the Contract
Documents.
ARTICLE 10.16
The Contractor agrees to comply with the requirements of 49 CFR
Parts 40, 653 and 654, promulgated by the U.S. Department of Transportation
Federal Transit Administration to implement the Omnibus Transportation Employee
Testing Act. These regulations require that grantees of federal funds implement
a program requiring safety-sensitive (as defined in the regulations) employees,
including those of the Authority's contractors, to be subject to drug and
alcohol testing. Accordingly, in addition to performing such tests (including on
a random basis) maintaining custody and control over the results thereof and
transmitting the results thereof as required by the regulations, the Contractor
will also be required to provide information and training regarding the testing
program to all of its affected employees, including their direct supervisors,
and to certify that it has established and implemented the required program.
Compliance with the regulations shall be deemed a material obligation of the
Contractor under this Contract, and failure to comply with the regulations shall
constitute a ground for being found in default hereof.
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WHEREFORE, this Contract is executed as of the date herein above written.
HBE Acquisition Corporation
Affix Seal here: D/B/A Henry Brothers Electronics
(Contractor)
By: Irvin F. Witcosky
-------------------------------
Name: IRVIN F. WITCOSKY
-----------------------------
(Print)
Title: V.P.
----------------------------
Date: 7-14-97
----------------------------
THE METROPOLITAN TRANSPORTATION AUTHORITY
ACTING BY THE
NEW YORK CITY TRANSIT AUTHORITY
By: Judi L. Gibson 8/27/97
-------------------------------
Name: JUDI L. GIBSON
----------------------------
Title: Asst Chief Procurement Officer
APPROVED AS TO FORM
[Signature Illegible]
- ---------------------------------
Assistant General Counsel
New York City Transit Authority
Date: June 17, 1997
<PAGE>
[LETTERHEAD]
March 2, 2000
Securities and Exchange Commission
Washington, D.C.
Re: Integcom Corp (ITC) -- Registration
Statement -- Reg. No. 333-94477
Gentlemen:
Please be advised that we have read the statement under change of accountants,
and we concur with what Integcom has said in that statement.
This letter confirms that in September 1999 our firm resigned as auditors
because you had decided to pursue an initial public offering, and our firm has
had no experience in public offerings. During the period that we had been your
auditors, we have not had any disagreements on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which were not resolved to our satisfaction. None of the financial
statements that we have issued in the past three fiscal years contained an
adverse opinion, a disclaimer of opinion, a qualification or modification as to
uncertainty, audit, scope or accounting principles.
Very truly yours,
SCHWACK AND KATZ
ARTHUR A. KATZ
- --------------------------
ARTHUR A. KATZ
AAK:jk
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
INTEGCOM CORP.
We consent to the inclusion in this Registration Statement on Form SB-2
(File No. 333-94477) of our report dated February 8, 2000 on our audit of the
financial statements of InTegCom Corp. We also consent to the reference to our
firm under the headings 'Experts' and 'Selected Financial Data' in the
prospectus.
DEMETRIUS & COMPANY, LLC
Wayne, New Jersey
April 12, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
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0
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